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Centre to form panel on MSP

Context:

The government will form a committee to look into encouraging crop diversification, natural farming, and making minimum support price (MSP) effective and transparent.

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?
  4. Three Kinds of Production Cost

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.
  • Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops. These include 14 grown during the kharif/post-monsoon season (see table) and six in rabi/winter (wheat, barley, chana, masur, mustard and safflower), apart from sugarcane, jute and copra
  • 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.

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.

Three Kinds of Production Cost

  • The CACP projects three kinds of production cost 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, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
  • ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour.
  • ‘C2’It is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
  • CACP considers both A2+FL and C2 costs while recommending MSP. CACP reckons only A2+FL cost for return.
  • However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.
  • 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 CACP.

-Source: Indian Express, The Hindu

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September 2022
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