The Minimum Support Price is a form of intervention in the market by the Government of India that aims to protect agricultural producers from sharp drops in farm prices.
At the start of the sowing season, the government announces minimum support prices for specific crops based on recommendations from the Commission for Agricultural Costs and Prices (CACP). The MSP is a price fixed by the government to safeguard farmers from excessive price drops during years of bumper production.
It is essentially a guaranteed price for their products provided by the government. The main objectives of MSP are to support farmers from distress sales.
If the market price for a particular commodity falls below the announced at min price due to a surplus in production, govt. agencies purchase the entire quantity at the MSP offered by the farmers.
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What is MSP
The MSP refers to the price at which the government buys crops from farmers.
Farmers incur a production cost that is at least one-and-a-half times the price calculated for their products.
The MSP serves as a minimum price for crops that the government deems as financially viable for farmers and deserving of government support.
Types of Crops come under MSP
Crops under MSP:
- The (CACP) Commission for Agricultural Costs & Prices recommends minimum support prices (MSPs) for 22 crops and a fair and remunerative price for sugarcane.
- The CACP operates as an attached office of the Ministry of Agriculture and Farmers Welfare.
- The 14 crops of the kharif season, six rabi crops, and two other commercial crops are among the mandated crops for which the government announces MSPs.
- Additionally, the MSPs of toria and de-husked coconut are established based on the MSPs of rapeseed/mustard and copra, respectively. Sugarcane (Fair and remunerative price)
- Cereals (7) – paddy, wheat, bajra, maize, barley, jowar, and ragi.
- Raw jute.
- Oilseeds (8) – groundnut, soybean, sunflower seed, rapeseed/mustard, toria, sesamum, safflower seed, and nigerseed.
- Virginia flu-cured (VFC) tobacco.
- De-husked coconut.
- Raw cotton.
- Pulses (5) – gram, moong, urad, arhar/tur, and lentil.
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How is the MSP Determined?
- The Minimum Support Price (MSP) for crops is determined by considering both implicit and explicit costs incurred by the farmers.
- Implicit costs include the rent paid by the farmers and the labour provided by their family members.
- The explicit costs include expenses for fertilizers, chemicals, seeds, and hired labour for crop production and maintenance.
- The (CACP) Commission for Agricultural Costs and Prices considers three variables – A2, FL, and C2 – to determine the MSP.
- A2 covers all the expenses incurred by farmers for inputs such as chemicals, fertilizers, seeds, and hired labour.
- A2 + FL covers the actual costs incurred along with the implicit costs in the form of family labour.
- C2 includes A2 + FL along with fixed capital assets and the rent paid by the farmers.
CACP – Commission for Agricultural Costs and Prices
Taking into account the following factors, the minimum support price is decided by the Commission for Agricultural Costs and Prices (CACP)
- Parity between prices paid by farmers and prices received by the farmers.
- Input-output price parity
- Inter-crop price parity
- Cost of production
- Changes in input prices
- Trends in market prices
- Demand and supply
- International price situation
- Effect on industrial cost structure
- Effect on the cost of living
- Effect on the general price level
- Effect on issue prices and also implications for subsidy
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Important Factors Considered by CACP for MSP
- Data is available on the cost of cultivation per hectare and cost breakdown in different regions of the country, as well as historical changes over time.
- Information is available on the cost of production per quintal in different regions of the country
- Prices of various inputs used in agriculture, and changes over time
- Market prices of agricultural products and changes over time
- Prices of commodities sold by farmers, as well as those purchased by them, changes over time
- Information on supply, including area, yield, production, imports, exports, and domestic availability and stocks held by the government or industry
- Information on demand, including total and per capita consumption, trends, and processing industry capacity
- International market prices and changes over time, as well as the demand and supply situation in the global market
- Prices of derivative products such as sugar, jaggery, jute goods, edible/non-edible oils, and cotton yarn, and changes over time
- Information on processing costs for agricultural products and changes over time
- Costs associated with marketing, including storage, transportation, processing, marketing services, taxes/fees, and margins retained by market functionaries
- Macro-economic variables such as the general level of prices, consumer price indices, and those reflecting monetary and fiscal factors.
FRO for sugarcane 2022-23 Season
The fair and remunerative price for the 2022–23 sugar season of sugarcane (October–September), payable by sugar mills, has been announced. Here are the details:
- For a basic recovery rate of 10.25%, the FRP of sugarcane for the 2022-23 season is Rs. 305/qtl.
- If the recovery rate is higher than 10.25%, there will be a premium of Rs. 3.05/qtl for every 0.1% increase in recovery.
- If the recovery rate is lower than 10.25%, there will be a reduction in FRP recovery of Rs. 3.05/qtl for every 0.1% decrease.
- However, if the recovery rate is below 9.5%, there will be no deduction, and farmers will receive Rs. 282.125/qtl for their sugarcane in the 2022-23 season instead of Rs. 275.50/qtl in the current 2021-22 season.
Table Of MSP for 2022-2023 (Rs per quintal)
|Commodity||Variety||MSP for 2022-2023 (Rs per quintal)||Increase over previous year (Rs per quintal)|
|Groundnut in shell||5850||300|
|RABI CROPS (Rabi Marketing Season (RMS) 2023-24)|
|Rapeseed & Mustard||5450||400|
|Copra (2022 crop season)||Milling||10,590||255|
|De-husked coconut (2022 crop season)||2860||60|
|Raw Jute (for 2022 -23 season)||4750||250|
|Sugarcane $ (for the sugar season 2022-23)||305||–|