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.
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.
Factors taken into consideration for fixing MSP include:
- Demand and supply;
- Cost of production;
- 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 cost of production; and
- Likely implications of MSP on consumers of that product.