Minimum Support Price (MSP)

2021 SEP 9

Preliminary   > Agriculture   >   Storage, Transport & Marketing   >   Food corporation of India

Why in news?

  • The government on 9th September 2021 increased the minimum support price (MSP) for wheat for the upcoming rabi season to ?2,015 per quintal, a 2% hike from the ?1,975 per quintal rate of last year.
  • Oilseeds and pulses such as mustard, safflower and masoor dal saw higher MSP hikes of up to 8% in a bid to encourage crop diversification.

What is MSP?

  • Minimum Support Price is the price set by the government to purchase crops from the farmers. MSP was introduced to give financial stability into the agricultural system and encourage production.
  • The MSP is in the nature of an assured market at a minimum guaranteed price offered by the Government.

How is MSP calculated?

  • MSP for major agricultural products is fixed by the Department of Agriculture and Co-operation, Government of India, before the sowing season each year.
  • The prices are fixed on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • The CACP is a statutory body and submits separate reports recommending prices for Kharif and Rabi seasons. It considers various factors for the determination of MSPs, such as:
    • 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 CACP calculates cost of production at three levels:
    • A2, which includes cost of inputs such as seeds, fertilizer, labour.
    • A2+FL, which includes the implied cost of family labour (FL).
    • C2, which includes the implied rent on land and interest on capital assets over and above A2+FL.
  • Since 2018, MSPs is fixed at 1.5 times of the A2+FL production cost.
  • The Central Government after considering the report of CACP and views of the State Governments and also keeping in view the overall demand and supply situation in the country, takes the final decision.
  • The Food Corporation of India is the nodal agency for procurement. Several states have also devised their own mechanisms for procurement.

Crops covered:

  • At present, Government announces MSPs for a total of 25 crops and fair and remunerative price (FRP) for sugarcane. They are:
    • 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
    • Virginia flu cured (VFC) tobacco
    • Sugarcane

MSP for minor forest produce:

  • The Central Government had introduced MSP for a select list of MFP in 2011 under the "Mechanism for Marketing of Minor Forest Produce through Minimum Support Price and development of Value chain for MFP" scheme.
  • MSP for MFPs is revised once in every 3 years by the Pricing Cell constituted under the Ministry of Tribal Affairs.

PRACTICE QUESTION

Which of the following crops are covered under ‘Minimum Support Price’ mechanism?

1. Barley

2. Jowar

3. Groundnut

4. Raw jute

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2, 3 and 4 only

(c) 1,3 and 4 only

(d) 1,2,3 and 4

Answer