MSP | Minimum Support Price

* All the things that you need to know about MSP | Minimum Support Price *

➡️What is the Minimum Support Price?

The minimum Support Price is the price set by the government to purchase crops from the farmers, whatever may be the market price for the crops. Minimum Support Price is an important part of India’s agricultural price policy as its declaration before the sowing time assures farmers of agricultural income besides providing a clear price signal.

☑️The MSP helps to incentivize the farmers and thus ensures adequate food grains production in the country. It gives sufficient remuneration to the farmers, provides food grains supply to buffer stocks, and supports the food security program through PDS and other programs.

☑️Procurement Price

Sometimes, the government procures at a higher price than the MSP. Here, the price will be referred as the procurement price. The procurement price will be announced soon after the harvest. Normally, the procurement price will be higher than the MSP, but lower than the market price. The price at which the procured and buffer stocks of food grains are provided through the PDS is called as issue price.

➡️When the MSP is announced?

The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). Support prices generally affect farmers’ decisions indirectly, regarding land allocation to crops, the quantity of the crops to be produced, etc. It is in this angle that the MSP becomes a big incentive for the farmers to produce more quantity.

➡️What are the Objectives of MSP?

The government’s agricultural policy has three important components- the MSP, Buffer Stocks, and the issue of food grains through the PDS. The interconnectivity between the three is very clear. MSP helps to procure adequate food grains through FCI, state agencies, and cooperatives. The PDS network through the policy of issuing prices delivers it to the weaker sections.

MSP is a price fixed by the Government of India to protect the farmers against excessive falls in price during bumper production years. The minimum support prices are guaranteed prices for their produce from the Government.

The objective of the MSP is thus to ensure remunerative prices to the growers by encouraging higher investment and production. It also aims to bring a balanced realization of sufficient food production and consumption needs at the same ensuring adequate and affordable food grains to all the people.

Thus the minimum support price is aimed to:

(i) Assure a remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.

(ii) Improve economic access to food people.

(iii) Evolve a production pattern that is in line with the overall needs of the economy.

➡️History and trend of MSP

The MSP was declared used first time in 1965 as a tool for agricultural price policy to meet various objectives. Since then, the MSP performs an important function in realizing the various objectives related to agricultural price policy.

➡️Who declares MSP and who prepares it?

The Cabinet Committee on Economic Affairs (CCEA), Government of India, determines the Minimum Support Prices (MSP) of various agricultural commodities in India based on the recommendations of the Commission for Agricultural Cost and Prices (CACP).

➡️What is an open-ended MSP?

Government considers that some types of crops are vital for food security. To ensure and encourage the production of such crops the government follows a much more liberal procurement policy known as open-ended MSP.

In this case, there is no procurement target. The government allows the procurement agencies like the FCI to buy whatever is offered by the farmers for sale at MSP. The major staple food items – rice and wheat are the two principal commodities where the government’s role is pronounced.

🔘  Minimum Support Price  🔘

✅The MSP is the rate at which the government buys grains from farmers.

✅The reason behind the idea of MSP is to counter the price volatility of agricultural commodities due to the factors like the variation in their supply, lack of market integration, and information asymmetry.

➡️Fixation of MSP

✅The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP). 

✅Factors taken into consideration for fixing MSP include:

✅Demand and supply;

✅Cost of production (A2 + FL method)

✅Price trends in the market, both domestic and international;

✅Inter-crop price parity;

✅Terms of trade between agriculture and non-agriculture;

✅A minimum of 50% as the margin over the cost of production; and Likely implications of MSP on consumers of that product.

✅The Commission also makes visits to states for an on-the-spot assessment of the various constraints that farmers face in marketing their products or even raising the productivity levels of their crops.

✅Based on all these inputs, the Commission then finalizes its recommendations/reports, which are then submitted to the government.

✅The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.

✅After receiving the feedback from them, the Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by the CACP.

✅Procurement: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes the procurement of crops.

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