Context:
Farmers of Punjab started a three-day ‘rail roko’ agitation to enact a Minimum Support Price (MSP) law for all crops based on the Swaminathan Commission report.
About Minimum Support Price (MSP):
- It is a price support mechanism that acts as a safety net for farmers through guaranteed prices and assured markets for their products.
- MSP was started in 1966-67 for wheat and expanded further to other essential food crops, which was then sold to the poor under subsidised rates under Public Distribution System (PDS).
- It saves the crops from price fluctuations caused by unwarranted factors such as monsoon, information asymmetry etc.
- It is fixed twice a year on Commission for Agricultural Costs and Prices (CACP) recommendations.
- CACP is a statutory body under the Ministry of Agriculture & Farmers’ Welfare.
- Final MSP is approved by Cabinet Committee of Economic Affairs (CCEA).
- The CACP determines the MSP based on the expenses incurred by the farmer.
- Factors considered by CACP for fixing MSP –
- Cost of production
- Demand and supply conditions of a commodity
- Implications of an MSP on consumers of that product
- Domestic and international prices trend
- Terms of trade between agricultural and non-agricultural sectors
- Inter-crop price parity
- How are MSPs determined?
- The final MSP is determined as a function of expenses incurred (A2) and the imputed value of family labour (FL).
- There have been demands for considering a different costing method (C2).
- National Commission on Farmers (Swaminathan Committee) had also recommended MSP should be at least 50% more than the weighted average cost of production.
Source: The Hindu
Previous Year Question
Consider the following statements:
1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2020 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (d)
Explanation:
The overall procurement quantity should not normally exceed 25% of the actual production of the commodity for that particular year/season. Over and above the procurement limit of 25%, if any, prior approval of the Department of Agriculture (DAC) shall be required. Hence, statement 1 is not correct.
The MSP is fixed by the Central government, based on the average of MSP proposals made by various states, some of which can be higher than the Centre’s recommendation. While the proposals based on input costs vary from state to state, the MSP is fixed to avoid price inequity. When the market prices dip to a level that is below the MSP, the government agencies buy over the produce in order to protect the farmers. Thus market prices can rise above MSP. Hence, statement 2 is not correct.
