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- Distorted Production – Recent trends by NSSO indicates shift in pattern of food consumption from cereals to protein rich foods, but no such remarkable shift is seen in sowing or production patterns. For e.g. India is largest producer and consumer of pulses in the world, but still 25 % of the pulses consumed are imported.
- Huge Stocks– This resulted in ‘Open ended procurement’ which means government can’t decide quantity it wants to buy. How much ever grains are offered by farmers to gov. has to purchase. So now government has huge stocks which are almost double the requirements for Buffer stock, PDS and Other government schemes such as Midday Meal Scheme.
- Out of control Inflation– As we have seen initially MSP and procurement prices were kept lower in relation to Market Prices. So lower the market prices, even lower were MSP and procurement prices. Situation now is that Market prices are dictated by MSP which remains most of the time higher. This brings market prices at least on par with MSP. Facts by surveys and analysts suggests an obvious directly proportional link between hike in MSPs and food Inflation.
- Middlemen: The other major problem with the MSP-based procurement system is the working dependence on middlemen, commission agents and red-tapism of the APMC (Agriculture Produce Marketing Committee) officials. An average farmer finds it difficult to get access to these mandis, and depends on the market to sell farm produce.
- Backwardness in Agriculture – Any industry grows when it adapts to a competitive environment. If farmers get market signals from the market about upcoming trends of demands of consumers, total supply in economy, new technologies, export opportunities or import vulnerabilities, they will find out more profitable crops, technologies and will keenly adapt. Present system creates glut in market of particular crops. It leads to intensive farming year after year, which degrades soil. Farmers rely on political pressure to remedy their problems, instead of adapting to market. This all keeps private investment away for the sector and thus contributes to backwardness in agriculture.
- Environmental harm – It degrades the soil because of irrespective of the soil condition, some crops are preferred which have MSP over them which results in exploitation of group water resources, alkanity, decrease in the production of the crops in long run and much harm to environment.