In an effort to ensure fair compensation for farmers and encourage agricultural investment and production, governments establish a Minimum Support Price (MSP). This system sets a floor price for purchasing crops from farmers each season, safeguarding their interests against market volatility.
What is MSP and Which Crops are Included?
What is MSP?
The MSP is the minimum price at which the government is willing to purchase crops from farmers. It is declared each season to ensure that farmers receive a fair price for their produce, encouraging them to invest more in agricultural activities.
Which Crops are Covered?
The MSP covers a variety of crops, categorized mainly into Kharif and Rabi seasons, including staples like Paddy, Wheat, Maize, and Cotton, along with others like Soybean, Sesamum, and Barley. It also extends to certain commercial crops such as Copra, De-husked Coconut, and Jute, with specific prices set for Sugarcane.
How is MSP Set?
Who Sets the MSP Rates?
The Commission for Agricultural Costs & Prices (CACP), under the union agricultural ministry, recommends MSPs. It considers various factors like cost of production, market trends, and inter-crop price parity. The Cabinet Committee on Economic Affairs (CCEA) makes the final decision.
How is MSP Calculated?
MSP calculation involves assessing different types of production costs – ‘A2’ (direct outlays), ‘FL’ (imputed family labor value), and a combined ‘A2+FL’ metric, which serves as the cost of production basis. The MSP is usually set at 1.5 times this combined cost.
The Swaminathan Formula
What Changes Were Proposed?
The National Commission on Farmers, led by M.S. Swaminathan, in 2004, proposed a revised formula for calculating MSP, advocating for it to be 1.5 times the input costs, including a broader range of costs (known as the ‘C2+50%’ formula).
Key Difference in Calculation
While the government’s MSP calculation uses the ‘A2+FL’ as the basis, the Swaminathan Commission’s recommendation includes a wider range of costs (C2), aiming for more comprehensive coverage of farmers’ expenses.