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Minimum Support Price

This topic covers about MSP, its evolution, determination of MSP and the present MSP offered to various agro products.

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops 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.

Source : Farmer Portal

Pricing policy for sugarcane

The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955. Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis. As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane. A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season. Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are

  • the cost of production of sugarcane;
  • the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
  • the availability of sugar to the consumers at a fair price;
  • the price of sugar;
  • the recovery rate of sugar from sugarcane;
  • the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December, 2008) and;
  • reasonable margins for growers of sugarcane on account of risk and profits (inserted in October, 2009).
States also announce a price called the State Advisory Price (SAP), which is usually higher than the SMP.

Crops covered

26 commodities are currently covered. They are as follows.

  • Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) - gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Copra
  • De-husked coconut
  • Raw cotton
  • Raw jute
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Minimum Support Price for 2017-18

Sowing season in India of crops varies from state to state and the harvesting of the crop also depends on variety. Thus a harvested crop sown in kharif 2016-17 may reach in the market even before October. MSP of Kharif Crops for 2017-18 Season applicable is applicable from 1 September 2017.

Commodity

Variety

MSP for 2016-17    (Rs per quintal)

MSP for 2017-18    (Rs per quintal)

Increase over previous year (Rs per quintal)

KHARIF CROPS

Paddy

Common

1470

1550

80

 

Grade 'A'

1510

1590

80

Jowar

Hybrid

1625

1700

75

 

Maldandi

1650

1725

75

Bajra

 

1330

1425

95

Maize

 

1365

1425

60

Ragi

 

1725

1900

175

Arhar (Tur)

 

5050 (includes Rs.425/- Bonus)


5450 (includes Rs.200- Bonus)

400

Moong

 

5225 (includes Rs.425/- Bonus)

5575 (includes Rs.200/- Bonus)

350

Urad

 

5000 (includes Rs.425/- Bonus)

5400 (includes Rs.200- Bonus)

400

Cotton

Medium Staple *

3860

4020

160

 

Long Staple **

4160

4320

160

Groundnut in shell

 

4220 (includes Rs.100/- Bonus)

4450 (includes Rs.200/- Bonus)

230

Sunflower seed

 

3950 (includes Rs.100/- Bonus)

4100 (includes Rs.100/- Bonus)

150

Soyabeen

Yellow and Black
2775 (includes Rs.100/- Bonus) 3050 (includes Rs.200/- Bonus) 275

Sesamum

-

5000 (includes Rs.100/- Bonus)

5300 (includes Rs.100/- Bonus)

300

Nigerseed

-

3825 (includes Rs.100/- Bonus)

4050 (includes Rs.100/- Bonus)

225

RABI CROPS (To be marketed in 2018-19)

Wheat

 

1625

1735

110

Barley

 

1325

1410

85

Gram

 

4000 ((includes bonus of Rs.200 per quintal)

4400 (includes bonus of Rs. 150 per quintal)

400

Masur (Lentil)

 

3950 (includes bonus of Rs.150 per quintal)

4250 (includes bonus of Rs.100 per quintal)

300

Rapeseed/Mustard

 

3700 (includes bonus of Rs.100 per quintal)

4000 (includes bonus of Rs.100 per quintal)

300

Safflower

 

3700 (includes bonus of Rs.100 per quintal)

4100 (includes bonus of Rs.100 per quintal)

400

OTHER CROPS

Copra

Milling

5950

6500

-

 

Ball

6240

6785

-

De-husked coconut

 

1425

1760

-

Raw Jute (for 2017-18 season)

 

3500

-

-

Sugarcane $

 

230

-

-

* 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

$ Fair and remunerative price

The Fair and Remunerative Price payable by sugar mills for 2017-18 sugar season has been fixed at Rs.255/- per quintal. This will be linked to a basic recovery rate of 9.5 percent, subject to a premium of Rs.2.68 per quintal for every 0.1 percentage point increase in recovery above that level.

Related resources

Sources : Farmer Portal, Union Budget Portal, Arthapedia

3.2373540856
Datta Nov 19, 2017 09:46 PM

Govt intervention in agril produce market price when their is abundant produce. Bumper produce reduce cost of production,in this situation MSP is feasible But when their is not bumper yield of crops, definitely it means cost of production is high .In such situation Govt intervention must needed in the form of procurement price ,which help to maintain producer interest in production . Procurement price maintain balance between farm food producer and public distribution system. Now a day udid in maharashtra buy by govt agency's at MSP price is distress the farmer to produce.Farmer want procurement price for their produce for their fair life.

B L Chhipa Nov 12, 2017 12:13 PM

Instead of purchasing produces of farmers at Msp, Gov't of MP has pushed the farmers to open market forces where rates are very low.MP Government seems to shirk it's responsibility of helping farmers. Under "Bhawantar Yojna" mp govt is spending public exchequer which is misuse of hardly earned tax in the name of farmers. Central government required to look into the matter immediately

N.B. Jadhav Nov 09, 2017 08:47 AM

Please mention the varieties which are considered in Grade A & Common

Sudhir Gawande Nov 06, 2017 12:43 PM

Maximum awareness of MSP is the necessity of the time, even most of farmer don't have any idea about MSP fixed by the CACP before sowing season. Hence due attention has to paid by the government toward the same.

Viji Nov 02, 2017 02:31 PM

Mr Manish, MSP for 2017-18 is updated...

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