Sorry, I just copy pasted from another post of mine where we were talking about MSP.
MSP means minimum support price. Its a guarantee from the government to the farmers that the government will buy the crop at a certain minimum price no matter the market situation is. For example, MSP for 1 kg rice may be rupees 20. If the farmers can get a higher price in the market, they can sell it at that price. But if the market price fell for some reason (over production for example), government will buy it from the farmers for rupees 20. This guarantees that the farmers will not be at a lose.
MSP made sense when India had issues with rice and wheat (the video I linked talks about its origins in India at 5:00). Since MSP is guaranteed for some crops (such as rice and wheat) and not for others (such as pulses which India has to import), farmers would naturally make more of the MSP grains.
Also, do note that the farm bills doesn't remove MSP as far as I understand. One scenario farmers argue is this: Farmers get MSP when they sell in government run markets. Now, with the new system, farmers will get more money since they would be selling directly to the companies without any middlemen. If I understood correctly, the new system removes middle men (whom I have heard makes huge profit while paying very less to the farmers). Once the farmers starts selling directly since direct sale gets them more money, no one would go to the government markets any more. So, after a couple of years, government will close those markets since they are not in use. Now, corporations will start offering lower prices to farmers, and farmers will have no place to go. This is one argument I have heard of what could go wrong. But seeing all these protests, I have been thinking why can't farmers dictate the price if they have this much bargaining power.
> why can't farmers dictate the price if they have this much bargaining power.
They have political bargaining power, but don't have much bargaining power in the market. This is because most crops are perishable goods. Even with crops like rice (which can be stored by the farmers for an extended period), farmers can't afford to hold on to the goods for long... they need cash to survive.
Interesting. Is there a maximum price as well to support those who buy food? Usually when you are talking about agriculture, the big risk is in a sudden supply collapse leading to price spikes, not a sudden supply explosion leading to price drops.
MSP means minimum support price. Its a guarantee from the government to the farmers that the government will buy the crop at a certain minimum price no matter the market situation is. For example, MSP for 1 kg rice may be rupees 20. If the farmers can get a higher price in the market, they can sell it at that price. But if the market price fell for some reason (over production for example), government will buy it from the farmers for rupees 20. This guarantees that the farmers will not be at a lose.
MSP made sense when India had issues with rice and wheat (the video I linked talks about its origins in India at 5:00). Since MSP is guaranteed for some crops (such as rice and wheat) and not for others (such as pulses which India has to import), farmers would naturally make more of the MSP grains.
Also, do note that the farm bills doesn't remove MSP as far as I understand. One scenario farmers argue is this: Farmers get MSP when they sell in government run markets. Now, with the new system, farmers will get more money since they would be selling directly to the companies without any middlemen. If I understood correctly, the new system removes middle men (whom I have heard makes huge profit while paying very less to the farmers). Once the farmers starts selling directly since direct sale gets them more money, no one would go to the government markets any more. So, after a couple of years, government will close those markets since they are not in use. Now, corporations will start offering lower prices to farmers, and farmers will have no place to go. This is one argument I have heard of what could go wrong. But seeing all these protests, I have been thinking why can't farmers dictate the price if they have this much bargaining power.