Minimum Support Price (MSP) – Explained with Video

Minimum Support Price (MSP)What is meant by Minimum Support Price or MSP?

MSP is the minimum price which the government pays for the farmers’ produce at the time of procurement. It is aimed at saving the crops from price fluctuations in the market.

The MSP fixed by the government is considered as being remunerative for farmers.

However, MSPs do not have legal backing.

History of MSP

MSPs were first introduced in 1966-67 when the country adopted Green Revolution technologies. To boost the domestic production and encourage farmers to plant the high yielding varieties, the government resorted to MSP. A minimum support price was guaranteed to them.

How is MSP fixed?

It is fixed by the centre based on the recommendations of the Commission for Agricultural Costs and Prices (CACP) which is a statutory body. CACP submits two separate reports for Kharif and rabi seasons and based on these, centre fixes MSPs twice a year.

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CACP considers the following three costs while recommending MSP-

  • A2 which covers all the cash and kind expenses of the farmers.
  • A2+FL which takes into account the estimated value of the unpaid labour of family members.
  • C2 which includes A2+FL along with the interests foregone.

Crops getting Minimum Support Price

As of now, 23 crops are being supported by the centre by fixing of MSP. They belong to the family of cereals (7), pulses (5), oilseeds (7) and commercial crops (4).

The crops are:

  1. Paddy
  2. Jowar
  3. Bajra
  4. Maize
  5. Ragi
  6. Tur (Arhar)
  7. Moong
  8. Urad
  9. Cotton
  10. Groundnut
  11. Sunflower seed
  12. Soya bean
  13. Sesamum
  14. Niger seed
  15. Wheat
  16. Barley
  17. Gram
  18. Masur (Lentil)
  19. Rapeseed and Mustard
  20. Safflower
  21. Toria
  22. Jute
  23. Coconut – Copra and De-Husked Coconut

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Why MSP is needed?

  • To safeguard farmers from the market price fluctuations.
  • The prices of farm commodities are dependent on various factors such as good harvest season which leads to fall in prices.
  • In such cases, farmers might not prefer to sow the aforesaid crop next season. MSPs would encourage farmers to sow these crops and thereby maintain a healthy supply.

Facts you should know about the Minimum Support Price

  • Although the government announces MSP for 23 crops, only 2-3 crops are effectively procured.
  • The production of rice and wheat greatly increased at the expense of other crops like pulses.
  • The significant increase in buffer stocks adds up to huge storage and transportation costs.
  • Doing away with MSP without taking the farmers into confidence is not the right step.
  • Also, other steps like improving the irrigation facilities, implementing land reforms and access to technology are necessary to make farming more remunerative to farmers.
  • Implementing various suggestions given by Swaminathan commission would be a right step instead of considering MSP as the panacea.

Market Intervention Scheme

It is a price support mechanism for those horticultural commodities which are not supported by MSP.

The commodities covered are mostly perishable in nature. The scheme is similar to MSP but is temporary in nature.

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It is implemented for a limited period on the request of the concerned state government.

The objective of this scheme is to protect the growers of horticultural crops from distress sales in the event of a fall in prices.

Recommendations of the Swaminathan Commission

MS Swaminathan commission was constituted by the centre in 2004 for recommending various measures to alleviate farmer’s distress. NCF submitted five reports in total and recommending various measures like-

  • Insertion of Agriculture in the concurrent list of the constitution.
  • Addressing the issue of land reforms and inequalities in landholdings.
  • Increasing the investments in agriculture-related infrastructure.
  • Establishment of soil testing laboratories for detection of micronutrient deficiency.
  • Ensuring the availability of formal credit to the farmers.
  • Setting up of Village Knowledge Centres or Gyan Chaupals.
  • Ensuring the availability of farm inputs at affordable rates.
  • Restructuring the microfinance policies.
  • Focused Market Intervention Scheme for live-saving crops.
  • Inclusion of millets and other nutritious cereals in PDS.
  • Investing in post-harvest management to reduce the losses and facilitation of direct farmer- consumer linkage.
  • MSP support to be provided to crops other than for paddy and wheat.
  • Steps to be taken for forming a single Indian market which promotes grading, branding and packaging.
  • Preserving the right of access to non-timber forest produce.

Farm Bills and MSP

The centre has recently passed two farm bills namely,

  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020

Other than these two bills, another bill, The Essential Commodities (Amendment) Act,2020 has also been a bone of contention between the farmers and the centre.

Key Features of the Farm Bill

The first bill i.e., the Farmers’ produce trade and commerce bill gives more choice to the farmers regarding their produce. It allows the farmers to sell their farm produce outside the government regulated mandis or the Agricultural Produce Marketing Committee (APMC). APMC as an institution became obsolete and is fixing low prices for the produce. This is leading the farmers to resort to distress sales in the event of bumper production. Hence, this scheme allows farmers to choose the best price for their products and sell accordingly.

The second bill i.e., the Farmers’ agreement on price assurance and farm services bill has provisions regarding the contract farming. It gives the farmers an opportunity to strike a deal with corporates even before the production. This shifts the risk from farmers onto the businessmen and also the farmers will be assured of a fixed price.

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Benefits of the Farm Bills

  • Higher prices for farmers for their produce since restrictions to sell in the physical premises of mandis has been done away with.
  • They provide for a 3level dispute settlement mechanism- conciliation board, sub-divisional magistrate and appellate authority.
  • A guaranteed price for the product to be mentioned in the agreement between farmers and businessmen.
  • Direct selling of the products through electronic trading is also permitted.
  • The State governments are prohibited from levying market fees for trading outside the trade area.
  • Strict rules and fines for violation of agreements are mentioned in the bills.

Drawbacks of the Farm Bills

  • No clarity or mention regarding the MSP in the proposed laws.
  • No involvement of Judiciary in the dispute settlement mechanism.
  • Farmers’ concern that their interests would be ignored in case of disputes with large corporate houses.
  • Under contract farming, there is a fear of becoming slaves to corporate buyers on one’s own land.

Previous Year UPSC Questions from the topic Minimum Support Price (MSP)

Qn 1) Consider the following: (UPSC CSE Prelims 2018)

  1. Areca nut
  2. Barley
  3. Coffee
  4. Finger millet
  5. Groundnut
  6. Sesamum
  7. Turmeric

The Cabinet Committee on Economic Affair, has announced the Minimum Support Price for which of the above?

  1. 1, 2, 3 and 7 only
  2. 2, 4, 5 and 6 only
  3. 1, 3, 4, 5 and 6 only
  4. 1, 2, 3, 4, 5, 6 and 7

Correct Answer: (B) 2, 4, 5 and 6 only

Question 2) What do you mean by minimum support price? How will the MSP rescue farmers from the low-income trap? (UPSC mains,2018)

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