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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.
Government has announced its historic decision to fix MSP at a level of at least 150 per cent of the cost of production for kharif crops 2018-19.

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

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops 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
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Minimum Support Price for 2019-20

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 2018-18 may reach in the market even before October. MSP of Kharif Crops for 2018-19 Season applicable is applicable from 1 September 2019.

Commodity

Variety

MSP for 2018-19    (Rs per quintal)

MSP for 2019-20    (Rs per quintal)

Increase over previous year (Rs per quintal)

KHARIF CROPS

Paddy

Common

1750

1815

65

 

Grade 'A'

1770

1835

65

Jowar

Hybrid

2430 2550

120

 

Maldandi

2450

2570

120

Bajra

 

1950

2000 50

Maize

 

1700

1760 60

Ragi

 

2897

3150

253

Arhar (Tur)

 

5675

5800
125

Moong

 

6975

7050

75

Urad

 

5600

5700

100

Cotton

Medium Staple*

5150

5255

105

 

Long Staple **

5450

5550

100

Groundnut in shell

 

4890

5090

200

Sunflower seed

 

5388 5650
262

Soyabeen

Yellow
3399 3710
311

Sesamum

-

6249
6485
236

Nigerseed

-

5877 5490 63

RABI CROPS (2018-19 season to be marketed in 2019-20)

Wheat

 

1735

1840

105

Barley

 

1410

1440

30

Gram

 

4400 (includes bonus of Rs. 150 per quintal)

4620

220

Masur (Lentil)

 

4250 (includes bonus of Rs.100 per quintal)

4475

225

Rapeseed & Mustard

 

4000 (includes bonus of Rs.100 per quintal)

4200

300

Safflower

 

4100 (includes bonus of Rs.100 per quintal)

4945

845

Toria

 

3560

3900

340

OTHER CROPS

Copra (2019 crop season)

Milling

 

9521

-

 

Ball

 

9920

-

De-husked coconut

 

 

2030

-

Raw Jute (for 2019-20 season)

 

 

3950

-

Sugarcane $

 

275

-

* 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 2019-20 sugar season has been fixed at Rs.275 per quintal for a basic recovery rate of 10%; providing a premium of Rs. 2.75/qtl for each 0.1 % increase in recovery over and above 10%. The cost of production of sugarcane for the sugar season is Rs. 155 per quintal.

The FRP so approved shall be applicable for purchase of sugarcane from the farmers in the sugar season 2019-20 (starting w.e.f. 1st October, 2019) by the sugar mills.

Related resources

Sources : Farmer Portal, Union Budget Portal, Arthapedia

3.26506024096
Hiraman Mandal Sep 29, 2019 08:20 AM

Very nice article related to information.if you will public or post regularly such type of article that will be good for farmers

Vijay Dewan Jul 12, 2019 12:45 AM

Home Pick up from Farmers.Dial a MSP Pick up is what is required. Will get it done.....Vijay Dewan

Ranga Reddy H May 25, 2019 05:05 PM

I sell jowar on29/3/2019 at siruguppa govt APMC market as govt rules...but till date amount not credeted to my account...please guide us to next step..

Atin Apr 03, 2019 09:31 PM

I am a farmer I can't sell my crop due to low price at market , I cannot find any government officials to announce to buy rapeseed at 4200 per quintal, so it's basically a false promises.

Vyshak Tomy Mar 09, 2019 02:13 PM

A common MSP for the whole nation is a kind of biased since the cost of cultivation differs in various regions, it will not benefit much in the states where the cost of cultivation is high. So it is better to have different minimum support prices for different states

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