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What is Minimum Support Price (MSP)?

Focus: GS III- Agriculture

Why in News?

The Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister has approved the increase in the Minimum Support Prices (MSP) for all mandated Kharif Crops for Marketing Season 2022-23

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.

 


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