Minimum Support Price (MSP)

Minimum Support Price (MSP)

Subject – Agriculture

Context – RSS wing seeks guaranteed crop prices.

Concept –

• MSP is the minimum price paid to the farmer for procuring food crops.
• It offers an assurance to farmers that their realisation for the agricultural produce will not fall below the stated price.
• The government uses the MSP as a market intervention tool to incentivise production of a specific food crop which is in short supply.
• It also protects farmers from any sharp fall in the market price of a commodity.
• MSPs are usually announced at the beginning of the sowing season and this helps farmers make informed decisions on the crops they must plant.
• MSP is computed on the basis of the recommendations made by the Commission for Agricultural Costs and Prices (CACP).
• It considers factors such as the cost of production, change in input prices, market price trends, demand and supply, and a reasonable margin for farmers.
• The Centre has increased the MSP of kharif crops for 2020-21 crop year in line with the principle of fixing MSPs at a level which is at 1.5 times the cost of production that was announced in Union Budget 2018-19.
• Concerted efforts were made over the last few years to realign the MSPs in favour of oilseeds, pulses and coarse cereals to encourage farmers shift to larger area under these crops and adopt best technologies and farm practices, to correct demand – supply imbalance.
• The added focus on nutri-rich nutri-cereals is to incentivize its production in the areas where rice-wheat cannot be grown without long term adverse implications for groundwater table.
• Crops covered under MSP: Paddy, Jowar, Bajra, Ragi, Maize, Tur, Moong, Urad, groundnut, sunflower seed, soyabean, nigerseed, Cotton and sesamum
• Besides, the Umbrella Scheme “Pradhan MantriAnnadataAaySanraksHanAbhiyan” (PM-AASHA) announced by the government in 2018 will aid in providing remunerative return to farmers for their produce.
  • The Umbrella Scheme consists of three sub-schemes i.e.
    • Price Support Scheme (PSS)
    • Price Deficiency Payment Scheme (PDPS)
    • Private Procurement & Stockist Scheme (PPSS) on a pilot basis.

• The National Food Security Act, 2013 (NFSA) provides a legal basis for the public distribution system (PDS) that earlier operated only as a regular government scheme. The NFSA made access to the PDS a right, entitling every person belonging to a “priority household” to receive 5 kg of food grains per month at a subsidised price not exceeding Rs 2/kg for wheat and Rs 3/kg for rice. Priority households were further defined so as to cover up to 75% of the country’s rural population and 50% in urban areas.
• MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers. They cannot demand it as a matter of right.
• It is only a government policy that is part of administrative decision-making. The government declares MSPs for crops, but there’s no law mandating their implementation.
• The Centre currently fixes MSPs for 23 farm commodities — 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and 4 commercial crops (cotton, sugarcane, copra and raw jute) — based on the CACP’s recommendations.
• The only crop where MSP payment has some statutory element is sugarcane. This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.
• After receiving the feed-back 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 procurement of crops.

For complete details on MSP, kindly refer to MSP.

Fair and remunerative price (FRP)

• Fair and remunerative price (FRP)is the minimum price at which rate sugarcane is to be purchased by sugar mills from farmers.
• The FRP is fixed by Union government on the basis of recommendations of Commission for Agricultural Costs and Prices (CACP). The ‘FRP’ of sugarcane is determined under Sugarcane (Control) Order, 1966. 
• Recommended FRP is arrived at by taking into account various factors such as cost of production, demand-supply situation, domestic & international prices, inter-crop price parity etc.
• This will be uniformly applicable all over the country.
• Besides FRP, some states such as Punjab, Haryana, Uttarakhand, UP and TN announce a State Advised Price, which is generally higher than the FRP.
• The price fixed by the central government is the ‘minimum price’ and the one fixed by state government is the ‘advised price’ which is always higher than the ‘minimum price’ fixed by the centre.