Minimum Support Price (MSP)

&<–2/”>a >nbsp;

Historical context

The emergence of agricultural Price Policy in India was in the backdrop of Food scarcity and price fluctuations provoked by drought, floods and international prices for exports and imports. This policy in general was directed towards ensuring reasonable food prices for consumers by providing food grains through Public Distribution System (PDS) and inducing adoption of the new technology for increasing yield by providing a price support mechanism through Minimum Support Price (MSP) system.
In recognition of the importance of assuring reasonable produce prices to the farmers, motivating them to adopt improved technology and to promote Investment by them in farm enterprises, the Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in 1985) was established in 1965 for advising the Government on agricultural prices policy on a continuing basis.
The thrust of the policy in 1965 was to evolve a balanced and integrated structure to meet the overall needs of the economy and with due regard to the interests of the producers and the consumers. The first Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.

Minimum Support Price (MSP):- is a form of market intervention by the Government of Indiato insure agricultural producers against any sharp fall in farm prices.

The minimum support prices are announced by the Government of Indiaat 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 theproducer – farmers – against excessive fall in price during bumperproduction years.
The minimum support prices are a guarantee price for their produce from the Government that this will be the minimum price at which their product will fetch.
If the Market Price is above,MSP,the farmer can obviously sell it at the marketIn 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 major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

As of 2015-16, Minimum support prices are currently announced for 24 commodities,which includes food grains like Wheat,paddy etc and non-Food Crops like raw Cotton,raw jute etc.

A pilot project under the Direct Payment Deficiency System (DPDS) for paying MSP guarantee for the cotton farmers has been initiated at Hinganghat taluka of Maharashtra in 2015. Under this system, the farmers will directly get the amount which is the difference between the Minimum Support Price (MSP) and the market price, should the market price fall below the MSP. For availing of the benefit, farmers would have to present proof of cotton sold at agriculture Produce Market Committee yards, plus other papers such as ownership document, yield estimation and other details. If the pilot is successful, the DPDS would be rolled out in all cotton growing regions, as per the present decision. DPDS is essentially a mode of direct benefit transfer to cotton farmers.

Then there is this concept ofPROCUREMENT PRICE, which is the price at which government procures food grains for buffer stocking and PDS purposes through FCI.

Consider the situation where,in the wake of an imminent food shortage that may occur, the traders are willing to procure food grains in advance,driving up the market price.

When the market prices are much higher than the MSP,the farmer will obviously be willing to sell it in the market.
But the government,still, needs to procure food grains on its own to meet its distribution commitments inPDS at subsidised rates(issue price) and to create the buffer stock,necessary to intervene from supply side in case there is food deficiency and high food Inflation.
Therefore the government so as to fulfil these commitments,declares a Procurement price which is > or = to the MSP.

The major difference between MSP and PP is that while PP is forfood grains only, MSP is for 24 crops which includes both food grains and non-food grains.

Method of Calculation

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
Other Factors include 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 and 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.

Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or Industry, cost of processing of agricultural products, cost of Marketing – storage, transportation, processing, marketing Services, taxes/fees and margins retained by market functionaries; etc. are also factored in.

Report of National Commission for Farmers (NCF) had recommended that MSP should be at least 50% more than the weighted Average cost of production. However, this had not been accepted by the Government.
Procurement at MSP

Farmers are made aware of the procurement operations by way of advertisements like displaying banners, pamphlets, announcement for procurement and specification in print and electronic media.
Some States have taken steps to pre-register farmers for ensuring procurement from them through a Software system.
Keeping in view the procurement potential areas, procurement centres for MSP operations are opened by Government agencies, both Food Corporation of India (FCI) and State Government, after mutual consultations.

Procurement centres are opened by respective State Govt. Agencies/ FCI taking into account the production, marketable surplus, convenience of farmers and availability of other Logistics / Infrastructure-2/”>INFRASTRUCTURE such as storage and transportation etc. Large number of temporary purchase centres in addition to the existing mandis and depots/godowns are also established at key points for the convenience of the farmers.
The Govt. agencies also engage Co-operative Societies and Self Help Group which work as aggregators of produce from farmers and bring the produce to purchase centres being operated in particular locations/areas and increase outreach of MSP operations to small and marginal farmers. These Co-operative Societies are in addition to the direct purchases from farmers.
Co-operative societies/Self Help Groups are engaged in many States like Bihar, Chhattisgarh, Odisha, Maharashtra, Karnataka, Jharkhand and Rajasthan. Whereas, in some states like Punjab and Haryana, the Government of India has permitted the State Governments to engage locals for procurement of food grains from the farmers on payment of commission. These steps have been taken by Government of India so that Govt. agencies can procure maximum food grains directly from farmers by expanding out- reach of MSP benefit to farmers.

Food Corporation of India (FCI) is the designated central nodal agency for price support operations for Cereals, pulses and oilseeds.

The minimum support price (MSP) is a price set by the government of India for certain agricultural products. The MSP is intended to ensure that farmers receive a fair price for their produce, and to protect them from market fluctuations.

The MSP was first introduced in 1965, in response to the Green Revolution. The Green Revolution was a period of rapid agricultural Growth in India, which was achieved through the introduction of new high-yield varieties of crops. However, the Green Revolution also led to a decline in the prices of agricultural products, as supply increased and demand remained relatively constant. This decline in prices put farmers at a disadvantage, and the MSP was introduced to protect them.

The MSP is set by the government each year, based on a number of factors, including the cost of production, the market price of the product, and the government’s budget. The MSP is usually higher than the market price, and the government purchases any surplus produce at the MSP. This ensures that farmers receive a fair price for their produce, even if the market price is lower.

The MSP has been criticized for a number of reasons. Some critics argue that the MSP is too high, and that it leads to overproduction and waste. Others argue that the MSP benefits only a small number of large farmers, and that it does not help small farmers. Still others argue that the MSP is inefficient, and that it could be replaced by other policies that would be more effective in supporting farmers.

Despite these criticisms, the MSP remains an important policy in India. It has helped to protect farmers from market fluctuations, and it has contributed to the growth of the agricultural sector. However, the MSP is not without its problems, and it is likely to continue to be debated in the years to come.

One alternative to the MSP is direct income support to farmers. This would involve the government providing direct payments to farmers, regardless of the market price of their produce. This would be a more efficient way of supporting farmers, as it would not lead to overproduction or waste. However, it would also be more expensive for the government.

Another alternative to the MSP is to reform the Agricultural Marketing system. This would involve making it easier for farmers to sell their produce at a fair price, without having to rely on the government to purchase it at the MSP. This would be a more market-oriented approach, and it would likely lead to lower prices for consumers. However, it would also mean that farmers would be more exposed to market risks.

The future of the MSP is uncertain. It is likely to continue to be debated in the years to come, and it is possible that it will be reformed or replaced. However, it is also possible that the MSP will remain in place, as it is an important policy that has helped to support farmers in India.

What is a minimum support price?

A minimum support price (MSP) is a price set by the government to protect farmers from losses when selling their crops. The MSP is usually set above the market price, which means that the government buys any crops that farmers are unable to sell at a profit.

What are the benefits of a minimum support price?

The main benefit of a minimum support price is that it helps to ensure that farmers get a fair price for their crops. This can help to improve their livelihoods and reduce POVERTY in rural areas. Additionally, the MSP can help to stabilize agricultural prices and reduce market volatility.

What are the drawbacks of a minimum support price?

One of the main drawbacks of a minimum support price is that it can lead to overproduction of crops. This can depress prices and make it difficult for farmers to make a profit. Additionally, the MSP can be expensive for the government to implement.

What are some alternatives to a minimum support price?

One alternative to a minimum support price is direct payments to farmers. This would involve the government giving farmers a cash payment per unit of output, regardless of the market price. Another alternative is to provide farmers with subsidies for inputs such as fertilizer and seeds. This would help to reduce their costs and make it more profitable for them to produce crops.

What is the future of minimum support prices?

The future of minimum support prices is uncertain. Some people argue that they are no longer necessary, as market prices have been relatively stable in recent years. Others argue that they are still important to protect farmers from losses and stabilize agricultural prices. The decision of whether or not to continue with the MSP is likely to be a political one.

Question 1

The minimum support price (MSP) is a government policy that sets a minimum price for agricultural products. This policy is designed to protect farmers from low prices and ensure that they receive a fair return for their labor.

Which of the following is not a benefit of the MSP?

(A) It helps to stabilize agricultural prices.
(B) It helps to ensure that farmers receive a fair return for their labor.
(C) It helps to increase agricultural production.
(D) It helps to reduce poverty in rural areas.

Answer

(C) The MSP does not help to increase agricultural production. In fact, some studies have shown that the MSP can actually lead to lower production, as farmers are less likely to invest in new technologies or practices when they know that they will be guaranteed a minimum price for their crops.

Question 2

The MSP is set by the government based on a number of factors, including the cost of production, the market price of the product, and the government’s budget.

Which of the following is not a factor that the government considers when setting the MSP?

(A) The cost of production
(B) The market price of the product
(C) The government’s budget
(D) The demand for the product

Answer

(D) The government does not consider the demand for the product when setting the MSP. This is because the MSP is designed to protect farmers from low prices, not to increase demand for agricultural products.

Question 3

The MSP has been criticized by some economists who argue that it is a form of price control that distorts the market and leads to inefficiency.

Which of the following is an argument in favor of the MSP?

(A) The MSP helps to stabilize agricultural prices.
(B) The MSP helps to ensure that farmers receive a fair return for their labor.
(C) The MSP helps to increase agricultural production.
(D) The MSP helps to reduce poverty in rural areas.

Answer

(A) The MSP helps to stabilize agricultural prices by providing a floor price for agricultural products. This helps to protect farmers from low prices and ensures that they receive a fair return for their labor.

Question 4

The MSP has also been criticized by some farmers who argue that it is not high enough to cover their costs of production.

Which of the following is an argument in favor of the MSP?

Answer

(B) The MSP helps to ensure that farmers receive a fair return for their labor by setting a minimum price for agricultural products. However, some farmers argue that the MSP is not high enough to cover their costs of production.

Question 5

The MSP is a complex issue with both pros and cons. It is important to weigh the benefits and costs of the MSP before making a decision about whether or not it is a good policy.

Which of the following is not a benefit of the MSP?

Answer