From UPSC perspective, the following things are important :
Prelims level : MSP system
Mains level : Issues over MSP
The Central government has hiked the minimum support price (MSP) for the coming Kharif season. The decision was taken by the Cabinet Committee on Economic Affairs.
Answer this PYQ from CSP 2018 in the comment box:
Q.Consider the following:
- Areca nut
- Finger millet
The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?
(a) 1, 2, 3 and 7 only
(b) 2, 4, 5 and 6 only
(c) 1, 3, 4, 5 and 6 only
(d) 1, 2, 3, 4, 5 and 7
What is the Minimum Support Price (MSP) system?
- MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
- MSP is price fixed by GoI to protect the producer – farmers – against excessive fall in price during bumper production years.
Who announces it?
- MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.
- The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
- They are a guaranteed price for their produce from the Government.
- In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.
- Till the mid-1970s, Government announced two types of administered prices:
- Minimum Support Prices (MSP)
- Procurement Prices
- The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
- Procurement prices were the prices of Kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
- It was announced soon after harvest began.
- Normally procurement price was lower than the open market price and higher than the MSP.
- Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
- The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
- The list of crops is as follows:
- Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
- Pulses (5) – gram, arhar/tur, moong, urad and lentil
- Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
- Raw cotton
- Raw jute
- De-husked coconut
- Sugarcane (Fair and remunerative price)
- Virginia flu cured (VFC) tobacco
Exception for Sugar
- The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
- Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis.
- As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.