The government is all set to fix minimum support price (MSP) for paddy for the first time in nearly two decades.

Prem Kumar Rai, secretary of the Ministry of Supplies, said the ministry last week tabled a proposal to this effect at the Cabinet last week. “We have not fixed the floor price of paddy for this season and are waiting for the Cabinet’s go-ahead,” he said, adding the government would procure at least 2 percent of the total paddy production under the scheme.

The Finance Ministry recently approved the scheme, under which it has allocated Rs3 billion. 

MSP is a form of market intervention by the government to ensure that farmers get reasonable prices for their produce in the event of any sharp fall in farm prices. It is normally announced during the planting season or a month before the harvest on the basis of the recommendations of the Ministry of Agricultural Development.

The scheme gives farmers a guarantee that they will get a certain amount of money for their produce even if market prices were to fall due to bumper harvests.

“MSP is expected to be implemented after 18 years and it is aimed at protecting farmers,” said Rai.

If the market price drops below the MSP, the government will buy the farm produce at the rate fixed. Moreover, it discourages middlemen who normally determine market prices.

Presenting the budget for this fiscal year, the government had announced that it would fix reference prices, or MSP, for key agricultural products to encourage farmers.

“If the paddy price goes below the floor price in the market after the MSP implementation, the government has to arrange funds to procure paddy from farmers,” said Shankar Sapkota, assistant spokesperson for the Ministry of Agricultural Development.

He said the government should not delay fixing the MSP as any delay in doing so will result in the measure losing its significance.

In the past years, proposals to fix the MSP had been sent to the Finance Ministry, but they had been rejected. In 2012, the government had announced it would resume the policy of fixing the minimum price following complaints that middlemen had been determining the market rate.

The MSP measure is in line with the recommendation of the government and the directive of former prime minister Baburam Bhattarai.

Reports have said Nepal does not have an effective MSP to influence the supply response. India has been regularly implementing  MSP. In Nepal, MSP used to be announced for paddy and wheat until 1999, when this provision was fully abandoned, according to reports.

Even when the MSP was announced, it was not much relevant as it was set well below the projected market price to protect the government from having to buy farm products if prices should tumble.

Moreover, reports said even

when the support prices were announced, it was not done

before the beginning of the planting season so it did not affect the farmers’ production decision.