Minimum Support Price, Features, Significance and Issues

Minimum Support Price

Minimum Support Price (MSP) is the minimum price at which the government buys agricultural products from farmers. It’s a government intervention to protect farmers from a sharp decline in their product prices. MSP is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers. The government buys products directly from farmers if the open market prices are less than the cost incurred. MSP offers stability and income security for farmers, especially during times of market fluctuations or distress.

Minimum Support Price Current Issues

Minimum Support Price Overview

Minimum Support Price Meaning

MSP, or Minimum Support Price, is its full name. India is an agricultural nation, so the government must give our farmers’ security top priority. The Indian government only established MSP for this reason.

Minimum Support Price was established in 1966–1967 to shield farmers from such concerns. The Indian government sets the minimum support price for 24 commodities twice a year, depending on the bumper production.

It is nothing more than the price set by the Indian government to protect farmers’ rights if prices drastically decline during a period of peak production. Minimum Support Price is a kind of guarantee price that the farmers would receive regardless of the circumstances surrounding distress sales for them to obtain the necessary food grains.

The Department of Agriculture and Cooperation under the Government of India is responsible for deciding the Minimum Support Price by the recommendations of the Commission for Agricultural Costs and Prices before the sowing season of the crops, particularly for 22 crops.

Minimum Support Price Features

Minimum Support Price Crops List

The Commission for Agricultural Costs & Prices (CACP) recommends Minimum Support Prices (MSPs) for a total of 22 crops, categorized into 14 Kharif crops, 6 Rabi crops, and 2 other commercial crops. However, it’s worth noting that for sugarcane, the Fair and Remunerative Price (FRP) is determined by the Department of Food & Public Distribution separately.

These 22 crops encompass a variety of staples and cash crops, including Paddy, Bajra, Jowar, Maize, Arhar, Ragi, Moong, Groundnut-in-shell, Urad, Soyabean, Nigerseed, Sunflower, Sesamum, Cotton, Barley, Wheat, Gram, Rapeseed/Mustardseed, Masur (lentil), Jute, Copra, and Safflower.

For Toria and De-Husked coconut, their MSPs are determined based on the MSPs of Rapeseed/Mustardseed and Copra, respectively, by the respective departments responsible for these crops. This comprehensive framework aims to provide farmers with stable incomes and ensure the viability of agricultural production across various regions and crop types.

Minimum Support Price Significance

• Income Security for Farmers: MSP provides a safety net for farmers by ensuring they receive a minimum price for their produce, protecting their income from market fluctuations and ensuring financial stability.
• Price Stability: MSP helps stabilize agricultural prices by setting a floor price for certain crops, preventing sharp declines in prices that could lead to distress sales and financial losses for farmers.
• Incentive for Production: MSP acts as an incentive for farmers to increase production of crops covered under the MSP regime, as it provides assurance of a minimum price for their produce, encouraging investment in agriculture.
• Food Security: MSP plays a crucial role in ensuring food security by incentivizing the production of essential food crops and maintaining stable supplies in the market, which is essential for meeting the nutritional needs of the population.
• Rural Economy Support: MSP contributes to the overall development of rural economies by supporting farmer incomes, reducing rural poverty, and stimulating economic activities in agrarian regions.
• Government Intervention: MSP represents government intervention in agricultural markets aimed at protecting the interests of farmers and ensuring the stability of the agricultural sector, which is vital for the overall economy.

Minimum Support Price Issues

Minimum Support Price is accessible to farmers but not as an entitlement. They are not in a position to demand legally or as part of their right as it all depends on the government.

Even though the Minimum Support Price is automatically announced each year, it is commonly known that it does not rise in line with the cost of manufacturing. This indicates that the Minimum Support Price is constant while the cost of production keeps rising annually.

Since the majority of farmers lack literacy and understanding of their rights regarding the minimum support price, middlemen constantly take advantage of them and fail to pay them their fair share.

Minimum Support Price Determinants

The Commission maintains in mind the numerous Terms of Reference (ToR) granted to CACP in 2009 when suggesting the pricing strategy for various commodities covered by its mandate. As a result, it analyses:

• Supply and demand;
• The price of production;
• Market price movements, both nationally and internationally;
• Parity in inter-crop prices;
• The conditions of commerce between agriculture and other sectors;
• A minimum profit margin of 50% above the cost of manufacturing;
• Potential effects of MSP on users of the product.

It may be noted that the cost of production is an important factor that goes as an input in the determination of MSP, but it is certainly not the only factor that determines MSP.

Minimum Support Price Policy

Minimum Support Price Policy Issue Associated

1. Limited Scope

Only two commodities—rice and wheat—are purchased despite the official announcement of MSPs for 23 different crops because they are allocated through NFSA (National Food Security Act).

2. Implemented ineffectively

Only 6% of the MSP could be obtained by farmers, according to the Shanta Kumar Committee’s 2015 report. This immediately translates to 94% of farmers in the nation not receiving the MSP’s benefits..

3. Additional Procurement Price

The existing MSP framework is unrelated to domestic market prices. Its main purpose is to satisfy the NFSA’s requirements, therefore rather than being an MSP; it is effectively a procurement price.

4. Makes agriculture dominated by wheat and paddy

Overproduction of rice and wheat due to the skewed MSP system discourages farmers from growing other crops and horticultural products, which have higher demand and may, therefore, boost farmer income.

5. Middlemen-Dependent

Additionally, the MSP-based procurement system is dependent on intermediaries, commission agents, and APMC officials, all of whom are difficult for smaller farmers to contact.

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