MINIMUM SUPPORT PRICE
1. Context
The Cabinet Committee on Economic Affairs, led by Prime Minister Narendra Modi, has approved an increase in the Minimum Support Prices (MSP) for all mandated Rabi Crops for the 2024-25 marketing season. This decision aims to ensure fair prices for farmers. The highest MSP increase is for lentils (masur) at Rs. 425 per quintal, followed by rapeseed & mustard at Rs. 200 per quintal. Wheat and safflower have an increased MSP of Rs. 150 per quintal each, while barley and gram have an increase of Rs. 115 and Rs. 105 per quintal, respectively.
2. What is the Minimum Support Price (MSP)?
- MSP is the minimum price a farmer must pay for their food grains as guaranteed by the government. They are recommended by the Commission for Agricultural Costs and Prices (CACP) and approved by the Cabinet Committee on Economic Affairs.
- The CACP submits its recommendations to the government in the form of Price Policy Reports every year.
- After considering the report and views of the state governments and also keeping in view the overall demand and supply situation in the country, the central government takes the final decision.
- The Food Corporation of India (FCI) is the nodal agency for procurement along with State agencies, at the beginning of the sowing season.
The minimum support price (MSP) is set for 23 crops every year. They include:
- 7 cereals (paddy, wheat, maize, bajra, jowar, ragi, and barley)
- 5 pulses (chana, tur/arhar, moong, urad, and Masur)
- 7 oilseeds (rapeseed-mustard, groundnut, soya bean, sunflower, sesamum, safflower, and Enigerseed) and
- 4 commercial crops (sugarcane, cotton, copra, and raw jute).
3. How MSP is Calculated?
- MSP, presently, is based on a formula of 1.5 times the production costs.
- The CACP projects three kinds of production costs for every crop, both at state and all-India average levels.
- A2 covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
- A2+FL includes A2 plus an imputed value of unpaid family labour.
- C2: Estimated land rent and the cost of interest on the money taken for farming are added to A2 and FL.
- Farm unions are demanding that a comprehensive cost calculation (C2) must also include capital assets and the rentals and interest forgone on owned land, as recommended by the National Commission for Farmers.
4. The issue with the calculation of MSP
- To calculate MSP, the government uses A2+FL cost. The criticism of A2+FL is that it doesn’t cover all costs and that a more representative measure, C2, needs to be used.
- For example, in the 2017-18 rabi season, CACP data shows that C2 for wheat was 54% higher than A2+FL.
- The Swaminathan Commission also stated that the MSP should be based on the comprehensive cost of production, which is the C2 method.
5. Key Points about the Farmer's Demand
- After the recent decision to repeal three contentious farm laws, protesting farmer unions are now pressing for their demand of the legalization of the Minimum Support Price (MSP).
- They want a legal guarantee for the MSP, which at present is just an indicative or a desired price.
- Legalising MSPs would put the government under a legal obligation to buy every grain of the crops for which MSPs have been announced.
- At present, the PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns and to promote zero-budget agriculture which would reduce the cost of production.
- The entire issue of enforcing MSP legally is a tricky, complicated, and multidimensional one, involving lots of factors.
- Core demand: MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce. This would mean a 34% increase in the latest MSP for paddy and a 13% increase for wheat. MSP should also be extended to fruit and vegetable farmers who have been excluded from benefits so far.
6. The rationale behind the demand for legislation of MSP
- Farmers receive less than MSP: In most crops grown across much of India, the prices received by farmers, especially during harvest time, are well below the officially declared MSPs. And since MSPs have no statutory backing, they cannot demand these as a matter of right.
- Limited procurement by the Govt: Also, the actual procurement at MSP by the Govt. is confined to only about a third of wheat and rice crops (of which half is bought in Punjab and Haryana alone), and 10%-20% of select pulses and oilseeds. According to the Shanta Kumar Committee’s 2015 report, only 6% of the farm households sell wheat and rice to the government at the MSP rates.
7. Challenges associated with MSP
- Protest by Farmers: Farm unions have been protesting for more than six months on Delhi's outskirts, demanding legislation to guarantee MSP for all farmers for all crops and a repeal of three contentious farm reform laws.
- MSP and Inflation: When announcing the MSP, inflation should be taken into account. But often the price is not increased up to the mark. For example, this time MSP for Maize has not even considered inflation then how it will benefit farmers! Also, frequent increases in the MSPs can lead to inflation too.
- High Input Costs: The input costs have been rising faster than sale prices, squeezing the meagre income of the small farmers and driving them into debt.
- Lack of Mechanism: No mechanism guarantees that every farmer can get at least the MSP as the floor price in the market. So proper mechanisms need to be fixed for all times to come.
- Restriction in Europe: Even after producing surplus grains, every year a huge portion of these grains gets rotten. This is due to the restrictions under WTO norms, that grain stocks with the FCI (being heavily subsidized due to MSP) cannot be exported.
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For Prelims: Minimum Support Price, Rabi Crops, WTO, Commission for Agricultural Costs and Prices (CACP), Cabinet Committee on Economic Affairs, Food Corporation of India
For Mains:
1. Explain the concept of Minimum Support Price (MSP) in India. How is MSP determined, and what is its role in ensuring fair prices for agricultural produce? (250 Words)
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Previous Year Questions
1. Consider the following statements: (UPSC CSE 2020)
1. In the case of all cereals, pulses, and oil seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: D
2. Which of the following factors/policies were affecting the price of rice in India in the recent past? (UPSC CSE, 2020)
(1) Minimum Support Price (2) Government’s trading (3) Government’s stockpiling (4) Consumer subsidies Select the correct answer using the code given below: (a) 1, 2 and 4 only (b) 1, 3 and 4 only (c) 2 and 3 only (d) 1, 2, 3 and 4 Answer: D
3. In India, which of the following can be considered as public investment in agriculture? (UPSC GS1, 2020)
(1) Fixing Minimum Support Price for agricultural produce of all crops (2) Computerization of Primary Agricultural Credit Societies (3) Social Capital development (4) Free electricity supply to farmers (5) Waiver of agricultural loans by the banking system (6) Setting up of cold storage facilities by the governments. In India, which of the following can be considered as public investment in agriculture? Select the correct answer using the code given below: (a) 1, 2 and 5 only (b) 1, 3, 4 and 5 only (c) 2, 3 and 6 only (d) 1, 2, 3, 4, 5 and 6 Answer: C
4. The Fair and Remunerative Price (FRP) of sugarcane is approved by the (UPSC CSE, 2015)
(a) Cabinet Committee on Economic Affairs (b) Commission for Agricultural Costs and Prices (c) Directorate of Marketing and Inspection, Ministry of Agriculture (d) Agricultural Produce Market Committee Answer: A
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