The MSP full form is Minimum Support Price. The Minimum Support Price is a type of market intervention used by the Government of India to protect agricultural producers from a sharp drop in prices. The Government of India announces minimum support prices for specific crops at the start of the growing season based on the Commission for Agricultural Costs and Prices (CACP) recommendations. 

The Government of India set the MSP to protect producers – farmers – from price drops during bumper production years. The MSPs are guaranteed a price from the government for their produce. The main goals are to support farmers through distress sales and obtain food grains for public distribution. If the market price for the commodity falls below the announced minimum price due to bumper production and market glut, government agencies will purchase the entire quantity offered by farmers at the announced minimum price. 

Now that you have a basic knowledge of MSP, let’s learn more about its history and the price determination process of MSP.

What is MSP and why was it introduced?

India experienced a significant deficit in cereal production upon independence. The low output was unable to meet the high demand of the population. As a result, after more than a decade of struggle, the Indian government has finally decided to implement extensive agricultural reforms. The Minimum Support Price, or MSP, was implemented in 1966-67 as a first step toward agricultural reformation.

MSP is a  valuable tool for farmers in protecting themselves from financial fluctuations. The Minimum Support Price, or MSP, works to protect farmers from the market and natural disaster uncertainties. Implementing the Minimum Support Price, or MSP, was a watershed moment in India’s agricultural industry, transforming the country from a food deficit to a food surplus. 

With Green Revolution, it became clear that Indian farmers needed more incentives to grow food crops. This was necessary, especially for crops requiring labour, such as wheat and paddy. As a result, to provide more significant incentives to farmers while also increasing output, the Centre decided to implement the Minimum Support Price or MSP. Wheat was the first crop to receive an MSP, set at 54 cents per quintal.

There are currently 23 crops that receive MSP. These crops include Bajra, Wheat, Maize, Paddy, Barley, Ragi, and Jowar, as well as pulses such as tur, chana, urad, moong, and masoor, and oilseeds such as safflower, mustard, niger seed, soya bean, groundnut, sesame, and sunflower. Aside from these, commercial crops such as cotton, copra, raw jute, and sugarcane receive a Minimum Support Price, MSP.

How Are MSPs Determined?

The cost on which the 1.5 times formula was computed was not specified in Finance Minister Arun Jaitley’s 2018 budget speech. However, according to the CACP’s ‘Price Policy for Kharif Crops for the Marketing Season 2018-19,’ its Minimum Support Price recommendations are based on 1.5 times the A2+FL costs.

The 1.5-times MSP formula was initially recommended by M S Swaminathan, the head of the National Commission for Farmers. 

The Swaminathan Committee specifies three variables to determine production costs:

A2: It refers to out-of-pocket expenses incurred by farmers, such as a loan for fertiliser, machinery, fuel, irrigation, and so on, and the cost of leasing land.

A2+FL: Is the estimated value of unpaid labour for crop harvesting, such as contributions from family members, etc. Furthermore, it is a paid-out cost.

C2: Comprehensive Cost, or the actual cost of production. In addition to the A2+FL rate, it considers rent and interest foregone on land and machinery owned by farmers.

The Committee recommends the following formula for calculating the MSP:

MSP = C2 plus 50% of C2.

In addition, the 1.5 times formula for calculating the increased MSP is

1.5 times the MSP formula equals 1.5 times the A2+FL costs

Farmers have requested that the 1.5 times MSP formula be applied to C2 costs. After considering this, the government stated that one of the main factors used to determine the MSP is the production cost. Furthermore, the CACP takes into account all costs in a comprehensive manner.

The CACP considers both C2 and A2+FL costs when calculating the MSP. The CACP uses the A2+FL formula and the C2 formula as reference costs to ensure that the MSP covers the production cost.

MSP in relation to minor forest produces

According to experts, the Union government’s mechanism for marketing minor forest produce (MFP) through minimum support price (MSP) and developing a value chain for the MFP scheme may provide relief to forest-dependent labourers in the aftermath of the novel coronavirus (COVID-19) outbreak.

In 2013, the Union Cabinet approved a Centrally Sponsored Scheme for marketing non-nationalised / non-monopolised Minor Forest Produce (MFP) and developing a value chain for MFP via Minimum Support Price (MSP). Previously, the scheme was limited to scheduled areas in eight states, with fixed MSPs for 12 MFPs. Later, it was expanded to include all states and Union Territories.

This was a social safety measure for MFP gatherers, who are primarily members of Scheduled Tribes (STs), most of whom live in Left Wing Extremism (LWE) areas.

For the current Plan period, the scheme had a Central Government share of Rs. 967.28 crore and a State share of Rs 249.50 crore.

The total number of MFPs covered by the list is 49.

Minor Forest Produce (MFP), also known as Non-Timber Forest Produce (NTFP), is a significant source of livelihood for many STs who live in and around forests, providing essential food, nutrition, medicinal needs, and cash income. An estimated 100 million forest dwellers rely on Minor Forest Produces for food, shelter, medicines, cash income, and other necessities.

However, MFP production is highly dispersed spatially due to the poor accessibility of these areas and a lack of a competitive market. As a result, MFP gatherers, who are mostly poor, cannot bargain for reasonable prices. This intervention package may aid in the organisation of unstructured MFP markets.

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