Minimum Support Prices
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Revision as of 12:43, 18 August 2015
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, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.
Minimum support prices are currently announced for 24 commodities including seven cereals (paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad and lentil); eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.
Such minimum support prices are fixed at incentive level, so as to induce the farmers to make capital investment for the improvement of their farm and to motivate them to adopt improved crop production technologies to step up their production and thereby their net income. In the absence of such a guaranteed price, there is a concern that farmers may shift to other crops causing shortage in these commodities.
The emergence of agricultural Price Policy in India was in the backdrop of food scarcity and price fluctuations provoked by drought, floods and international prices for exports and imports. This policy in general was directed towards ensuring reasonable food prices for consumers by providing food grains through Public Distribution System (PDS) and inducing adoption of the new technology for increasing yield by providing a price support mechanism through Minimum Support Price (MSP) system.
In recognition of the importance of assuring reasonable produce prices to the farmers, motivating them to adopt improved technology and to promote investment by them in farm enterprises, the Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in 1985) was established in 1965 for advising the Government on agricultural prices policy on a continuing basis. The thrust of the policy in 1965 was to evolve a balanced and integrated structure to meet the overall needs of the economy and with due regard to the interests of the producers and the consumers. The first Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.
Method of Calculation
In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities. Other Factors include 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 and 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.
Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry, cost of processing of agricultural products, cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; etc. are also factored in.
Report of National Commission for Farmers (NCF) had recommended that MSP should be at least 50% more than the weighted average cost of production. However, this had not been accepted by the Government.
Market Intervention Scheme
Similar to MSP, there is a Market Intervention Scheme (MIS), which is implemented on the request of State Governments for procurement of perishable and horticultural commodities in the event of fall in market prices. The Scheme is implemented when there is at least 10% increase in production or 10% decrease in the ruling rates over the previous normal year. Proposal of MIS is approved on the specific request of State/UT Government, if the State/UT Government is ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation. Under MIS, funds are not allocated to the States. Instead, central share of losses as per the guidelines of MIS is released to the State Governments/UTs, for which MIS has been approved based on specific proposals received from them.
Price Supports Scheme (PSS)
The Department of Agriculture & Cooperation implements the PSS for procurement of oil seeds, pulses and cotton, through NAFED which is the Central nodal agency, at the Minimum Support Price (MSP) declared by the government. NAFED undertakes procurement as and when prices fall below the MSP. Procurement under PSS is continued till prices stabilize at or above the MSP. Losses, if any incurred by NAFED in undertaking MSP operations are reimbursed by the central Government. Profit, if any, earned in undertaking MSP operations is credited to the central government.
- Commission for Agricultural Costs and Prices - http://cacp.dacnet.nic.in/
- Economic Survey, various years – http://www.indiabudget.nic.in