What is MSP? and Does it benefit for farmers?
Introduction:
Assurance of a remunerative and stable price environment for growers/farmers is very important for increasing agricultural production and productivity. The market price for agricultural produce many times tends to be unstable and volatile which may result into undue losses to the growers and discourage adoption of the modern technology and required inputs. And as a result, the minimum support price (MSP) was announced.
What is MSP and Who declares MSP?
The Minimum Support Price (MSP) is an agricultural product price set by the Government of India to purchase directly from the farmers. This rate is to safeguard the farmer to a minimum profit for the harvest, if the open market has lesser price than the cost incurred.
The Cabinet Committee on Economic Affairs (CCEA), Government of India, determines the Minimum Support Prices (MSP) at the beginning of the sowing season of various agricultural commodities in India based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
Commission for Agricultural Costs and Prices :
The Commission for Agricultural Costs and Prices (CACP) was initially known as the Agricultural Prices Commission. It was renamed as the Commission for Agricultural Costs and Prices in 1985.
The objective of the Commission: The Commission was established to recommend Minimum Support Prices (MSPs), to motivate cultivators and farmers to adopt the latest technology in order to optimize the use of resources and increase productivity.
Role of CACP:
CACP submits its recommendations to the Government in the form of Price Policy Reports each year. The reports consist of five categories of commodities namely Kharif crops, Rabi crops, Sugarcane, Raw Jute, and Copra.
The CACP, while recommending support prices for a commodity takes a comprehensive overview of the entire structure of the economy of a particular commodity, and likely effects of price policy on the rest of the economy.
The Commission also makes surprise visits to States for on-the-spot assessment of the various constraints that farmers face in marketing their products or in raising the yield of their crops.
How is MSP determined?
The Commission for Agricultural Costs and Prices (CACP) decides the minimum support price taking into account the following factors:
- The entire structure of the economy of a particular commodity or group of commodities.
- 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 the cost of living
- Effect on the general price level
- International price situation
- Parity between prices paid and prices received by the farmers.
- Effect on issue prices and implications for subsidy.
Based on all these inputs, the Commission finalizes its recommendations/reports, which are then submitted to the government.
The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.
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.
How is MSP calculated?
There are three methods namely,
- A2 method
- A2+ FL method
- C2 method
The A2 method includes only the actual paid-out costs by farmers such as term loans for machinery, fertilizers, fuel, irrigation, cost of hired labour and leasing land, while the A2+FL method includes the paid-out costs as well as the imputed cost of family labour that goes into producing the crops. C2 method includes paid-out costs, imputed family labour as well as imputed rent and interest on land and other capital assets.
Crops covered under MSP:
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 if 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, sesame, safflower seed and niger seed
- Raw cotton
- Raw jute
- Copra
- De-husked coconut
- Sugarcane (Fair and remunerative price)
- Virginia flu cured (VFC) tobacco
Procurement price:
Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies [such as Food Corporation of India (FCI), Cotton Corporation of India (CCI), Jute Corporation of India (JCI), Central Warehousing Corporation (CWC), National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED), National Consumer Cooperative Federation of India Ltd. (NCCF), and Small Farmers Agro Consortium (SFAC)] for release through Public Distribution System (PDS). It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP.
Does it benefit for farmers?
Even though, MSP having more significant as said it like above, it has a few adverse effect and it is as follows:
- At present the Commission for Agricultural Costs and Prices (CACP), uses A2+FL method to determine the minimum support price. It involves adding 50 per cent of the value obtained by A2+FL method to fix the MSP. But the ideal formula according to the National commission on farmers as M.S. Swaminathan as a chairman would be: MSP = C2+ 50% of C2.
- MSP is a nationwide single price policy. However, the actual costing for production varies from place to place, more severely so in areas lacking irrigation facilities and infrastructure. Thus, not all farmers have equal benefits.
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