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

The MSP are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).

The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

In 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 MSP are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).

The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

In 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.

Determination of MSP:

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

  1. Cost of Production
  2. Changes in input prices
  3. Input-Output price parity
  4. Trends in market prices
  5. Demand and Supply
  6. Inter-crop price parity
  7. Effect on industrial cost structure
  8. Effect on cost of living
  9. Effect on general price level

    10 ) International price situation

    11 ) Parity between prices paid and prices received by the farmers.

    12 ) Effect on issue prices and implications for subsidy.

Why is it important??

  • Price Volatility makes life difficult for farmers.
  • Though price of agricultural commodity may soar while in short supply, during years of bumper production, prices of the very same commodities plummet.
  • MSPs ensure that farmers get a minimum price for their produce in adverse markets.
  • MSPs also have been used as a tool by the Government to incentivise farmers to grow crops that are in short supply.

What does the new law say about MSP??

  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP.
  • There isn’t even a mention of either “MSP” or “procurement” in the bill passed by the Parliament.
  • Government has justified the move stating that the new legislation has “nothing to do with MSP”. Instead, its objective is simply to grant farmers and traders freedom of choice to sell and buy agricultural produce outside the premises of APMC mandis.
  • MSP and procurement, according to government, are entirely separate issues.
  • MSP was not part of any law before. Nor is it part of any law today.

What are the Farmers demanding with regard to MSP??

  • They are demanding for a provision in the new law safeguarding the continuance of the existing MSP – based procurement regime.
  • A mere sentence in the new law to the effect that nothing in this Act shall stop the government from announcing MSPs and undertaking crop purchases at these rates as before.