GS Paper 3
Syllabus: Issues related to Minimum Support Prices
Context: India’s Union government announced the minimum support prices (MSPs) for 17 crops in this year’s Kharif season and CACP (Commission for Agriculture Cost and Prices) released Report on Price Policy for Kharif Crop 2023-24
Key Policy Recommendations:
- Promote Production and Consumption of Nutri-Cereals/ Millets (Shree Anna)
- Push Towards Pulses and Oilseeds (by launching National Mission on Edible Oils (NMEO))
- Promote rice cultivation in suitable areas and reduce the area under rice in Haryana, Punjab and western Uttar Pradesh
- Address Low Yield and Yield Gap Issues (by promoting integrated crop management, new technologies etc.)
- Improve Access to Institutional Agricultural Credit
- Bring urea under the nutrient-based subsidy (NBS) regime to address the issue of imbalanced use of nutrients in agriculture
- Expand Coverage of Crop Insurance [under PM Fasal Bima Yojana (PMFBY)]
- Accelerate Farm Mechanization [under the Sub-Mission on Agricultural Mechanization (SMAM)]
- Strengthen Market Intelligence and Outlook Systems [with the help of tech solutions like AI, Big Data analytics, Machine Learning, block chain]
- Collective/group ownership of machinery through SHGs, FPOs, cooperative societies etc. should be encouraged
- Strengthen Procurement Operations in North-Eastern Region
About Minimum Support Prices:
|Meaning||It is a policy decision (not enforceable by law), that ensures market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices.|
|Announced by||The Cabinet Committee on Economic Affairs (chaired by the PM) on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) at the beginning of the sowing season for certain crops.|
|Background||The MSP regime came into existence as a policy decision in 1967 [on the recommendations of the Food Grain Price Committee (constituted in 1964 under LK Jha)] and the government set up the Agricultural Prices Commission (renamed as the CACP in 1985) for fixing MSP for crops.|
|Objectives||A guaranteed price/safety net to prevent the farmers from distress sales and to procure food grains for public distribution.|
|Crops covered||7 types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 types of pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soybean, sunflower, sesamum, safflower, nigerseed) and 4 commercial crops (cotton, sugarcane [FRP], copra, raw jute)|
|How is it calculated?||The CACP considers both ‘A2+FL’ and ‘C2’ costs while recommending MSP.
A2 costs cover all paid-out expenses, incurred by farmers on seeds, fertilisers, etc.
A2+FL covers actual paid-out costs plus an imputed value of unpaid family labour.
The C2 costs account for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.
|Concerns||Not all crops benefit from MSPs: While around 45% of the paddy produced is procured at MSP, it is about 25% in the case of cotton and only 1-3% in the case of pulses.|
|Procurement is concentrated in only a few states: For example, Punjab, Haryana, western UP, Chhattisgarh and Telangana for paddy; Telangana and Maharashtra for cotton, etc.|
|The majority of farmers remain uncovered: According to an NSSO, ~6% of Indian farmers have benefited directly from selling their wheat or rice under the MSP regime.|
|Low MSP: For example, Maharashtra expects a 10% fall in cotton acreage in the upcoming kharif season. This is mainly because of the low MSP for cotton when compared with pulses (like tur) and soybean.|
|Executing the recommendations of the MS Swaminathan Commission half-heartedly: It recommended that MSP should be at least 50% more than the weighted average cost of production.|
- The government announced that MSPs for the Kharif season will go up by an average of 7%.
- This is the highest MSP increase in the last 5 years and the second highest in the last decade.
The economic and political significance of MSP announcements:
- The economic aspect of MSPs is not limited to farmers alone. While a sharp rise in MSPs does alleviate farm distress, it can also lead to a spike in food inflation.
- Hence, there is a trade-off between the interests of the farmer and consumers.
- Closer to elections, it is natural for governments to announce high MSPs to win over the farmer’s vote.
- El Nino: Though the MSP hike is unlikely to spike inflation by itself, food inflation may still spike if the normal monsoon is affected by El Nino. This may be a cause of worry for the Monetary Policy Committee.
- For the government’s finances: Higher MSPs and more procurement as well as the storage and disbursal of subsidised food grains are all expenses that harm the financial health of the government.
- The impact of the MSP hike on the rural economy will be uneven: This is because the rural economy is lagging behind urban India (in consumption growth).
It is an attached office of the Department of Agriculture and Farmers Welfare. The Agricultural Prices Commission (APC) was set up in 1965 to advise the Government on the price policy of major agricultural commodities. Since March 1985, the Commission has been known as CACP.
What do you mean by the Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap? (UPSC 2018)