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HomeEconomicsMethodological Problem in Fixing Minimum Support Price (MSP) for Minor Forest Produce (MFP)

Methodological Problem in Fixing Minimum Support Price (MSP) for Minor Forest Produce (MFP)

By Dr. R.R. Prasad


Prime Minister Dr. Manmohan Singh, in his Independence Day speech last year, had announced that a scheme would be formulated to ensure fair and remunerative price to MFP gatherers. Accordingly, the Union Cabinet approved on 1st August, 2013 a centrally sponsored scheme for marketing of minor forest produce for 12 minor forest produces (MFPs) or non-timber forest produce (NTFP) through the minimum support price (MSP) route to provide a social safety net to forest dwellers The scheme, it is believed, would ensure the tribal population gets a remunerative price for the produce they collect from the forest, and would also provide alternative employment avenues to them.

The decision to introduce MSP for minor forest produce has been envisaged as an epoch making developmental initiative of the Government of India which would provide the much needed safety net and support to the millions of tribals and other traditional forest dwellers of this country whose very lifeline hinges upon dependence on non timber forest produce. This scheme is also perceived as the next MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) which has the potential to transform the lives of 100 million forest dwellers, a majority of whom are tribals and whose livelihoods depend on the collection and marketing of MFPs.

In this background, it becomes important to examine the extent to which this decision of fixing MSP for MFP would help the forest dwellers, and to discuss the factors, which would facilitate in delivery of sustained benefits to the MFP gatherers in the context of the ground realities.   

MFP in tribal economy

For numerous forest dwellers across India, particularly people from Scheduled Tribes, Minor Forest Produce (MFP) has significant economic and social value. In India, the MFPs over the years have been playing an important role in the viability and survival of tribal households because of the importance of forests in their social, cultural and economic survival. The MFP economy is fragile but supports close to 275 million people in rural India, according a World Bank estimate. These people comprise the poorest, including 54 million tribals.

The tribal economy is structured around two key elements: land and forest. This is operationalised in three different ways: by gathering of minor forest produce, by shifting agriculture, and by settled agriculture. Minor forest products (MFPs), also known as non-timber forest product (NTFPs), provide substantial income to tribal people, especially during non-agricultural season, through their collection and sales. During the season of collection, local tribals including male, female and children collect the non-timber forest product inside forest. Since the collection season is spread over the whole year for different items, the MFPs collection activities provide employment to the local tribes almost through out the year. The collection and quantity depend on the availability of NTFPs. A majority of species is available during the month of April to July. For collection of NTFPs, villagers including tribal women go deep inside the forests and cover long distances ranging from 2-5 km.

The MFP economy provides poor returns to gatherers, who have limited bargaining power, as they either participate in markets that are poorly developed or are under conditions of monopoly. Merely gathering MFPs rarely generates enough revenue to sustain the people harvesting them. Financial return to those involved in NTFP collection and primary processing is very low, leading only the poorest to be involved in collection of MFPs. Tribal communities are still largely insulated from the market signals that should influence quality and volume. MFP gatherers are not aware of the price in larger markets and may be indebted to the buyers and thus forced to sell at low prices. Moreover, gatherers are mostly poor and unable to bargain for fair prices.


Dr. T. Haque Committee on ‘Ownership, Price Fixation, Value Addition and Marketing of Minor Forest Produce’, May 2011, recommended that “While development of competitive market for MFP and capacity building of MFP gatherers through formation of self-help groups/ co-operatives and producer companies would be the key to elimination of traders’ exploitation in the long run, strategic government intervention would be necessary in the short and medium term in the form of minimum support price (MSP) for at least 14 main MFPs, namely tamarind, mahuwa flower, mahuwa seed, tendu leaf, bamboo, sal seed, myrobalan, chironji, lac, gum karaya, honey and seeds of karanja, neem and puwad”.

What is MSP?

 Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price. Such minimum support prices are fixed at incentive level, so as to induce the farmers to make capital investment for the improvement of their farm and to motivate them to adopt improved crop production technologies to step up their production and thereby their net income. In the absence of such a guaranteed price, there is a concern that farmers may shift to other crops causing shortage in these commodities.

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission for Agricultural Costs and Prices (CACP) takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities. Other Factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy. The Commission makes use of both micro-level data and aggregates at the level of district, state and the country.

Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry, cost of processing of agricultural products, cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; etc. are also factored in.

Determining MSP for MFP

The scheme of fixing MSP for MFP has been formulated to extend social safety measures for the MFP gatherers, who are primarily members of Scheduled Tribe. It seeks to establish a system to ensure fair monetary returns for their efforts in collection, primary processing, storage, packaging, transportation etc. and get them a share of revenue from the sales proceeds with cost deducted. Both these claims need to be critically examined with a view to discerning the hidden hindrances, and assess what can be truly achieved and what would turn to be a mirage.

Firstly, it is important to make a distinction between ‘fair monetary returns’ and ‘minimum support price’. If fair monetary returns are meant to give fair minimum wages to the tribals for their efforts towards collection of the MFP, it is all right. However, the issue of giving minimum support price to the forest dwellers for MFP needs to be examined from a different perspective.


MFP collectors are not the owners of the MFP

According to the existing forest law, the state is the ‘owner’ of all MFPs.1 The state may grant ‘lease rights’ or ‘usufructory rights’ of collection and possibly of transport and sale to certain individuals, organizations or state agencies. Depending largely on the commercial value of the MFPs, the state varies the extent of its direct involvement in and control of the collection, procurement and sale of the MFPs.

The most valuable MFPs are ‘nationalized; that is, the resource is treated as entirely state property and its harvesting, transport, storage and sale are carried out entirely by state agencies or are very strictly regulated. In practice, state agencies such as forest development corporations declare a state-wide procurement price, and all collectors are required to sell the produce to the state agency or its appointed agents at this price. Other commercially valuable MFPs are ‘controlled’ or ‘specified’ – that is, less stringently regulated – with extraction rights being granted to agencies or individuals in different locations or years, with no restrictions on storage, but some monitoring of transport.

Typically, the state ‘auctions’ the rights of extraction for a particular forest area. The one who wins the auction gets the sole rights of extraction for tow years in the form of a lease and pays a royalty to the state forest department. This ‘contractor’ then announces a procurement price. Actual collection may be done by local households, but they must sell the produce only to the contractor at the procurement price specified. The contractor may bring in outside wage labour to carry out the collection work.

Minimum support price is given to the primary producers. In the case of the MFP, the tribals are not the primary producers. An important feature of the tribals’ dependence on MFP is that all MFP are harvested from natural forests. By definition, MFPs are collected, not cultivated. MFPs are available to the tribesmen at the cost of labour hours put in. Hence, the economic value of the MFP is the value of labour time involved in searching, plucking, weeding or otherwise collecting from the forest and carrying the same either to their homes or to the market. Thus, no private capital is involved in exploitation of MFPs, as far as tribesmen are concerned. In this situation what will be the basis for determining and giving minimum support price to the MFP gatherers.

The methodological problem is: By what methods this labour must be valued? If we use shadow prices based on assumptions on the quality of life, the value of MFPs can be quite high. By this method, methodological problems crop up with respect to valuation of leisure, the opportunity cost of using labour time for some other purpose and so on. Thus, the use of shadow prices in determining the value of MFP is erroneous and different persons can come to widely varying results. If on the other hand, market valuation principles are employed and MFPs are valued at the price they command at say the weekly markets, the price of MFPs can be quite low. It is thus clear that the scheme of giving MSP to MFP has not been planned pragmatically and its stipulations are not entirely true.

Marketing efficiency constrains affecting the livelihoods of communities. A market is said to be efficient when the gatherer’s share is high and involves less marketing costs. But in case of MFPs, it has been observed that the collectors’ share is low while the margin of intermediaries and marketing costs are high.

Secondly, giving a share of revenue to the MFP collectors from the sales proceeds with cost deducted is not a very good proposition. The PESA Act talked about providing ownership rights over minor forest produce to the Gram Sabha. Minor forest produce is now owned by forest dwellers under the Forest Rights Act, so “revenue sharing” with the Forest Department is no longer legal. The MoEF constituted an expert committee to define ownership, which recommended that “ownership means revenue from sale of usufructory rights, i.e. the right to net revenue after retaining the administrative expenses of the department, and not right to control.” It is thus evident that the MFP sector is based purely on calculations of profit and loss and is a complete abrogation of the Forest Department’s welfare obligations. The involvement of forest dwellers in MFP collection should aim at ensuring sustainable harvesting and value addition through efficient processing and marketing, but not merely maximizing revenue for the government. In such a situation, the Forest Department should bring in improvements by prevailing upon the collectors to ensure scientific methods of collection, harvesting, storage etc. in order to sustain and improve the quality of the product.


Conferring ownership rights over MFP is the key

 The problem with giving full revenue from the MFP to the forest dwellers is that it arises from a conception of the Forest Department as the owner of the forests and forest resources, from whom communities receive concessions in exchange for provision of services. This view is not even valid under the Constitution, and is a colonial relic that belongs to the British era. It can be thus argued that the idea of sharing of revenue from the MFP sales proceeds with cost deducted is not justifiable. The Forest Department should shift from seeing itself as lord and master of the forests and instead function as an agency for promoting sustainable development of the forest dwellers in general and tribals in particular. In an attempt to revolutionize the MFP based tribal economy, the best course would be make sincere efforts to confer ownership rights over the MFP to the forest dwellers so that they are not required to be content only with the minimum wages or minimum support price, and a share in the revenue from the sales proceeds with cost deducted.

The costs to be incurred in organizing collection, processing, transportation and marketing of the MFPs should be borne by the Forest Department or other govt. agencies from the funds available under the tribal sub-plan, Special Central Assistance (SCA) to Tribal Sub-Plan (TSP), and grants available under Article 275(1) of the Constitution of India.

As owners of the MFPs and managers of the MFP trade, the forest dwellers should be given the entire revenue and not a share from the sales proceeds with cost deducted by the Forest Department. Instead the full revenue should be shared by the forest dwellers among themselves through their self-help groups (SHGs) and the SHG federations. The members of the SHGs and SHG federations should be trained in scientific methods of MFP collection, processing, value addition and marketing. MFP collection can also be a powerful strategy for transforming forest dwellers into robust, autonomous people’s organizations by imparting to them a strong economic drive, and management inputs to facilitate a scale of operation required for adequate value realization and sustainable management process. The central premise is that local women and men who are dependent on forests have the greatest stake in sustainable forest management.

1. This is supposed to change under PESA, but has not yet happened.

* Professor, National Institute of Rural Development & Panchayati Raj, Hyderabad.

# Views expressed are personal.

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