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Minimum Support Price (MSP)

The Minimum Support Prices were announced by the Government of India for the first time in 1966-67 for Wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits. Since then, the MSP regime has been expanded to many crops. Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.  The MSP is announced by the Government of India for 25 crops currently at the beginning of each season viz. Rabi and Kharif.

The minimum support prices are announced by the Government of India at the beginning of the sowing season on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

Historical perspective of MSP

The Price Support Policy of the Government is directed at providing insurance to agricultural producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. Till the mid 1970s, Government announced two types of administered prices :

  • Minimum Support Prices (MSP)
  • Procurement Prices

The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS. It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP. This policy of two official prices being announced continued with some variation upto 1973-74, in the case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one year only. Since there were too many demands for stepping up the MSP, in 1975-76, the present system was evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat being procured for buffer stock operations.

Determination of MSP

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

  • Cost of production
  • Changes 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
  • Parity between prices paid and prices received by the farmers.
  • Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following :-

  • Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
  • Cost of production per quintal in various regions of the country and changes therein;
  • Prices of various inputs and changes therein;
  • Market prices of products and changes therein;
  • Prices of commodities sold by the farmers and of those purchased by them and changes therein;
  • Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
  • Demand related information – total and per capita consumption, trends and capacity of the processing industry;
  • Prices in the international market and changes therein, demand and supply situation in the world market;
  • Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
  • Cost of processing of agricultural products and changes therein;
  • Cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
  • Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

Following are Latest Minimum Support Prices:

Commodity Variety MSP for 2014-15    (Rs per quintal) MSP for 2015-16    (Rs per quintal) Increase over previous year (Rs per quintal)
RABI CROPS (To be marketed in 2016-17)
Wheat 1450 1525 75
Barley 1150 1225 75
Gram 3175 3425* 250
Masur (Lentil) 3075 3325* 250
Rapeseed/Mustard 3100 3350 250
Safflower 3050 3300 250
KHARIF CROPS
Paddy Common 1360 1410 50
Grade ‘A’ 1400 1450 50
Jowar Hybrid 1530 1570 40
Maldandi 1550 1590 40
Bajra 1250 1275 25
Maize 1310 1325 15
Ragi 1550 1650 100
Arhar (Tur) 4350 4425^ 275
Moong 4600 4650^ 250
Urad 4350 4425^ 275
Cotton Medium Staple ** 3750 3800 50
Long Staple *** 4050 4100 50
Groundnut in shell 4000 4030 30
Sunflower seed 3750 3800 50
Soyabeen Black 2500
Yellow 2560 2600 40
Sesamum 4600 4700 100
Nigerseed 3600 3650 50
OTHER CROPS
Copra Milling 5250 5550 300
Ball 5500 5830 330
De-husked coconut 1425 1500 75
Jute 2400 2700 300
Sugarcane$ 220 230 10

 

^Bonus of Rs 200 per quintal payable over and above the MSP
*Bonus on Rabi pulses – Gram and Masur (Lentil) @ Rs 75 per quintal is payable over and above the MSP
** Staple length (mm) of 24.5 -25.5 and Micronaire value of 4.3 -5.1
*** Staple length (mm) of 29.5 -30.5 and Micronaire value of 3.5 -4.3
Additional incentive at the rate of Rs. 500 per quintal of tur, urad and moong sold to procurement agencies was payable during the harvest/arrival period of two months.
$ Fair and remunerative price

Following are the Circulars Issued by Govt. of India

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