Minimum Support Prices (MSP)

Minimum Support Prices (MSP)

Subject – Agriculture

Context – There is no guarantee farmers’ income will rise as the methodology for estimating cost of production is outdated, defective

Concept –

• The Centre has been announcing MSP for crops every year for two seasons — kharif and rabi — since 1965, based on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
• Initially, it was announced only for wheat and paddy. Over the years, more crops were added. The MSP is currently offered for 23 crops.
• Historically, the MSP is determined based on the cost of cultivation, input prices, supply and demand of crops, the price level in world markets, etc.
• Although the CACP uses nine different cost concepts (A1, A2, A2+FL, B1, B2, C1, C2, C2* and C3) for estimating the cost of production, the MSP was fixed based on cost A2+FL formula till 2018.
• While the cost C3 includes all the expenses incurred for crop cultivation, A2 covers only the farmer’s out-of-pocket spend on cultivation.
• That is, cost A2+FL (family labour) does not take into account the depreciation cost of farm machinery, the interest on loans, etc. Therefore, the gap between C3 and A2+FL cost is 30-50 per cent for most mandated crops.
• In such a scenario, crop production becomes unprofitable for farmers. So they are demanding MSPs that cover the full cost of production.
• MS Swaminathan headed Farmers’ Commission (2006) recommended that MSPs for crops should be fixed at 50 per cent higher than the cost of production.
• Given the continuous demand from farmers, the government made a historic announcement in Budget 2018-19 that the MSP will be fixed at least one-and-half times the cost of production.
• Since kharif 2018, the MSP is are fixed based on cost A2+FL plus 50 per cent formula.

To know more about MSP, please refer September 2021 DPN.