Understanding Minimum Support Price (MSP) in Indian Agriculture

29 Dec Understanding Minimum Support Price (MSP) in Indian Agriculture

This article covers “Daily Current Affairs” and the topic details “ Understanding Minimum Support Price (MSP) in Indian Agriculture”. This topic has relevance in the Agriculture section of the UPSC CSE exam.

GS 3: Agriculture

Why in the news?

The Minimum Support Prices (MSPs) for Copra for the 2024 season have been approved by the Cabinet Committee on Economic Affairs, chaired by the Prime Minister. This aligns with the government’s pledge to set MSPs at a minimum of 1.5 times the all-India weighted cost of production, as declared in the Union Budget of 2018-19.

Definition and Purpose:

• Minimum Support Price (MSP) is a government-initiated market intervention in India designed to shield agricultural producers from significant drops in farm prices.
• It serves as a safety net for farmers, particularly during bumper production years, preventing distress sales.

Statutory Nature of MSP:

• MSPs do not have statutory backing, meaning that farmers cannot legally demand MSP as an absolute right.
• The absence of statutory support makes MSP a governmental policy rather than an enforceable entitlement for farmers.

Crops Covered by MSP:

• The government announces MSP for a total of 22 mandated crops, categorized into:
  • 14 kharif crops, including paddy, jowar, bajra, maize, and pulses.
  • 6 rabi crops, such as wheat, barley, and gram.
  • 2 commercial crops, namely jute and copra.
  • Additional crops like Toria and de-husked coconut have their MSP determined based on related crops like rapeseed & mustard and copra, respectively.

Fair and Remunerative Price (FRP):

• Fair and Remunerative Price (FRP) is another pricing mechanism specifically for sugarcane.
  • FRP represents the minimum price at which sugar mills purchase sugarcane from farmers.
  • The Cabinet Committee of Economic Affairs announces FRP based on recommendations from the Commission for Agricultural Costs and Prices (CACP).

Determining Minimum Support Price (MSP): Process and Factors Considered

• Authority and Announcement:

• • The Cabinet Committee of Economic Affairs is responsible for declaring the Minimum Support Price (MSP) at the onset of each sowing season.
  • The decision is influenced by recommendations put forth by the Commission for Agricultural Costs and Prices (CACP).

Factors Considered by CACP:

• The CACP takes into account several factors when proposing MSPs, including:
  • Demand and supply dynamics of the commodity.
  • Cost of production for the specific crop.
  • Trends in domestic and international market prices.
  • Inter-crop price parity.
  • Terms of trade between agriculture and non-agriculture.
  • Ensuring a minimum 50% margin over the cost of production.
  • Evaluation of the potential impact of MSP on consumers.

Calculation Methodology:

The CACP relies on state-wise and crop-specific production cost estimates provided by the Directorate of Economics & Statistics in the Agriculture Ministry.

• The calculation involves three cost components:
  • A2 cost: Covers all direct paid-out expenses incurred by the farmer, including seeds, fertilizers, labor, and more.
  • A2+FL cost: Encompasses A2 cost plus an imputed value for unpaid family labor.
  • C2 cost: Represents the most comprehensive cost, factoring in rentals, interest on owned land and capital assets, in addition to A2+FL.

Discrepancy in Formula Application:

• The National Commission for Farmers, led by MS Swaminathan, recommended MSP under the C2+50 percent formula, incorporating total costs (C2) and a 50% profit.
• However, the government presently announces MSP based on the A2+FL formula, creating a divergence from the Swaminathan Committee’s recommendation.

Benefits and Challenges of Minimum Support Price (MSP) System

Benefits:

• Income Security: MSP ensures farmers a guaranteed minimum price, providing income security and shielding them from market price volatility.
• Price Stability: Stabilizes agricultural product prices, preventing extreme fluctuations and ensuring affordability for consumers.
• Encourages Production: Motivates farmers to increase production by offering a fair price for their crops, contributing to agricultural growth.
• Food Security: Promotes a consistent food supply by encouraging staple crop production, reducing reliance on imports, and enhancing domestic food security.

Challenges:

• Distorted Crop Selection: MSP focus on specific crops (e.g., rice, wheat) can lead to imbalanced crop selection, affecting agricultural diversity and sustainability.
• Market Distortions: MSPs may distort markets, influencing cropping patterns and causing surplus production, leading to storage issues and market inefficiencies.
• Limited Coverage: MSP system covers only a subset of crops, leaving those outside vulnerable to market fluctuations and price uncertainties.
• Storage and Logistics Challenges: Effective storage and logistics infrastructure is essential for MSP operations; inadequate facilities can result in wastage and losses.
• Fiscal Burden: Implementation of MSPs imposes a fiscal burden on the government, requiring substantial resources for procurement and managing surplus stocks. This impacts the government’s budget and fiscal health.

Strategies for a Sustainable Agricultural Future

• Diversify Agriculture:

• • • Prioritize investments in animal husbandry, fisheries, and the cultivation of fruits and vegetables.
    • Promote crops that are not only nutritious but also offer higher income potential for farmers.

• Encourage Private Sector Involvement:

• • • Incentivize private sector participation in agriculture.
    • Facilitate the development of efficient value chains through a cluster-based approach.

• True MSP Intervention:

• • • Implement a genuine Minimum Support Price (MSP) intervention.
    • Intervene when market prices fall below a predetermined level, particularly in cases of excess production, oversupply, or price collapse influenced by international factors.

• Sustainable Farming Practices:

• • • Promote sustainable farming methods to safeguard soil health and minimize environmental impact.
    • Encourage the adoption of organic farming practices.

• Access to Credit and Insurance:

• • Ensure farmers have access to affordable credit and insurance to mitigate risks associated with crop failure, pests, and natural disasters.

SOURCE: Central government increased ‘Copra’ price to support south Indian coconut growers (msn.com)

Download plutus ias current affairs eng med 29th Dec 2023

Q.1 With reference to Minimum Support Price (MSP), consider the following statements:

1. MSPs have statutory backing, thus farmers can legally demand MSP as an absolute right.
2. The government announces MSP for a total of 22 mandated crops

Which of the statements given above is/are correct? 

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

ANSWER: B

Q.2 Critically analyze the efficacy of Minimum Support Prices (MSPs) as a tool for ensuring farmers’ welfare in India. Propose innovative solutions or alternative mechanisms that could address the limitations of the current MSP framework

rishabh