Minimum Support Price

Context:

MSPs provide a floor for market prices, and ensure that farmers receive a certain “minimum” remuneration so that their costs of cultivation (and some profit) can be recovered.

Relevance:

GS-III: Agriculture (Agriculture Pricing), GS-II: Social Justice (Welfare Schemes)

Dimensions of the Article:

1. What is Minimum Support Price (MSP)?
2. Why is there a need for MSP?
3. What are the issues related to MSP?

What is Minimum Support Price (MSP)?

• Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.
• MSPs have no statutory backing — a farmer cannot demand MSP as a matter of right.

• Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops.
• CACP consider various factors while recommending the MSP for a commodity like cost of cultivation, supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops etc.
• MSP seeks to:
  • Assured Value: To give guaranteed prices and assured market to the farmers and save them from the price fluctuations (National or International).
  • Improving Productivity: By encouraging higher investment and adoption of modern technologies in agricultural activities.
  • Consumer Interest: To safeguard the interests of consumers by making available supplies at reasonable prices.

While recommending MSPs, the CACP looks at the following factors:

•  the demand and supply of a commodity;
•  its cost of production;
•  the market price trends (both domestic and international);
• inter-crop price parity;
• the terms of trade between agriculture and non-agriculture (that is, the ratio of prices of farm inputs and farm outputs);
• a minimum of 50 per cent as the margin over the cost of production; and
• the likely implications of an MSP on consumers of that product.

Crops covered

Crops covered by MSPs include:

• 7 types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley),
•  5 types of pulses (chana, arhar/tur, urad, moong and masur),
• 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower, nigerseed),
• 4 commercial crops (cotton, sugarcane, copra, raw jute)

Why is there a need for MSP?

• The MSP is a minimum price guarantee that acts as a safety net or insurance for farmers when they sell particular crops.
• The guaranteed price and assured market are expected to encourage higher investment and in adoption of modern technologies in agricultural activities.
• With globalization resulting in freer trade in agricultural commodities, it is very important to protect farmers from the unwarranted fluctuation in prices.

What are the issues related to MSP?

• Low accessibility and awareness of the MSP regime: A survey highlighted that, 81% of the cultivators were aware of MSP fixed by the Government for different crops and out of them only 10% knew about MSP before the sowing season.
• Arrears in payments: More than 50% of the farmers receive their payments of MSP after one week.
• Poor marketing arrangements: Almost 67% of the farmers sell their produce at MSP rate through their own arrangement and 21% through brokers.
• According to NITI Aayog report on MSP, 21% of the farmers of the sample States expressed their satisfaction about MSP declared by the Government whereas 79% expressed their dissatisfaction due to various reasons. Although, majority of the farmers of the sample States were dissatisfied on MSP rates, still 94% of them desired that the MSP rates should be continued.

-Source: Indian Express