What is minimum support price for crops?

Updated - July 23, 2017 01:38 pm IST

Published - July 22, 2017 07:14 pm IST

The Ambala grain mandi. File

The Ambala grain mandi. File

What is it?

Amid farmers’ unrest in many parts of the country, the demand for an increase in minimum support price (MSP) has been voiced regularly. A part of the agricultural price policy, MSP is the price at which the government offers to procure farmers’ produce during the season. While farmers are free to sell their produce to government agencies or in the open market, it is when market prices fall below the MSP that government agencies step in to buy the crop to protect the growers. Also, the aim is to safeguard the interest of the consumer by ensuring supplies at a reasonable price.

The Cabinet Committee of Economic Affairs announces the MSP at the start of each sowing season, taking into account the recommendations of the Commission for Agricultural Costs and Prices (CACP). The key considerations, while recommending the MSP for crops, are demand and supply, production cost, price trends in the domestic and international market and the likely implications of the price on consumers. The CACP’s recommendations are in the form of price policy reports every year, separately for five groups of commodities: kharif crops, rabi crops, sugarcane, raw jute and copra. At present, agricultural commodities for which MSP is given include paddy, wheat, maize, sorghum, pearl millet, barley, ragi, gram, tur, moong, urad, lentil, groundnut, rapeseed-mustard, soyabean, sesamum, sunflower, safflower, nigerseed, copra, sugarcane, cotton and raw jute.

How did it come about?

Recognising the need to evolve a balanced and integrated price structure to serve the interests of both producers (farmers) and consumers, the Union government set up a committee on August 1, 1964 to advise the Agriculture Ministry to determine the prices of rice and wheat. The domain of coverage was expanded to coarse cereals. Later, the government decided to set up a permanent body, called the Agricultural Prices Commission, in 1965. This was renamed as the Commission for Agricultural Costs and Prices in 1985. To ensure remunerative price to farmers, the government procured 38.65 million tonnes of rice, 22.93 million tonnes of wheat and 1.3 million tonnes of pulses during 2016-17 in various States.

Why does it matter?

The key purpose of the government’s price support policy is to provide a fair return to efficient farmers and to protect the interests of consumers by keeping the prices of food and other agriculture commodities at reasonable levels. Agricultural commodities are prone to price fluctuations: while a farmer may get a handsome return for his produce in a short supply scenario, the same commodity may fetch him a poor price during years of bumper production. MSP ensures that farmers get a minimum price for their produce in unfavourable market conditions. Also with MSP, farmers are incentivised to grow crops, which are short in supply. In the absence of support price, farmers may not find certain crops lucrative, which would lead to poor production, resulting in high prices. The MSP works as a tool to stabilise production and control consumer prices and sounds good, but farmers across the country have been facing problems of selling their produce at the minimum support price.

What next?

Agricultural experts point out that there is hardly any dependable mechanism of government procurement for crops on the MSP in most parts of the country. Problems like delay in the setting up of procurement centres, exploitation by commission agents ( Arthiyas ), who most of the time buy the produce from farmers below MSP on one pretext or the other, defeat its purpose. Farming for a majority of small and marginal farmers has not been remunerative. Even though the long-term answer to farmers’ indebtedness and distress is a rise in their income, the government till then should either purchase all major crops at the MSP, as is done in the case of wheat and rice in Punjab and Haryana, or subsidise the input costs. The concern that a rise in MSP would push up the prices seems unfounded. Taking advantage of the complexities in the supply chain, middlemen appear to be causing disparities in the price. There’s a gap between the price of the produce got from the farmer and the price it is sold to the consumer.

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