Minimum Support Price (MSP)

Minimum Support Price (MSP)

Why in news:

• The Union government’s consumer affairs department is planning to procure 500,000 tonnes of masur at market rates, an official aware of the matter said, after failing to procure enough lentils at the minimum support price (MSP).

• The agriculture ministry purchases commodities at MSP under the price support scheme (PSS), while the consumer affairs department purchases them at market prices through the price stabilization fund (PSF).

About MSP:

• 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 minimum support prices 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).
• MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years.
• The minimum support prices are a guarantee price for their produce from the Government.
• 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:-
  • 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 cost of living
  • Effect on general price level
  • International price situation
  • Parity between prices paid and prices received by the farmers.
  • Effect on issue prices and implications for subsidy

Pricing policy of sugarcane:

• The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
• The Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.
• A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season.
• Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are
  • the cost of production of sugarcane;
  • the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
  • the availability of sugar to the consumers at a fair price;
  • the price of sugar;
  • the recovery rate of sugar from sugarcane;
  • the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December, 2008) and;
  • reasonable margins for growers of sugarcane on account of risk and profits (inserted in October, 2009).
• States also announce a price called the State Advisory Price (SAP), which is usually higher than the SMP.

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 of 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, sesamum, safflower seed and nigerseed
• Raw cotton
• Raw jute
• Copra
• De-husked coconut
• Sugarcane (Fair and remunerative price)
• Virginia flu cured (VFC) tobacco

Price Stabilization Fund:

• Price Stabilisation Fund is a fund created to absorb extreme volatility in selected commodity prices.
• The sum in the fund is usually used for activities aimed at bringing down/up the high/low prices say, for example, acquisition of certain goods and distribution of the same as and when appropriate so that costs remain within a range.
• In 2014-15, the Price Stabilisation Fund (PSF) was established under the Department of Agriculture, Cooperation & Farmers Welfare (DAC&FW) to regulate the cost volatility of essential agricultural commodities, such as onion, potatoes and pulses.
• Such goods will be procured directly from farmers or farmers’ organisations at the farm gate/mandi, and made available to consumers at a more affordable price.
• Losses sustained, if any, between the Centre and the states must be shared in the operations.

Syllabus: Prelims