Minimum Support Price

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• Round the year, India’s farmers produce a host of agricultural commodities such as paddy in the kharif season or wheat in the rabi season. For the most part, farmers sell their produce in the market.

About MSP

• Meaning
  • The MSP for a crop is the price at which the government is supposed to procure/buy that crop from farmers if the market price falls below it.
  • MSPs provide a floor for market prices, and ensure that farmers receive a certain “minimum” remuneration so that their costs of cultivation (and some profit) can be recovered.
• Objective
  • The government incentivises the production of certain crops, thus ensuring that India does not run out of staple food grains.
  • MSPs create the benchmark for farm prices not just in those commodities for which they are announced, but also in crops that are substitutes.
• What if the prices in the market are too low?
  • This can often happen if there is a bumper crop that season, or if the international prices of a particular commodity are quite low.
  • In such a scenario, India’s farmers, who are already some of the poorest citizens of the country, will struggle to make ends meet.
  • Apart from their individual troubles, if farmers give up farming as a result of low prices, it can even put the country’s food security at risk.
  • MSPs announced by the government each year are a way to preempt such an eventuality.
• Support prices
  • During each cropping season, the government announces minimum support prices for 23 crops.
• Crops covered
  • 7 types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
  • 5 types of pulses (chana, arhar/tur, urad, moong and masur)
  • 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower, nigerseed)
  • 4 commercial crops (cotton, sugarcane, copra, raw jute)
• Who decides what the MSP would be and how?
  • The MSPs are announced by the Union government and as such, it is the government’s decision.
  • But the government largely bases its decision on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• While recommending MSPs, the CACP looks at the following factors:
  • The demand and supply of a commodity
  • Its cost of production
  • The market price trends (both domestic and international)
  • Inter-crop price parity
  • The terms of trade between agriculture and non-agriculture (that is, the ratio of prices of farm inputs and farm outputs)
  • A minimum of 50 per cent as the margin over the cost of production.
  • The likely implications of an MSP on consumers of that product.

Source: IE