UPSC Essentials: One word a day — Minimum Support Price (MSP)

Subject: Economy (Agriculture) and Polity (Agricultural policies)

(Relevance: Agricultural issues are among the most essential topics for prelims, mains and interview. Leave no aspect of agriculture uncovered.)

Why in news?

MSP is the most common yet essential term seen often in news related to the agricultural economy. Recently, the Centre announced the MSP at the rate of Rs 2,040 per quintal for paddy (Common) and Rs 2,060 per quintal for paddy (Grade A) for the kharif marketing season 2022-23. 14 of 15 states had asked for higher MSP for paddy than what Centre announced.

What is the Minimum Support Price (MSP)?

— Minimum support price (MSP) is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”. It is also the price that government agencies pay whenever they procure a particular crop.

— Simply put, the MSP for a crop is the price at which the government is supposed to procure/buy that crop from farmers if the market price falls below it.

Why MSP?

— Round the year, India’s farmers produce a host of agricultural commodities such as paddy (rice) in the Kharif season (in which sowing happens in June and harvesting in November) or wheat in the rabi season (in which sowing happens in November and harvesting in March). For the most part, farmers sell their produce in the market. But what if the prices in the market are too low to adequately remunerate farmers?

— This can often happen if there is a bumper crop that season, or if the international prices of a particular commodity are quite low (and as such imports are very cheap). In such a scenario, India’s farmers will struggle to make ends meet. Apart from their individual troubles, if farmers give up farming as a result of low prices, it can put the country’s food security at risk.

What is the historical background of MSP?

— MSP was introduced in the mid-sixties when India was in food deficit. The government was keen to boost domestic production through green revolution technologies but realised farmers wouldn’t plant input-intensive high yielding wheat or paddy varieties unless guaranteed a minimum price. MSP was first fixed for wheat in 1966-67 at Rs. 54 per quintal.

Who recommends MSP and who takes the final call?

— The MSPs are announced by the Union government and as such, it is the government’s decision. But the government largely bases its decision on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

— The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.

— CACP is an attached office of the Ministry of Agriculture and Farmers Welfare. It is an advisory body whose recommendations are not binding on the Government.

— The Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs.

— CCEA is chaired by the Prime Minister of India.

What are the crops covered under MSP?

— 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)

Note 1: In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.

Note 2: See FRP for sugarcane.

What are the factors considered by CACP while recommending MSP?

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.

What are three kinds of production cost projected by CACP?

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’: Includes ‘A2+FL’ along with revenues forgone on owned land (rent) and fixed capital assets (interest).

What is the Fair and Remunerative Price (FRP)?

—FRP is the price at which mills are legally bound to pay to farmers for the cane procured from them.
The payment of FRP across the country is governed by the Sugarcane Control order, 1966 issued under the Essential Commodities Act (ECA), 1955 which mandates payment within 14 days of the date of delivery of the cane.
It has been determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and announced by the Cabinet Committee on Economic Affairs (CCEA). The FRP is based on the Rangarajan Committee report on reorganizing the sugarcane industry.

What other purposes does MSP serve?

—The MSPs serve one more policy purpose. Using them, the government incentivises the production of certain crops, thus ensuring that India does not run out of staple food grains. Typically, MSPs create the benchmark for farm prices not just in those commodities for which they are announced, but also in crops that are substitutes.

What points an aspirant should not miss about MSP?

— The government does not procure all farm produce at MSPs. Actual procurement (at MSP) varies with crop and geography.

— Also, MSPs have no statutory backing — a farmer cannot demand MSP as a matter of right.

—The farmer unions who led the year long agitation that led to the repeal of the three farm laws, want the government to enact legislation conferring mandatory status to MSP, rather than just being an indicative or desired price.

( Source: Vikaspedia.in)

Point to ponder: List down various kharif and rabi crops separately. What are the geographical and climatic conditions required for the major crops? ( Basic yet an important question.)