ALL ABOUT MINIMUM SUPPORT PRICE (MSP)

WHAT IS MSP?

Minimum Support Price (MSP) is the price set by the Indian government on agricultural products while purchasing directly from the farmers such that it guarantees a minimum profit for farmers for their harvest even if there is a fluctuation in prices for the crops in the market due to various unwanted reasons such as monsoon, poor market integration etc. The Indian government sets the MSP for 24 commodities twice a year under the recommendation of the Commission for Agricultural Costs and Prices (CACP)’s report. Thus, MSP sets a floor price below which the market prices cannot fall for all those commodities in the list for which the MSP has been set. MSP also aims to procure food grains for the public through Public Distribution Systems (PDS).

HOW WAS MSP ESTABLISHED?

The MSP system was established from 1966–67 for wheat and later it was expanded to include other essential food crops such as paddy and corn. The commodities under MSP were sold to the poor under subsidized rates under the PDS. At the beginning of MSP in 1966, the MSP for wheat was Rs.54 per quintal. The current MSP for wheat is Rs.1975 per quintal.

HOW IS MSP CALCULATED?

If a farmer had a very good harvest in any year, the price for that particular commodity falls very low during that year which in turn will have its adverse effect on the future supply of that commodity as the farmers will withdraw from sowing that crop in the following years. This will lead to an increase in price for that commodity among the consumers. To balance this situation, the MSP is set by the government each year before the sowing season.

FACTORS CONSIDERED WHILE CALCULATING MSP

We already discussed the formulas for calculating the MSP based on the cost of production and the role of CACP in it. The CACP considers the following factors while formulating the MSP, they are:

  1. Market price trends over 3–6 months.
  2. Cost of production.
  3. Effect on issue prices for subsidy.
  4. International market prices of commodities.
  5. Agricultural wage rate received by the farmers.
  6. Cost of production of commodities in various regions.
  7. Cost of storage, transportation, and marketing services.
  8. Cost of cultivation per hectare in various regions.
  9. Input-output price difference.

LIST OF CROPS UNDER MSP SYSTEM

7-types of cereal crops — Paddy, Wheat, Jowar, Bajra, Ragi, Maize, Barley

BENEFITS AND DRAWBACKS OF MSP

As we have defined MSP as a safeguard for our farmers, there are other benefits as well as drawbacks for the MSP system. Some of the benefits of the MSP system are:

  • It helps farmers in achieving profits, thereby the farmers can invest more in developing the agricultural infrastructure such as adopting new farming techniques, new machinery for farming, better irrigation systems etc.
  • MSP is declared before the starting of the sowing season, this helps farmers to identify which crops have high demand and which crops they can target to produce according to their agricultural conditions such as soil type and region.
  • The MSP system has given small and marginal farmers a chance to compete in the market with the large farmers to some extent.
  • It helps the government to have control over the growth of crops that are low in production by setting a higher price for that particular crop and adding it to the list of commodities under MSP.
  • The government can ensure food for the below poverty line people by distributing these commodities under the market price through the Public Distribution System (PDS).
  • India’s yield per hectare is the lowest compared to other countries. To improve this, agricultural productivity needs to improve. MSP alone cannot help to achieve this goal, we need more different kinds of interventions in both technology-based and on an institutional basis.
  • Another major drawback is the lack of machinery by the government to procure crops other than wheat and paddy. Wheat and paddy are procured in bulk by the Food Corporation of India (FCI). This creates irregular procurement of other crops which denies incentive or bankability for the farmers to produce these other crops.
  • Most of the states do not have the funds to procure crops at the rates (MSP) announced by the central government. This creates problems for the farmers, as they will be forced to sell their produce below MSP to other agencies (private sector).
  • The farmers sell their produce through the middlemen in the mandis. Mandis are MSP based procurement systems for buying and selling produce from farmers. The problem here is the farmers have to depend on these middlemen, commission agents etc., to sell their produce at MSP and most of the average farmers don’t get access to these mandis and are forced to sell their produce in the market.

PROBLEMS FACED BY THE FARMERS

We all know that agriculture is one of the risky fields because of various uncontrollable factors, it also accounts for the participation of 50% of India’s workforce in it and contributes about 15–20% of the total GDP of India. Let’s go through a few reports to see how the agricultural policies were reformed, what all problems our farmers faced a few years back — A report by Prof. M.S. Swaminathan — the man who saved India from food shortages and helped the agricultural sector to grow, helped the government to implement schemes and policies that would help the poor farmers. He was the first citizen of a developing country to hold the post of elected President of the Nobel Prize-winning Pugwash conference on science and world affairs.

Creating transparency marketing systems in packaged food products to make people aware what they eat!