Minimum Support Price

Minimum Support Price (MSP)

  • Minimum Support Price (MSP) is a form of market intervention by the Government of India to ensure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government.
  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
  • The prices of agricultural commodities are inherently unstable, primarily due to the variation in their supply, lack of market integration and information asymmetry – a very good harvest in any year results in a sharp fall in the price of that commodity during that year which in turn will have an adverse impact on the future supply as farmers withdraw from sowing that crop in the next / following years. This then causes paucity of supply next year and hence, major price increase for consumers. To counter this, MSP for major agricultural products is fixed by the Government, each year.
  • MSP is a tool which gives guarantee to the farmers, prior to the sowing season, that a fair amount of price is fixed to their upcoming crop to encourage higher investment and production of agricultural commodities. The MSP is in the nature of an assured market at a minimum guaranteed price offered by the Government. The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP). The CACP is a statutory body and submits separate reports recommending prices for Kharif and Rabi seasons.
  • The Central Government after considering the report and views of the State Governments and also keeping in view the overall demand and supply situation in the country, takes the final decision. In case of sugarcane, MSP has been assigned a statutory status and as such the announced price is termed as statutory minimum price, rechristened as Fair Remunerative Price (FRP).
  • There is statutory binding on sugar factories to pay the minimum announced price and all those transactions or purchase at prices lower than this are considered illegal. MSP for the different agricultural crops viz., food grains, oil seeds, fibre crops, sugarcane and tobacco are announced by the Government of India before their sowing seasons. This makes it possible for the farmer to have an idea about the extent of price insurance cover provided by the government for the crop.


Determination of MSP

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

  • Cost of production
  • Changes in input prices
  • Input-output price parity
  • Trends in market prices
  • Demand and supply
  • Inter-crop price parity
  • Effect on industrial cost structure
  • Effect on cost of living
  • Effect on general price level
  • International price situation
  • Parity between prices paid and prices received by the farmers.
  • Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following :-

  • Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
  • Cost of production per quintal in various regions of the country and changes therein;
  • Prices of various inputs and changes therein;
  • Market prices of products and changes therein;
  • Prices of commodities sold by the farmers and of those purchased by them and changes therein;
  • Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
  • Demand related information – total and per capita consumption, trends and capacity of the processing industry;
  • Prices in the international market and changes therein, demand and supply situation in the world market;
  • Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
  • Cost of processing of agricultural products and changes therein;
  • Cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
  • Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

The increase in MSP for Kharif Crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers.


Crops Covered

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops are as follows.

  • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) – gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Roles Played by Other Agencies in MSP

Apart from the FCI, NAFED, CCI, JCI and the State level designated agencies, there are other agencies as well which are involved in the procurement of agriculture produces. The State-wise roles of other agencies, their functions and achievements have been analyzed.

Andhra Pradesh: The procurement of paddy by the FCI and the AP State Civil Supplies Corporation under the MSP operations is done with the help of Women Self Groups of IKP / DCMS / PACSs and on their own in all the paddy growing districts as per the districts allotted to them by the Commissioner of Civil Supplies. The procurements are dependent upon the availability of experienced and active SHGs / DCMS / PACSs as mutually decided by the Managing Director, A.P. State Civil Supplies Corporation Ltd., and Chief Executive Officer, SERP. Whenever necessary, the AP MARKFED is also entrusted with the procurement of paddy under MSP operations. This benefits small and marginal farmers to sell their produce at the village level and to avoid the problems and cost on transportation of paddy to AMCs. Under Ryothbandhu scheme, the farmers are allowed to store their produce at APMC godowns for selling at a future date.

Assam: There is no other agency involved in the procurement of Paddy or Jute.

Bihar: Apart from SFCs, the lowest rung at the procurement is the PACS. But there is no other agency involved in the procurement in the State.

Gujarat: The role of various agencies in implementation of MSP is very much limited. The prevailing Market Prices of MSP crops mainly remain above the MSP and hence agencies has limited role to play. The various agencies generally make procurements for their commercial operations. Whenever any need arises, the CCI and Gujarat State Civil Supplies Corporation play important role by timely opening of the procurement centres as per the instructions from the Government.

Karnataka: Apart from KFCSC, depending on the productivity, urgency and convenience of the specific area in the State, the services of other agencies namely KSCMF, KSWC, Campco, TSS, APCOS MAMCOS, TAPCMS and KOF are utilized for the procurements.

Madhya Pradesh: For procurement of wheat, other agency involved is Sahkari Samiti and for procurement of maize apart from MPCSC, the sahkari samitis are involved.

Maharashtra: The Maharashtra State Coop Growers Marketing Federation Ltd plays a vital role in implementation of MSP. The Federation is procuring Cotton on behalf of the National Agricultural Co-operative Marketing Federation (NAFED) when market prices touch the MSP level or below. The procurement centres are being opened in Zones with the help of Graders. The raw material is procured at the ginning factories. After processing full pressed bales are stored in warehouses.

Odisha: The NAFED, MARKFED and OTDDC are involved in procurement.

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