The Centre increased the Minimum Support Price (MSP) for six rabi crops, with wheat’s MSP rising by ₹150 per quintal to ₹2,425.

MSP Hike Aligns with Budget Policy to Boost Farmer Income and Crop Diversification

• Alignment with Budget Policy: The increase follows the 2018-19 Union Budget policy to set MSP at 1.5 times the all-India weighted average cost of production.
• Impact: The revised MSP aims to incentivize crop diversification and ensure better returns for farmers.

Minimum Support Price (MSP) for six rabi crops

What is the Minimum Support Price?

• MSP is the guaranteed price paid to farmers when the government purchases their produce.
• It is based on recommendations by the Commission for Agricultural Costs and Prices (CACP), which evaluates factors such as production cost, demand-supply dynamics, market trends, and price parity between crops.
  • CACP, an attached office of the Ministry of Agriculture and Farmers Welfare, was established in January 1965.
• The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister, takes the final decision on the level of MSPs.

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Objective of MSP

• MSP aims to ensure remunerative prices for farmers’ produce and promote crop diversification.
• CACP recommends MSP for 22 mandated crops.
  • Kharif Crops (14): Paddy, Bajra, Jowar, Maize, Arhar (Pigeon Pea), Ragi, Moong (Green Gram), Groundnut-in-shell, Urad (Black Gram), Soyabean, Niger seed, Sunflower, Sesamum, Cotton.
  • Rabi Crops (6): Barley, Wheat, Gram, Rapeseed/Mustard seed, Masur (Lentil), Jute.
  • Other Commercial Crops (2): Copra, Safflower.
• Fair and Remunerative Price (FRP) for sugarcane is determined by the Department of Food & Public Distribution.
• The MSP for Toria is determined based on the MSP of Rapeseed/Mustard seed, and the MSP for De-Husked coconut is based on the MSP of Copra.

Types of Production Costs Considered by CACP

• A2 Cost: Includes all paid-out costs such as seeds, fertilisers, pesticides, hired labour, fuel, etc.
• A2+FL Cost: Adds the imputed value of unpaid family labour to A2.
• C2 Cost: A more comprehensive cost that includes A2+FL, along with interest and rentals for owned land and fixed capital.
• A2+FL is used to calculate returns, while C2 serves as a benchmark to ensure MSPs at least cover production costs in major producing states.

Other Factors considered by CACP

• Market Prices: Prevailing market prices of the crop play a role in setting the MSP. The MSP is often set slightly above the market price to provide a buffer against price fluctuations.
• Demand and Supply: The demand and supply situation for a particular crop in the market influences its MSP. Crops with higher demand and limited supply might have a relatively higher MSP.
• Cost of Living Index: The cost of living index, representing changes in the cost of basic necessities, affects the MSP calculation as it relates to the well-being of farmers.
• Global Prices: For crops that are traded internationally, global prices can influence the domestic MSP. Government aims to ensure that domestic prices remain competitive in the global market.
• Inflation: Inflation rates impact input costs and production expenses. Higher inflation can lead to higher recommended MSPs to maintain farmers’ real income levels.
• Technology and Productivity: Technological advancements and improvements in productivity can impact production costs, influencing the MSP.
• Crop Cycle: The cropping cycle, including the duration and timing of sowing and harvesting, affects the MSP. Longer-duration crops might have different cost structures.
• Risk Premium: CACP might include a risk premium to compensate farmers for uncertainties and risks associated with agriculture, such as weather fluctuations and market volatility.
• Government Policies: Government policies related to agriculture, trade, and procurement can influence the MSP. Policies that aim to encourage or discourage cultivation of certain crops can impact their MSPs.

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• Farmers’ Welfare: Ensuring that the MSP provides reasonable returns to farmers and supports their livelihoods is a primary consideration in setting the MSP.

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