Minimum Support price (MSP) For 2024-25

 Minimum Support price  (MSP): A complete Guide for Farmer and Policymaker's

What is MSP?

Minimum Support Price (MSP) is a government-supported agricultural price policy implemented in India to ensure that farmers receive a fair and remunerative price for their crops. The MSP serves as a safety net for farmers by guaranteeing a minimum price at which their produce will be purchased by the government or government agencies. This policy aims to safeguard farmers from market fluctuations and price volatility, ensuring their economic well-being and encouraging agricultural production. MSP is usually announced for various crops before the sowing season to provide farmers with price certainty and improve their income security.

History of MSP

• MSP come into existence in 1965 when the Agricultural Prices Commission (APC) was established (renamed Commission for Agricultural costs and Prices (CACP) in 985) to recommend MSP based on production costs.
• Wheat became the first crop for which MSP introduced in 1966-67.
• In 1970s various crops are included in MSP and Over time the MSP expended to cover 23 crops, including cereals, pulses, oilseeds, and commercial crops.

List of crops cover under MSP

Kharif Season Crop

Cereals:

• Paddy (Common and Grade 'A') (Rice)

• Jowar (Hybrid and Maldandi) (Sorghun)

• Bajra (Pearl Millet)

• Maize 

• Ragi (Finger Millet)

Pulses:

• Tur (Arhar/Red Gram) 

• Moong (Green Gram)

• Urad (Black Gram)

Oilseeds:

• Groundnut

• Sunflower Seed

• Soybean (Yellow)

• Sesamum (Til)

• Nigerseed

Commercial Crops:

• Cotton

Rabi Season Crop
Cereals:

• Wheat

• Barley

Pulses:

• Gram (Chana)

• Lentil (Masur)

Oilseeds:

• Rapeseed-Mustard

• Safflower

• Toria

Other Crops:

• Sugarcane (Fair and Remunerative Price)

• Raw Jute

How MSP is calculated?

The Commission on Agricultural Costs and Prices' (CACP) recommendations serve as the basis for determining the Minimum Support Price (MSP). It takes into account a number of variables, including risk factors, market trends, input costs, and supply and demand balance.

Formula for MSP Calculation

There is no single fixed formula, but MSP is broadly determined based on three cost concepts:

1. A2 Cost – Covers all paid-out costs such as seeds, fertilizers, chemicals, hired labor, fuel, irrigation, etc.
2. A2 + FL Cost – Includes A2 cost + Imputed value of family labor.
3. C2 Cost (Comprehensive Cost) – Includes A2 + FL cost + rental value of owned land and interest on owned capital.

Key Factors Considered in MSP Determination

• Production Costs (A2, A2 + FL, and C2)
• The market's supply and demand condition
• Intercrop price parity: To prevent shortages of one crop and overproduction of another, MSP should be distributed evenly among the various crops.
• Global pricing and the competitiveness of commerce
• Inflation and market trends
• Effect on consumers (high MSP's inflationary effect on food costs)
• Agriculture and Non-Agriculture Sectors' Terms of Trade
• The government's criteria for buffer stocks and food security

What is the advantage of MSP?

• Income Security: MSP guarantees farmers a minimum price for their crops, ensuring a stable income and protecting them from market price fluctuations.
• Price Stability: MSP helps stabilize the prices of agricultural products, preventing extreme fluctuations and ensuring affordable prices for consumers.
• Encourages Production: Minimum Support Price motivates farmers to increase their agricultural production by providing them with a fair price for their produce.
• Food Security: MSP promotes a steady food supply by encouraging farmers to produce staple crops, reducing dependence on imports, and enhancing domestic food security.

What is the disadvantage of MSP?

• Distorted Production – Recent trends by NSSO indicates shift in pattern of food consumption from cereals to protein rich foods, but no such remarkable shift is seen in sowing or production patterns. For e.g. India is largest producer and consumer of pulses in the world, but still 25 % of the pulses consumed are imported.
• Huge Stocks– This resulted in ‘Open ended procurement’ which means government can’t decide quantity it wants to buy. How much ever grains are offered by farmers to gov. has to purchase. So now government has huge stocks which are almost double the requirements for Buffer stock, PDS and Other government schemes such as Midday Meal Scheme.
• Out of control Inflation– As we have seen initially MSP and procurement prices were kept lower in relation to Market Prices. So lower the market prices, even lower were MSP and procurement prices. Situation now is that Market prices are dictated by MSP which remains most of the time higher. This brings market prices at least on par with MSP. Facts by surveys and analysts suggests an obvious directly proportional link between hike in MSPs and food Inflation.
• Middlemen: The other major problem with the MSP-based procurement system is the working dependence on middlemen, commission agents and red-tapism of the APMC (Agriculture Produce Marketing Committee) officials. An average farmer finds it difficult to get access to these mandis, and depends on the market to sell farm produce.
• Backwardness in Agriculture – Any industry grows when it adapts to a competitive environment. If farmers get market signals from the market about upcoming trends of demands of consumers, total supply in economy, new technologies, export opportunities or import vulnerabilities, they will find out more profitable crops, technologies and will keenly adapt. Present system creates glut in market of particular crops. It leads to intensive farming year after year, which degrades soil. Farmers rely on political pressure to remedy their problems, instead of adapting to market. This all keeps private investment away for the sector and thus contributes to backwardness in agriculture.
• Environmental harm – It degrades the soil because of irrespective of the soil condition, some crops are preferred which have MSP over them which results in exploitation of group water resources, alkanity, decrease in the production of the crops in long run and much harm to environment.

Latest MSP Updates

Source: Ministary of Agriculture and Farmers Welfare, Government of India

References

• https://pwonlyias.com/minimum-support-price-msp
• https://www.nextias.com/
• Ministary of Agriculture and Farmers Welfare, Government of India