Home   »   Economy   »   Minimum Support Price

Minimum Support Price (MSP), Features, Significance and Issues

Context: The Union cabinet approved giving rise to MSP of 14 Kharif crops.

What is Minimum Support Price (MSP)?

  • The Minimum Support Price (MSP) is the price at which the government commits to buying farmers’ crops if market prices drop below this predetermined level.
  • The Government sets the MSP at the start of the sowing season, based on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
  • 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.

Minimum Support Price Overview

Feature Description
Definition Minimum Support Price (MSP) is the minimum price at which the government purchases agricultural products from farmers to protect them from sharp declines in market prices.
Calculation MSP is calculated based on at least one-and-a-half times the cost of production incurred by the farmers.
Government Intervention It’s a form of government intervention in the agricultural sector aimed at ensuring income security and stability for farmers by providing a guaranteed minimum price.
Direct Purchase by Government If open market prices fall below the MSP, the government buys the products directly from farmers to support their income and prevent distress sales.
Stability During Market Fluctuations MSP offers stability to farmers by providing a fixed price for their produce, particularly during times of market fluctuations or distress.
Income Security for Farmers MSP ensures income security for farmers by guaranteeing them a minimum price for their agricultural products, protecting them from financial losses.

Background of Minimum Support Price

  • 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.

Features of MSP

The Minimum Support Price (MSP) is a government-set price for certain agricultural products. It’s the minimum rate at which the government will purchase agricultural commodities from farmers. Here are some features of the MSP:
  • Safety net: The MSP protects farmers against excessive price falls during years of high production. It also ensures farmers a minimum income for their produce, especially during market fluctuations.
  • Guarantee price: The MSP is a guaranteed price for farmers’ produce from the government.
  • Pre-announced price: Farmers are paid a pre-announced price for their crops.
  • Government intervention: The MSP is a form of government intervention to help farmers prevent losses.
  • Final decision: The Cabinet Committee on Economic Affairs (CCEA) of the Union government makes the final decision on MSP levels and other recommendations.
  • Supply and demand: Supply-demand dynamics for the crop, both domestically and internationally, play a role in MSP determination.
  • Production costs: The costs incurred by farmers during the production process, including variable and fixed costs, impact the MSP calculation.

List of Minimum Support Price Crops

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:

List of the MSP Crops
Paddy Soyabean
Bajra Nigerseed
Jowar Sunflower
Maize Sesamum
Arhar Cotton
Ragi Barley
Moong Wheat
Groundnut-in-shell Gram
Urad Rapeseed/Mustardseed
Masur (lentil) Jute
Copra Safflower

 

Important Facts
The government fixes MSPs for 22 mandated agricultural crops(Kharif crops (14), Rabi crops (6), and commercial crops (2)) and in addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.

  • Cereals (7): Paddy, Wheat, Barley, Jowar, Bajra, Maize, Ragi
  • Pulses (5): Gram, Arhar/Tur, Moong, Urad, Lentil
  • Oilseeds (8): Groundnut, Rapeseed/Mustard, Toria (based on Rapeseed/Mustard), Soybean, Sunflower Seed, Sesamum, Safflower Seed, Niger Seed
  • Other Crops:
    • Raw Cotton
    • Raw Jute
    • Copra
    • De-husked Coconut (based on Copra)
    • Sugarcane (Fair and Remunerative Price)
    • Virginia Flu Cured (VFC) Tobacco

Significance of Minimum Support Price

  • 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.

Issues with MSP Description
Below-declared MSP prices Farmers frequently receive prices lower than the officially declared MSP for their crops.
Lack of legal backing MSPs do not have legal support, leaving farmers unable to enforce these prices as a guaranteed right.
Limited government procurement The government’s actual purchase of crops at MSP is restricted, limiting its effectiveness.

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 Current Issues

Here is some information about the current minimum support price (MSP) in India:
  • The MSP for wheat for the 2024-25 marketing season is ₹2,275 per quintal, a ₹150 increase from the 2023-24 season.
  • The MSP for gram is ₹5,440 per quintal, a ₹105 increase from the 2023-24 season.
  • The MSP for lentil (masur) is ₹6,425 per quintal, a ₹425 increase from the 2023-24 season. 
The MSP is calculated by considering the explicit and implicit costs incurred by farmers. Explicit costs include expenses like chemicals, fertilizers, seeds, and hired labour. Implicit costs include factors such as family labour and rent. The Cabinet Committee on Economic Affairs (CCEA) of the Union government makes the final decision on MSP levels and other recommendations.

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.

Process of Awarding MSP

  • Recommendation Stage: The Minimum Support Price (MSP) is determined based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). Each year, the CACP submits its recommendations to the government through Price Policy Reports, taking into account factors such as cost of production, demand and supply, market price trends, and inter-crop price parity.
  • Decision Stage: The final decision on MSP levels is made by the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister of India. This decision is based on the Price Policy Report, the views of state governments, and the overall demand-supply situation in the country.
  • Procurement Stage: The Food Corporation of India (FCI), along with State agencies, serves as the nodal agency for procurement at the beginning of the sowing season.

Minimum Support Price Policy

The Minimum Support Price (MSP) is a price set by the Indian government for certain agricultural products. It’s a form of government intervention to protect farmers from a sharp price decline during bumper production years. MSP is the minimum rate at which government procurement agencies buy agricultural commodities from farmers. It’s an advisory price signal that’s part of a larger set of agricultural policies in parts of India.
The goal is to safeguard the farmer to a minimum profit for the harvest while also increasing food security. The government buys products directly from farmers if the open market prices are less than the cost incurred. For example, the government of India provides MSP for niger seeds. 
Various Committees Related to MSP
  • Agricultural Prices Commission (APC): Established in 1965, the APC, later renamed the Commission for Agricultural Costs and Prices (CACP), advises on MSPs for 23 crops, including staples like wheat, rice, and others like pulses and cotton.
  • National Commission on Farmers (NCF): Initiated in 2004 under the leadership of M.S. Swaminathan, the NCF aimed to solve farmer issues and suggested policies for their welfare, advocating for at least 50% profit above production costs in MSP.
  • Shanta Kumar Committee: Formed in 2014 to evaluate the Food Corporation of India (FCI) and propose reforms, this committee advised transitioning from price-based to income-based support systems for farmers.

Issue Associated with Minimum Support Price Policy

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.

Sharing is caring!

Minimum Support Price FAQs

Who announced minimum support price?

On the basis of the recommendations of the Commission for Agricultural Costs and Prices, the Government of India announces the MSP at the beginning of the planting season for some crops (CACP).

How do you calculate minimum support price?

The MSP, which is based on a computation of at least 1.5 times the farmers' production costs, is the rate at which the government purchases crops from farmers.

What is the difference between procurement price and minimum support price?

The Center established the Minimum Support Price (MSP) for the first time in 1966–1967. At the time of independence, India had a significant shortfall in the production of grains.

When was minimum support price?

The Center first used Minimum Support Price, or MSP, in 1966–1967. This came after India had a significant food output shortfall at the time of its independence.

Which crop has highest MSP?

Lentil (Masur) has received the highest approved MSP rise, at Rs. 500 per quintal, followed by rapeseed and mustard, at Rs. 400 per quintal.

Leave a comment

Your email address will not be published. Required fields are marked *