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Topic : Union Cabinet has sanctioned a hike in the minimum support prices (MSP)
GS-3 Mains  : Economy
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The Union Cabinet has sanctioned a hike in the minimum support prices (MSP) for all 14 kharif crops for the 2024-25 crop season.

What is MSP?

The Minimum Support Price (MSP) is a government program that sets a guaranteed price for certain agricultural products. This protects farmers from sharp price drops during times of surplus harvest. It’s important to note that MSP is not a legal right, farmers cannot demand it.

Crops Covered under MSP

The government announces MSP for 22 crops, including:

  • 14 Kharif Crops: Paddy, Jowar, Bajra, Maize, Ragi, Tur/Arhar, Moong, Urad, Groundnut, Soybean, Sunflower, Sesamum, Nigerseed, Cotton
  • 6 Rabi Crops: Wheat, Barley, Gram, Masur, Rapeseed & Mustard, Safflower
  • 2 Commercial Crops: Jute, Copra

Additionally, MSP for Toria and de-husked coconut is linked to MSP of Rapeseed & Mustard and Copra respectively.

Understanding Fair and Remunerative Price (FRP)

Unlike MSP, FRP is the minimum price sugar mills are required to pay to farmers for sugarcane. The Cabinet Committee on Economic Affairs sets FRP based on CACP recommendations.

Who Decides MSP and How?

The Cabinet Committee on Economic Affairs announces MSP for each sowing season, considering recommendations from the Commission for Agricultural Costs and Prices (CACP). CACP considers various factors when recommending MSP:

  • Demand and Supply: Market dynamics of the specific commodity
  • Cost of Production: How much it costs farmers to produce the crop
  • Market Price Trends: Both domestic and international market prices
  • Inter-crop Price Parity: Ensuring fair prices across different crops
  • Terms of Trade: Ratio of farm input and output prices
  • Profit Margin: Farmers should get at least 50% profit over production cost
  • Consumer Impact: How MSP might affect consumers of the product


MSP Calculation for Kharif Crops

Cost Estimates for MSP

The Commission for Agricultural Costs and Prices (CACP) relies on state-specific production cost data provided by the Directorate of Economics & Statistics in the Agriculture Ministry. They don’t conduct their own field surveys.

Three Cost Categories for MSP Calculation

The CACP calculates three cost categories (A2, A2+FL, C2) for each mandated crop in different states:

  • A2 Cost: The lowest cost, representing direct out-of-pocket expenses incurred by farmers for seeds, fertilizers, labor, land rent, fuel, irrigation, etc.
  • A2+FL Cost: Includes A2 cost plus the imputed value of unpaid family labor.
  • C2 Cost: The highest cost, factoring in rentals and interest on owned land and fixed capital assets, on top of A2+FL.

MSP Formula Debate

The National Commission for Farmers recommended an MSP based on the C2+50% formula, which includes the total cost (C2) and a 50% profit margin. However, the government currently announces MSP based on A2+FL.

Benefits of Minimum Support Price (MSP)

  • Income Security: MSP guarantees a minimum income for farmers by setting a floor price for their crops.
  • Price Stability: MSP helps stabilize overall agricultural product prices, preventing extreme highs and lows, and ensuring affordability for consumers.
  • Production Encouragement: MSP incentivizes farmers to increase production by providing a fair return on their crops.
  • Food Security: By encouraging staple crop production, MSP strengthens domestic food security and reduces reliance on imports.

Challenges of the MSP System

  • Distorted Crop Selection: The focus on a few crops like rice and wheat can lead to imbalanced crop patterns. This can cause overproduction of certain crops and neglect of others, harming agricultural diversity and sustainability.
  • Market Distortions: MSPs can influence cropping patterns and create market distortions by leading to surpluses. These surpluses can cause storage issues, inefficiencies, and price signal disruptions.
  • Limited Coverage: The MSP system doesn’t cover all agricultural produce, leaving farmers growing non-MSP crops vulnerable to market fluctuations.
  • Storage and Logistics Challenges: Effective storage and logistics infrastructure are crucial for managing large-scale MSP procurement. Inadequate facilities lead to storage losses and product wastage.
  • Fiscal Burden: Implementing MSPs can be financially demanding for the government. Procuring crops and managing surpluses require substantial resources, impacting the government’s budget.

The Way Forward for MSP

  • Diversifying Agriculture: Promote investments in animal husbandry (including fisheries) and fruits & vegetables, offering higher income potential and nutritional benefits.
  • Private Sector Involvement: The government should incentivize the private sector to develop efficient agricultural value chains using a cluster approach.
  • True MSP Intervention: Genuine MSP intervention should involve government action when market prices fall below a predetermined level, particularly in cases of excess production, oversupply, or price collapse due to international factors.

Source : https://www.thehindu.com/news/national/centre-raises-paddy-msp-by-117-to-2300-per-quintal-for-2024-25/article68308607.ece

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