Minimum Support Prices

Mains Marks Booster     4th August 2023        
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Minimum Support Prices

Minimum Support Price is minimum price set by government at which commodities are procured from farmers by government.

  • Government fixes Minimum Support Prices (MSP) for 22 mandated agricultural crops and Fair and Remunerative Price (FRP) for sugarcane on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP), after considering the views of State Governments and Central Ministries/Departments concerned and other relevant factors

Factors in determining MSP:

  • The CACP takes into account various factors including demand and supply; cost of production; market trends; a minimum 50% margin over cost of production; and likely implications of MSP on consumers.
  • The CACP calculates three types of costs — A2, A2+FL and C2 — for each mandated crop for different states. 
  • The lowest of these costs is A2, which is the actual paid-out cost incurred by a farmer. Next is A2+FL, the actual paid-out cost plus imputed value of family labour. 
  • The highest of the three costs is C2, defined as ‘Comprehensive Cost including Rental Value of Own Land (net of land revenue and interest on value of own fixed capital assets (excluding land))’.

Objectives of MSP:

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Objectives of MSP

Significance of MSP

  • Price assurance to farmers- MSP provides safety net to farmers and prevent suicides and poverty.
    • Food security - can be achieved through stable production. e.g.- India’s foodgrains production touched a record 315.7 million tonnes in 2021-22 
    • Protection of farmers from market variability such as unwarranted fluctuations in price.
    • Crop diversification - guaranteed MSP to pulses, oilseeds, coarse cereals encourage farmer to cultivate new crops.
    • Alleviation of rural poverty -fixed price for farm produce prevent migration and increase economic capacity of farmers.
    • Agriculture advancement - new technology, improvement is possible due to assured prices.
  • Maintain prices of commodity for consumer.

Issues and challenges associated with MSP

  • Distortion of cropping pattern - though MSP announced for several crops but procurement is majorly wheat, rice and sugarcane centric.
  • Distort supply demand- due to frequent increase and decrease in MSP. 
  • Burden on FCI- excessive procurement burden due to cereal and PDS.
  • Dependency on middle man- Such as commission agent, APMC officials hence difficult for marginal farmer to get access.
  • Regional imbalance- procurement is more in Northern states like Punjab and Haryana.
  • Environment impact- due to monocropping of wheat, rice.
  • Low awareness and accessibility - according to Shanta Kumar committee only 6% countries farmers get benefitted from MSP.
  • Challenges in WTO - MSP claimed to be trade distorting and there is pressure from WTO to minimise it.

Legalization of MSP: Legalisation of MSP means legal obligations on the government to buy commodities for which MSP is announced. After repealing three contentious farm laws farmers had put the demand of legalising MSP.

Reasons behind demand of legalising MSP

  • Limited procurement - procurement is largely limited to only wheat and rice and out of which also only 6% of the farm household sell rice and wheat at MSP to govt.
  • Regional disparity - Half of commodities procured are from Punjab and Haryana.
  • Less benefits than MSP-MSP has no statutory backing hence many of times farmers get less than MSP.
  • MSP for horticulture - MSP should be extended to fruits and vegetables.
  • Variable msp according to agro climatic zones- calculation based on varied inputs rates in different agro climatic zone.

Recommendation of Swaminathan Committee regarding MSP

  • To fix minimum support prices (MSP) for crops at least 50% more than the weighted average cost of production.
  • Govt. has announced its decision to ensure that farmers receive MSP = 1.5 times of production cost.

Way forward

  • Bridge the price gap - between MSP and market price hence
  • Price assurance - assurance regarding MSP, grains procurement and market intervention of government as and when necessary.
  • Market reforms - need for improving market efficiency by strengthening FPOs, cooperative etc.
  • Price deficiency payment - differences between MSP and actual price.
  • Promotion of cooperative - to increase bargaining power of farmers.

Rather than legalisation of MSP focus should be on infrastructure development and strengthening institutions and guarantee farmers to increase their income.MSP provided safety net to the farmers via market against uncertainties but there is a need to make advancement in the process according to the need.

Recent developments/initiatives:

  • The Central government has expanded the procurement of pulses and oilseeds by central agencies.
  • PMASHA Scheme which include procurement under:
    • Price Support Scheme (PSS);
    • Price Deficiency Payment (PDP);
    • Private Procurement and Stockists Scheme as a Pilot Scheme;
  • State level Initiatives: For example, Bhavantar Bhugtan Yojana of Madhya Pradesh where the government pays farmers the difference between official Minimum Support Price and the rate at which they sell their crops

Way forward: 

    • Agriculture expert Ramesh Chand has suggested three ways to help farmers get fair prices for their crops: Enabling fair, competitive, and remunerative prices through market mechanisms, public intervention, and a combination of both.
    • NITI Aayog has suggested the 'Price Deficiency Payment' (PDP) system among other reforms.
    • Reduce regional imbalance- by decreasing information asymmetry and state level interventions.
    • Information and awareness - through Krishi Vidyan Kendra, krushi seva Kendra s.
    • Use of modern warehousing infrastructure - modern weighing machienes etc.