MSP HIKE FOR RABI CROPS

Wheat

105% 

Rapeseed and mustard

98%

Lentil

89% 

Gram

60% 

Barley

60%

Safflower 

50%

Minimum Support Price (MSP)

The Minimum Support Price (MSP) is a government scheme that guarantees a minimum price for certain agricultural products to farmers.

It is a form of market intervention to protect farmers from sharp drops in prices. The government buys the entire quantity of a commodity from farmers if the market price falls below the MSP.

The MSP helps farmers avoid distress sales and also helps the government procure food grains for public distribution.

MSP rate determination: 

The Commission for Agricultural Costs & Prices (CACP) gives recommendations to set the Minimum Support Price (MSP) for crops to the government.

The CCEA makes the final decision on MSP levels after receiving recommendations from the Commission for Agricultural Costs and Prices (CACP).

The M S Swaminathan committee recommends that the MSP should be at least 50% more than the weighted average cost of production.

How is MSP Calculated?

The government currently sets the MSP at 1.5 times the Cost of Production (CoP), which is A2+FL. The all-India weighted average cost of production in agriculture in India is calculated using three formulas: A2, A2+FL, and C2.

• A2: The costs incurred by the farmer for the production of a specific crop, including seeds, fertilizers, chemicals, hired labour, fuel, and irrigation.
• A2+FL: The costs incurred by the farmer plus the value of unpaid family labor.
• C2: A comprehensive cost that includes A2+FL plus the imputed rental value of owned land and interest on fixed capital, plus rent paid for leased-in land.

Weighted Average Cost of Production 

The all-India cost of production is the  weighted average of State-level costs of production, where the weights are the shares of States in all-India production for the most recent year for which production estimates are available.

It is used for the payment of MSP to farmers.

For instance, for the crop season 2019–20, production estimates of 2017–18 are used.

PRACTICE QUESTION

Q.Consider the following statements about the Minimum Support Price (MSP):

1. It is decided by the Commission for Agricultural Costs & Prices (CACP).
2. The M S Swaminathan committee recommended that the MSP should be 100 % of the weighted average cost of production. 
3. The government currently sets the MSP at 1.5 times the Cost of Production (CoP).

How many of the above statements is/are incorrect?

A.Only one

B.Only two

C. All Three

D.None

Answer: B

Explanation:

Statement 1 is incorrect: 

The government uses the Commission for Agricultural Costs & Prices (CACP) recommendations to set the Minimum Support Price (MSP) for crops. 

The CCEA makes the final decision on MSP levels after receiving recommendations from the Commission for Agricultural Costs and Prices (CACP).

Statement 2 is incorrect: 

The M S Swaminathan committee recommends that the MSP should be at least 50% more than the weighted average cost of production.

Statement 3 is correct: 

The government currently sets the MSP at 1.5 times the Cost of Production (CoP), which is A2+FL.