MSP: Minimum Support Price
The minimum support price is the lowest price at which the crop cannot be bought in the government mandi.
Farmers find MSP very valuable because it guarantees that the farmer will always get a higher price than the crop’s cost.
The Government of India’s Commission for Agricultural Costs and Prices (i.e CACP) sets a minimum support price for each crop every year before it can be sown to ensure that farmers get the correct price for their crop.
Government of India sets MSP for crops on the recommendation of CACP.
MSP currently applies to 26 crops including cereals and pulses as well as oilseeds.
Let’s take an example to illustrate the MSP. If the government sets the MSP at Rs 2000 per quntal for 2021 wheat crop, then MSP law states that no government mandi may purchase wheat procurement from a farmer less than Rs 2000 per quntal.
Although the economic situation of farmers who receive MSP has improved significantly, it is still a sad fact that very few farmers in the country get all the benefits of MSP.
The government determines the MSP and ensures that farmers’ crops can be purchased on it. For this reason, the FCI organization of Government of India has maintained many go downs at both the block-level and district levels.
The government then sells the grain to meet its market needs or gives it to the public at low prices as part of the food security program that is run for the poor.
How is MSP prepared?
MSP preparation involves taking care of many things that are related to farmers and crops.
Voici quelques-unes des principales points
- Physical effort
- Machine labour or animal labour
- Land revenue
- Fixed capital interest
- Other prices
- MSP has the greatest advantage because it guarantees farmers that they will receive a fair price on their crops.
- MSP has another advantage: it is determined every year, and many aspects related to agriculture are considered when deciding.
- MSP allows farmers to sell their crop in a government mandi. The entire crop’s money then reaches the farmer’s bank account directly. This protects the farmer against middlemen and corruption.
- The MSP guarantees that if a crop is grown in large quantities in a country during a given year, that the farmer will receive the minimum support price, which is the MSP.
What are the challenges in creating MSP?
MSP is a complex process that government agencies must deal with. The country is large and each state has a different soil quality.
Other problems, such as variation in cost, diversity among water facilities, diversity labor, and other issues, are also encountered when preparing MSP.
Here are some interesting facts about MSP
- The MSP, i.e. the minimum support price, was established in 1966-1967. The minimum support price (MSP) was first established for wheat in 1966. Later, other crops were gradually added to it.
- MSP is a well-known law. However, only 6% Indian farmers have the chance to sell their crops under MSP. 90% of these farmers are from Punjab and Haryana.
Other famous MSP-full forms
MSP- Member Service Provider – Internet
MSP in Music – Music service provider
The Minimum Support Price (MSP) is a safety net that farmers use to guarantee guaranteed prices and access to markets. MSP-based procurement is designed to protect the crops from price fluctuations caused by unforeseeable factors like the monsoon, market integration issues, and information asymmetry.
MSP currently does not have legal backing. MSP is not included in the three new farm laws.
Many factors can influence the prices of agricultural commodities. A crop that has had a good harvest season in a given year may experience a sharp drop in its price. This could lead to farmers pulling out of sowing the crop the following year, which can impact the supply. The government has set MSP to counter this. This is meant to encourage more investments and higher production.
The MSP is set twice a year based on the recommendations from the Commission for Agricultural Costs and Prices, which is a statutory entity and submits separate reports recommending prices for kharif and rabi season.
Each year, the CACP submits to the government its Price Policy Reports, which are separate for five commodities: kharif crops (rabi crops), sugarcane (raw jute), copra, and raw jute.
The final decision is made by the central government after considering the views and reports of the state governments, as well as the overall demand-supply situation in the country.
MSP is currently recommended by CACP for 23 crops. These include seven cereals (paddy and wheat), six pulses (gram and tur, moong and urad), seven oilseeds (7 oilseeds) (groundnut, rapeseed mustard and sesamum, sunflower and safflower), as well as four commercial crops (copra and sugarcane, cotton, and raw jute).
The A2+FL formula
Responding to a March Lok Sabha question, Narendra Singh Tomar, Union Minister of Agriculture and Farmers Welfare, said that CACP takes into account both ‘A2+FL and ‘C2 costs when recommending MSP.
All paid-out expenses in cash or kind incurred by farmers for seeds, fertilisers and chemicals, as well as fuel, labour, fuel, and irrigation, are covered under A2 costs. A2+FL includes actual paid-out expenses and an imputed amount of family labor.
C2 costs are the rental and interest losses on fixed capital assets and owned land, respectively. These costs are in addition to A2+FL.
Only A2+FL costs are considered by the CACP for return. The CACP uses C2 costs as a benchmark to determine if MSPs recommend cover these costs in certain major producing states.
In 1966-67, the MSP system for wheat was established. It was later expanded to include essential food crops. The MSP system was then sold to the poor at subsidised rates through the public distribution system (PDS). The MSP for wheat was Rs 54 per quintal in 1966. It currently stands at Rs 1,975 per quintet.
What has happened to MSP?
The MSP growth rate for most crops has fallen over the past 10 years. This includes rabi as well as kharif. Despite the protests, the government has recently increased MSP for six Rabi crops.
The gross domestic product (GDP), is the sum of all the monetary or market values of all finished goods or services produced within a country’s boundaries in a particular time period. It functions as an overall scorecard for a country’s economic health.