What is Minimum Support Price?
Minimum Support Price (MSP) full form is a government tool used in India to protect farmers from sharp declines in crop prices. Announced by the Government of India at the start of the sowing season, MSPs are based on recommendations suggested by the Commission for Agricultural Costs and Prices (CACP). First established in 1965, Agricultural Price Commission (APC) implemented price policies such as procurement at set prices, MSPs to distribute food grain at subsidised rates. APC was later replaced by CACP in March 1985 with additional responsibilities and simplified the process by keeping just one element of MSP. Other institutions involved in implementing MSP are Food Corporation of India (FCI) and the National Agricultural Co-operative Marketing Federation (NAFED).
MSP benefits farmers by ensuring that they receive a minimum designated price for their crops, even in situations when market prices are dropping. It serves as a safety net for farmers that prevents them from selling their products at lower prices during bumper harvests. The main goals of MSP are to prevent farmers from selling their crops at distressed prices and to ensure a steady supply of food grains for public distribution. If market prices fall below the MSP due to oversupply, government agencies take responsibility to buy the entire quantity offered by farmers at the MSP.
How is Minimum Support Price Determined?
India’s major cropping seasons are Rabi and Kharif. The Central Government announces the Minimum Support Price (MSP) for crops at the beginning of these seasons. While growing crops, farmers face both implicit and explicit costs. Implicit costs include family labor and rent which are not paid out directly but are part of the farmer’s expenses. Whereas explicit costs include actual expenses such as in chemicals, fertilizers, seeds and hired labor. The Commission for Agricultural Costs and Prices (CACP) evaluates these variables as:
- A2: covers expenses for chemicals, fertilizers, seeds and hired labor.
- A2+FL: Includes A2 and the cost of family labor.
- C2: Includes both A2 + FL, in addition to the cost of fixed capital assets and rent.
When determining Minimum Support Prices (MSPs) and recommending other measures, the Commission considers a broad range of factors, including:
- Cost of Production: The expenses involved in producing crops.
- Input Prices: Changes in the cost of materials and labor.
- Input-Output Price Parity: The balance between input costs and crop prices.
- Market Trends: Current and forecasted market prices.
- Demand and Supply: The availability of crops and consumer demand.
- Inter-Crop Price Parity: The price relationship between different crops.
- Industrial Costs: Impact on the cost structure of industries using agricultural products.
- Cost of Living: Effects on consumer prices and living costs.
- General Price Levels: Impact on overall price inflation.
- International Prices: Global price trends and their effects.
- Price Parity: Comparison between prices paid by farmers and received from them.
- Subsidy Implications: Effects on government subsidies and issue prices.
Which Crops are Covered under Minimum Support Price?
The government sets Minimum Support Prices (MSPs) for 22 designated crops and a Fair and Remunerative Price (FRP) for sugarcane. The MSPs cover 14 crops from the kharif season, 6 rabi crops, and two additional commercial crops. The MSPs for toria and de-husked coconut are determined based on the MSPs for rapeseed/mustard and copra, respectively. The crops included are:
- Cereals: Paddy, wheat, barley, jowar, bajra, maize, and ragi
- Pulses: Gram, arhar/tur, moong, urad, and lentil
- Oilseeds: Groundnut, rapeseed/mustard, toria, soybean, sunflower seed, sesame, safflower seed, and nigerseed
- Other Crops: Raw cotton, raw jute, copra, de-husked coconut
- Sugarcane: Fair and Remunerative Price (FRP)
- Tobacco: Virginia flue-cured (VFC) tobacco
