Minimum Support Price
The Minimum Support Price is the rate at which the government buys grains from farmers.
The reason behind the idea of Minimum Support Price (MSP) is to counter the price volatility of agricultural commodities due to the factors like the variation in their supply, lack of market integration, and information asymmetry.
Fixation of Minimum Support Price (MSP):
- The Minimum Support Price (MSP) is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- Factors taken into consideration for fixing MSP include:
- Demand and supply
- Cost of production (A2 + FL method)
- Price trends in the market, both domestic and international
- Inter-crop price parity
- Terms of trade between agriculture and non-agriculture
- A minimum of 50% as the margin over the cost of production; and
- Likely implications of MSP on consumers of that product.
- The Commission also makes visits to states for an on-the-spot assessment of the various constraints that farmers face in marketing their products or even raising the productivity levels of their crops.
- Based on all these inputs, the Commission then finalizes its recommendations/reports, which are then submitted to the government.
- The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.
- After receiving the feedback from them, the Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by the CACP.
Procurement: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.