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Minimum Support Prices (MSPs)

Topics Covered: Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.

Minimum Support Prices (MSPs)

What to study?

For Prelims: MSP- crops covered, how is it decided.

For Mains: MSP- need, significance, concerns and rectifying measures.

 Context: CCEA has approved the increase in the Minimum Support Prices (MSPs) for all mandated Kharif crops for marketing season 2020-21.

This is to ensure remunerative prices to the growers for their produce. The highest increase in MSP is proposed for nigerseed (Rs 755 per quintal) followed by sesamum (Rs 370 per quintal), urad (Rs 300 per quintal) and cotton (long staple) (Rs 275 per quintal). The differential remuneration is aimed at encouraging crop diversification.

About MSP:

What is it?

In theory, an MSP is the minimum price set by the Government at which farmers can expect to sell their produce for the season. When market prices fall below the announced MSPs, procurement agencies step in to procure the crop and ‘support’ the prices.

Who announces?

The Cabinet Committee of Economic Affairs announces MSP for various crops at the beginning of each sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). The CACP takes into account demand and supply, the cost of production and price trends in the market among other things when fixing MSPs.

Why is it important?

Price volatility makes life difficult for farmers. Though prices of agri commodities 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 have also been used as a tool by the Government to incentivise farmers to grow crops that are in short supply.

Factors taken into consideration for fixing MSP include:

  1. Demand and supply;
  2. Cost of production;
  3. Price trends in the market, both domestic and international;
  4. Inter-crop price parity;
  5. Terms of trade between agriculture and non-agriculture;
  6. A minimum of 50% as the margin over cost of production; and
  7. Likely implications of MSP on consumers of that product.

InstaLinks:

Prelims Link:

  1. Composition of CCEA.
  2. What is CACP?
  3. How many crops are covered under MSP scheme?
  4. Who announces MSP?
  5. Difference between Kharif and Rabi crops.

Sources: pib.