This note is important from the viewpoint of Prelims and Mains.

What is Minimum Support Price (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.

When is the MSP announced and who announces it?

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).

What is the significance of MSP?

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.

How is the MSP determined?

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

• 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.
• 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. The information/data used by the Commission, inter-alia include the following :-

• Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
• Cost of production per quintal in various regions of the country and changes therein;
• Prices of various inputs and changes therein;
• Market prices of products and changes therein;
• Prices of commodities sold by the farmers and of those purchased by them and changes therein;
• Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
• Demand related information – total and per capita consumption, trends and capacity of the processing industry;
• Prices in the international market and changes therein, demand and supply situation in the world market;
• Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
• Cost of processing of agricultural products and changes therein;
• Cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
• Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

The increase in MSP for Kharif Crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers.

What is covered by MSP?

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops are as follows.

• Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
• Pulses (5) – gram, arhar/tur, moong, urad and lentil
• Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
• Raw cotton
• Raw jute
• Copra
• De-husked coconut
• Sugarcane (Fair and remunerative price)
• Virginia flu cured (VFC) tobacco

Read a historical perspective of MSP here.

Source: Vikaspedia

Also read: https://pointias.com/2018/02/27/all-about-minimum-support-price/

Additional reading: https://www.thehindubusinessline.com/opinion/columns/all-you-wanted-to-know-about-minimum-support-prices/article8697244.ece