What is MSP:

  • The MSP is the rate at which the government buys crops from farmers, and it is based on a computation of at least one-and-a-half times the farmers’ cost of production.
  • MSP stands for “minimum support price” for any crop that the government deems remunerative for farmers and so worthy of “support.”
  • MSPs for 22 mandatory crops, as well as a fair and remunerative price (FRP) for sugarcane, are recommended by the Commission on Agricultural Costs and Prices (CACP).
  • CACP is a Ministry of Agriculture and Farmers Welfare connected office.
  • 14 kharif crops, 6 rabi crops, and two other commercial crops are among the prescribed crops.
  • Furthermore, the MSPs for toria and de-husked coconut are calculated using the MSPs for rapeseed/mustard and copra, respectively.

Criteria Considered in Recommending the MSP:

  • When recommending the MSP for a commodity, the CACP takes into account a number of factors, including the cost of cultivation.
  • It considers the commodity’s supply and demand, market price trends (domestic and international), parity with other commodities, and implications for consumers (inflation), the environment (soil and water use), and terms of trade between the agriculture and non-agriculture sectors.

Three Types of Production Costs:

  • The CACP forecasts three types of production costs for each crop, at both state and national levels.


  • Covers all direct cash and kind costs incurred by the farmer on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, and other items.


  • A2 is included, as well as the value of unpaid household labor.


  • On top of A2+FL, it is a more comprehensive cost that includes rentals and interest foregone on owned land and fixed capital assets.
  • When recommending MSP, CACP analyzes both A2+FL and C2 expenses.
  • CACP estimates that the cost of return is just A2+FL.
  • CACP, on the other hand, uses C2 expenses largely as a benchmark reference cost (opportunity cost) to evaluate if the MSPs they offer cover these costs in at least some of the key producing States.
  • The Union government’s Cabinet Committee on Economic Affairs (CCEA) makes the final decision on the level of MSPs and other CACP recommendations.

MSP Hike’s Importance:

  • The increased focus on nutrient-dense nutri-cereals is intended to encourage their production in locations where rice-wheat cannot be cultivated without long-term negative consequences for the groundwater table.
  • Over the last few years, there have been concerted efforts to realign MSPs in favor of oilseeds, pulses, and coarse cereals in order to encourage farmers to plant larger areas of these commodities and to implement best technology and farm practices in order to remedy the demand-supply mismatch.

Hike’s Problems:

  • Given the rise in cultivation costs, notably due to the increased use of diesel to power tractors, irrigation pumps, and harvester combines, this increase appears moderate.
  • Some price hikes, particularly for maize, failed to keep up with inflation.
  • Furthermore, the lack of guaranteed procurement means that farmers have little need to cultivate them.
  • The announcement comes as farm unions call for legislation to guarantee MSP to all farmers for all crops, as well as the repeal of three controversial agricultural reform laws.

Other Problems with MSP:

  • The main issue with the MSP is a lack of government procurement equipment for all products except wheat and rice, which are actively procured under the PDS by the Food Corporation of India.
  • Farmers in places where the grain is totally procured by the government benefit the most, while those in states where the grain is procured less are frequently affected.
  • The MSP-based procurement system is also reliant on middlemen, commission agents, and APMC officials, all of whom are difficult to reach for smaller farmers.
  • In its price policy report for the 2018-19 kharif marketing season, the CACP recommended enacting legislation giving farmers “The Right to Sell at MSP.”
  • This was deemed important “to instill confidence among farmers in the procurement of their produce,” according to the report.
  • The government should promote agricultural and animal agriculture that encourages people to eat meals high in proteins, vitamins, minerals, and dietary fibre rather than merely calories and sugar.
  • The right way to accomplish it is to freeze paddy and wheat MSPs and limit paddy and wheat procurement to 10-15 quintal per acre per farmer

    Source: THE HINDU.