Minimum Support Price(MSP)

The Minimum Support Price(MSP) is a price set by the Government of India for certain crops(23 crops) to protect farmers from sharp drops in farm prices. The MSP is announced at the start of the sowing season based on recommendations from the Commission for Agricultural Costs and Prices (CACP).

The MSP is computed by CACP under Ministry of Agriculture and Farmers Welfare and recommends it to Government of India for around 23 crops, 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and 4 commercial crops (cotton, sugarcane, copra and raw jute).
Cabinet Committee on Economic Affairs(CCEA) finalises the MSP based on CACP recommendations and finally the GOI announce MSP  for the above 23 crops before every agricultural season(Kharif and Rabi).

The CACP takes into account various factors when recommending MSP, such as cultivation costs, supply, and demand situations, market price trends (both domestic and global), and the impact on consumers, and the environment.

The CACP considers three types of production costs:

1. A2
2. A2+FL
3. C2

• A2 covers direct costs incurred by farmers, including expenses on seeds, fertilizers, pesticides, labor, and more.
• A2+FL includes A2 costs and the value of unpaid family labor.
• C2 is a more comprehensive cost that also considers rentals and forgone interest on owned land and capital assets, on top of A2+FL.

• Procurement Focus: The current MSP regime is primarily aimed at fulfilling the requirements of the National Food Security Act (NFSA) rather than aligning with domestic market prices. It functions more like a procurement price than a genuine MSP.
• The Dominance of Wheat and Paddy: The skewed focus on MSP for rice and wheat leads to excessive production of these crops, discouraging farmers from cultivating other crops and horticulture products that have higher demand.
• Ineffective Implementation: According to the Shanta Kumar Committee’s 2015 report, only 6% of farmers benefit from the Minimum Support Price. This means that 94% of farmers in the country do not receive the intended advantages of the MSP.

Farmers across India often receive prices for their crops that are below the officially declared MSP. Since MSPs lack legal backing, farmers cannot enforce these prices as a right.

The government’s actual purchase of crops at MSP is restricted. Only about one-third of wheat and rice crops and 10%-20% of selected pulses and oilseeds are procured at MSP rates. The majority of farmers do not have access to this benefit.

Legalizing MSP poses challenges as a fixed predetermined price could deter private traders from participating when there is excess production and a decline in market prices. This would result in the government becoming the primary buyer of most crops, which is not a sustainable approach.

Legalizing MSP could increase the risk of corruption and improper distribution or diversion of crops from warehouses, ration shops, or during transportation.

While selling cereals and pulses through the public distribution system is relatively straightforward, it becomes more complex to dispose of crops like niger seed, sesamum, or safflower.

Higher procurement costs under MSP could lead to increased prices of food grains, causing inflation that would ultimately affect the poor.

If MSP prices exceed prevailing international rates, it could negatively impact India’s agricultural exports, which currently contribute 11% to total commodity exports.

• Diversify Agriculture: Emphasize investments in animal husbandry, including fisheries, and fruits and vegetables, which are more nutritious and have the potential for higher income generation.
• Encourage Private Sector Involvement: The government should incentivize the private sector to develop efficient value chains for agriculture, following a cluster approach.
• True MSP Intervention: A genuine MSP should involve government intervention when market prices fall below a predefined level, especially in cases of excess production, oversupply, or price collapse due to international factors.
• Incentivize Desirable Crops: Minimum Support Price can also serve as an incentive price for crops crucial for nutritional security, such as coarse cereals, pulses, and edible oils, which India relies on imports for.

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1. How has the emphasis on certain crops brought about changes in cropping patterns in recent past? Elaborate the emphasis on millets production and consumption.(2018)
2. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap?(2018)
3. What are the major reasons for declining rice and wheat yield in the cropping system? How crop diversification is helpful to stabilize the yield of the crop in the system? (2017)
4. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers?(2017)