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Minimum Support Prices (MSP)

Minimum Support Prices (MSP)

Context:

The Cabinet Committee on Economic Affairs (CCEA) has approved the increase in the Minimum Support Prices (MSPs) for all mandated Rabi crops for marketing season 2021-22.

  • This increase in MSP is in line with the recommendations of the Swaminathan Commission.

Minimum Support Price:

  • It is the rate at which the government buys grains from farmers.
  • Objective: To counter the price volatility of agricultural commodities due to variation in supply, lack of market integration, and information asymmetry.
  • Fixation of MSP: The MSP is fixed for 23 crops based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture.

Factors for fixing MSP include:

  • Cost of cultivation, Demand, and supply, Price trends in the market, both domestic and international,
  • Inter-crop price parity,
  • Terms of trade between agriculture and non-agriculture,
  • A minimum of 50% as the margin over the cost of production, and
  • Likely implications of MSP (inflation) on consumers of that product.

MSP Calculation:

  • Right now, the Commission for Agricultural Costs and Prices (CACP), under the Ministry of Agriculture and Farmers Welfare, has the responsibility of fixing the MSP in the country.

Parameters:

  • In 2004, the Union government formed the National Commission on Farmers with MS Swaminathan as its chairman. The main aim of the committee was to come up with a sustainable farming system
  • Swaminathan committee talked about the cost of farming at three levels:
    • A2: Swaminathan committee covered all the types of cash expenditure under the A2 to generate the crop. In it, things like seeds, manure, chemicals, labor costs, fuel costs, and irrigation costs were added.
    • FL: Under the FL, the Swaminathan Committee added the estimated cost of work to the total members of the farmer's family.
    • C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming were added to A2 and FL.

Details:

  • The wheat MSP has seen an increase of just 2.6 %. It is the lowest increase in 11 years.
  • The MSPs for the other crops such as barley, gram, lentil, rapeseed and mustard, and safflower too have seen a lower hike compared to last year.
  • The wheat MSP for the rabi crop of 2020-21 has been fixed at Rs 1,975 per quintal which is 2.6 % higher than Rs 1,925 in 2019-20. In percentage terms, the increase in wheat MSP is the lowest in 11 years. In 2009-10, wheat MSP was hiked by only 1.85 %—Rs 1,100 per quintal in 2009-10 against Rs 1,080 in 2008-09.
  • The highest increase in MSP has been for lentil (Masur). It has been fixed at Rs 5,100 per quintal— 6.25 % or Rs 300 higher than in 2019-20. Last year, the lentil MSP was hiked by Rs 325 per quintal or 7.26 %.
  • The MSP for gram has been increased to Rs 5,100 per quintal—Rs 225 or 4.62 % higher than last year. Last year, it was hiked by Rs 255 per quintal or 5.52 %.

Source: Indian Express