MINIMUM SUPPORT PRICE OR MSP
WHAT IS MINIMUM SUPPORT PRICE (MSP):
- Minimum Support Price (MSP) is an important part of India’s agricultural price policy.
- MSP is in the nature of long – term guarantee made by the Government to the producers/farmers so that in the event of a glut, prices are not allowed to fall below these announced minimum prices. To ensure this, the government indulges in large-scale purchase of food grains at the declared minimum prices.
- The government has been fixing these prices for different agricultural commodities for the past several years.
Historical perspective of MSP:
1964 – recommendation of setting up of an Agricultural Price Commission by the ‘Food grains prices committee’
1965 (January) – setting up of Agricultural Price Commission
1985 – renamed as Commission for Agricultural Costs and Prices (CACP)
Ever since its inception, the commission has been announcing:
- minimum support prices
- procurement prices and
- issue prices for a number of agricultural commodities
Procurement prices are fixed at a higher level as compared to the minimum support prices and are meant essentially for the purchase of quantities needed by the government for maintaining the public distribution system and for building buffer stocks
Issue prices indicate the prices at which the government supplies food grains through fair prices shops and ration depots
Commodities under MSP: At present MSP covers 24 crops, which includes 7 cereals, 5 pulses, 8 oilseeds and 4 others.
Declaring and preparing MSP:
MSP is announced for various crops at the beginning of each sowing season after taking into account the following:
- Recommendations of the Commission for Agricultural Costs and Prices (CACP).
- Views of State Governments
- Other relevant factors like – Demand and Supply of the crop, the cost of production of the crop, price trends in the market of the crop.
Factors affecting MSP:
- Cost of production
- Change 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
- Cost of marketing, storage, processing, transportation, taxes etc.
Objectives of MSP:
- Incentivizing farmers to grow crops that are in short supply.
- Giving protection to the farmers against excessive fall in price during bumper production years.
- Motivating farmers to adopt improved technology.
- Promoting investment by farmers in farm enterprises.
Disadvantages of MSP:
- It has unequal access as the benefits of this scheme do not reach all farmers and for all crops. There are many regions of the country like the north-eastern region where the implementation is too weak.
- Due to shortage of storage, many food grains have rotten in the warehouses.
- India’s MSP scheme for many crops has been challenged by many countries in the WTO.
- It prevents earning of profit by producers as a farmer who chooses the MSP route cannot take advantage of beneficial market prices and has to depend solely on the MSP.
- Market prices become dependent on MSP due to market intervention measure. Policies sometimes reduce the market prices during good harvest years also. It has an impact on inflation.