Commodity Analysis

What is minimum support price?

Bavadharini KS | Updated on January 13, 2018 Published on February 26, 2017

Minimum support price, or MSP, is the price that farmers are guaranteed by the government for their agricultural produce. The policy of support price is directed at providing insurance to farmers against any sharp fall in farm prices. In other words, it is the minimum guaranteed fixed price (for a crop) for procurement.

The Food Corporation of India (FCI) acts as the nodal agency on behalf of the government for procurement of agricultural produce. The produce is stored in godowns and distributed to the public at a lower price through the Public Distribution System (PDS).

The Cabinet Committee on Economic Affairs announces the MSP. Based on the recommendations received from the Commission for Agricultural Costs and Prices (CACP), the MSP is fixed at the beginning of the sowing season. This helps farmers to go in for crops that could fetch better prices. CACP takes into account factors such as cost of production, changes in input prices, demand and supply, industrial cost structure and implications of subsidies before arriving at the MSP. The Commission makes use of both micro and macro data and aggregates them at the levels of district, state and country before fixing the MSP.

How the system works

The government opens procurement centres for MSP operations at various locations. Farmers are notified about the procurement operations through advertisements in print and electronic media. Cooperative societies and self-help groups collect the produce of small farmers and take it to the government procurement centres.

The MSP regime covers 26 commodities including cereals (paddy, wheat, barley, jowar, bajra, maize and ragi); pulses (gram, tur, moong, urad and lentil); oilseeds (groundnut, mustard, soya bean and sunflower seed); copra, raw cotton and jute and tobacco. However, for sugarcane, the pricing is under the statutory provisions of the Sugarcane (Control) Order 1966 issued under the Essential Commodities Act 1955.

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