Minimum Support Price

The Minimum Support Price (MSP) stands as a vital policy of the Union Government, aiming to establish a baseline for major agricultural commodities. Its primary objective is to shield farmers from intermediaries and market fluctuations, ensuring them a secure market and a guaranteed minimum return. However, the effective implementation of the MSP scheme faces significant challenges, including low procurement of crops beyond wheat and paddy, insufficient farmer awareness, high transportation costs, and inadequate storage facilities. Overcoming these hurdles demands concerted efforts through heightened awareness campaigns, timely announcements, expanded crop inclusivity, decentralized procurement systems, and the extension of MSP to encompass fruits and vegetables. These measures are essential for fostering an inclusive and resilient agricultural landscape in India.

The inherent instability in the prices of agricultural commodities, driven by supply variations, market disintegration, and information gaps, poses a significant challenge. A bumper harvest in one year often leads to a drastic price decline, impacting future supplies as farmers refrain from sowing that crop in subsequent years. This results in a shortage the following year, leading to a substantial price hike for consumers.

In the interest of food security the Union Government annually sets the Minimum Support Price (MSP) for key agricultural products. The MSP acts as a crucial tool, assuring farmers of a predetermined fair price before the sowing season, fostering increased investment and production in agricultural commodities.

• Minimum Support Price (MSP) is the price at which the government procures crops directly from farmers.
• The government declares minimum support prices (MSPs) for 22 specified crops and fair and remunerative price (FRP) for sugarcane.
• The Crops covered includes
  • 14 Kharif crops Arhar , Bajra , Groundnut- in - Shell , Jowar , Maize , Moong , Nigerseed ,Paddy , Ragi , Soyabean, Sunflower , Sesamum, Urad and Cotton
  • 6 rabi crops Wheat , Barley , Gram , Rapeseed& Mustard , Masur , Safflower
  • 3 commercial crops Jute , Copra, Sugarcane
  • Moreover, the minimum support prices (MSPs) for toria and de-husked coconut are determined based on the MSPs established for rapeseed/mustard and copra, respectively.
• Alternative way of classification of Crops covered under MSP
  • 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
  • Others: Raw cotton, Raw jute, Copra, De-husked coconut, Sugarcane (Fair and remunerative price)

MSP is established based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister, approves and announces the final MSP decision.

• CACP formulates MSP recommendations for 23 crops, considering factors like cultivation costs, supply and demand dynamics, and market trends , parity vis-à-vis other crops etc
• The current formula employed by the government for calculating the cost of production= ( A2+ FL ) x 1.5 times
  • A2 encompasses the actual costs incurred by farmers on seeds, fertilizers, pesticides, hired labor, depreciation on machinery, interest on working capital etc
  • FL represents the imputed value of unpaid family labor.

• The C2 formula would include various costs such as imputed rent on owned land, imputed interest on farmers' capital, etc., in addition to the A2 + FL formula.
• The Swaminathan Committee had also recommended the C2 method for calculating the cost of production, but the government has not adopted it.

• Lifting Farmers from Low-Income Traps:
  • Assured Value and Market Stability: By guaranteeing fixed prices, MSP provides farmers with a reliable income, shielding them from the unpredictable nature of market price fluctuations.
  • Informed Decision-Making: Announced pre-sowing season, MSP empowers farmers to make informed choices about crop selection, optimizing economic benefits and minimizing risks.
  • Benchmark for Private Sector: MSP sets a benchmark, guiding private players in the agricultural sector, fostering stability, and ensuring fair competition aligned with government-set price standards.
• Encouraging Investment: Farmers, assured of a minimum price, are motivated to invest more in cultivation.
• Ensuring Supply: The fixed MSP encourages consistent crop production, averting shortages in subsequent years.
• Consumer Benefit: Stable prices benefit consumers, ensuring a reliable and affordable supply of agricultural goods.

• Low Awareness: Only 6% of Indian farmers benefit from MSP, as per the Shanta Kumar Committee.
• Non-remunerative Price: In many states, farmers struggle to cover cultivation costs through MSP.
• Distorted Procurement Focus:
  • The concentrated MSP procurement on select crops like wheat, rice, and sugarcane has contributed to an imbalanced agricultural landscape, sidelining the cultivation of essential crops such as pulses, oilseeds, and coarse grains.
  • This distortion not only fuels inflation but also intensifies the strain on water resources.
• Regional imbalance: Inadequate procurement infrastructure in eastern states contributes to regional imbalances.
• Economic Impact: MSP poses a significant strain on fiscal resources.
• Exclusion of Vegetables and Fruits: MSP is not announced for essential commodities like vegetables and fruits

PM-AASHA (Annadata Aay Sanrakshan Abhiyan) was introduced in 2018 to overcome the limitations of the MSP system, comprising three key components:

• Price Support Scheme (PSS) Central agencies like FCI and NAFED engage in physical procurement of pulses, oilseeds, and copra, with active participation from state governments.
• Price Deficiency Payment Scheme Applicable to all oilseeds, the central government compensates farmers for the variance between MSP and the actual selling price received from private merchants. The payment is made directly to farmers through DBT (Direct Benefit Transfer), eliminating the need for physical procurement.
• Private Procurement Stockist Scheme Private entities collaborate with the government to procure oilseeds at MSP, facilitating coordinated efforts to support farmers.

• Increasing Awareness: Utilize new media channels for disseminating MSP information.
• Early MSP Announcement: Announce MSP well in advance of the sowing season for effective farmer planning.
• Crop Diversification: Implement MSP for other crops to encourage diversification. ( coarse cereals, pulses, oilseeds etc.)
• Decentralized Procurement: Establish decentralized procurement to reduce transportation costs for farmers in remote areas.
• Warehouses/Silos: Expand storage facilities to minimize wastage.
• MSP for Vegetables and Fruits: Extend MSP to include vegetables and fruits for comprehensive farmer support.

While MSP plays a crucial role in ensuring farmers' financial security, nation’s food security and maintaining market stability, addressing its limitations is imperative for sustainable agricultural growth. Enhanced awareness, early announcements, diversified crop coverage, decentralized procurement, and inclusion of fruits and vegetables in MSP are pivotal steps towards creating a more inclusive and resilient agricultural framework in India. Balancing economic considerations with the welfare of farmers remains essential for the continued effectiveness of MSP in the country's agrarian landscape.