Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Misunderstanding the MSP


From UPSC perspective, the following things are important :

Prelims level: MSP, Public Procurement System

Mains level: Paper 3- Reasons for farmers concerns with MSP

The article explains the purpose of Minimum Support Price (MSP) and reasons for insecurity in farmers regarding its continuance.

Relation between MSP and time-bound procurement through PPS

  • MSP, public procurement system (PPS) and a strict time-bound purchase of output brought to the PPS(through APMCs) form a package deal.
  • Take out one aspect, the deal falls apart.
  • For example, if you have MSP but not compulsory PPS, the support price becomes redundant.
  • If you have MSP and PPS/APMC mandi but not strict time-bound purchase of the product brought to the PPS, the deal will fail.

Purpose of MSP

  • At the launch of the Green Revolution, MSP and PPS were designed to assist the country in achieving its goal of food self-sufficiency, which was met by the early Seventies.
  • The purpose of MSP and PPS/APMC is now two-fold.
  • One, to maintain food self-sufficiency because crop diseases and weather conditions such as droughts.
  • The second purpose is to ensure a reasonable, assured income to the farmers.
  • The recommendation to dismantle FCI public procurement, made by the Shanta Kumar Committee in its 2015 report, displayed a lack of recognition of the importance of these two purposes.

Issues with the Farm bills

  • The government’s assurance that MSP/APMC can co-exist with the big agro-business-controlled private markets is not tenable.
  • A farmer who has reached a contract will not be legally allowed to take the product to APMC if the APMC mandi offered him/her a better price.
  • The agro-business entity will take the non-compliant farmer to court, where the dispute resolution mechanism is stacked against the farmer due to the structural inequities of legal resources and social-cultural capital.
  • The proposed dispute resolution mechanism increases the choice of the trader to trade and not of the farmer to sell.
  • The central law will prevail in the private markets, while state laws will prevail in the APMC mandis.
  • Two markets with two regulatory frameworks will create conditions for perpetual Centre-state conflicts.
  • MSPs are announced for 23 crops but compulsory and timely public procurement, are provided mainly for two crops, wheat and rice, the support price does not work for the remaining 21 crops. 

Challenge in defining MSP

  • Farmers’ organisations are insisting on the Swaminathan Committee formula of C2+50 per cent.
  • The MSP announced by the government is based on the A2+Fl+50 per cent formula.
  • Unlike the C2+50 per cent formula, A2+Fl+50  formula does not cover all the costs of farming.


Agrarian reforms that recognise the importance of ecologically and economically sustainable agriculture are an absolute necessity. Such reforms would require more than merely changing the trade emphasis of existing laws. They will involve the creation of inclusive, transparent and well-informed laws compatible with these reforms.

Back2Basics: Understanding the cost formula

  • M S Swaminathan committee recommended minimum support prices (MSP) for crops at levels “at least 50 per cent more than the weighted average cost of production”.
  • The National Commission on Farmers did not elaborate on what really constituted “weighted average cost of production” in its report submitted in October 2006.
  • The Commission for Agricultural Costs and Prices (CACP), on the other hand, gives three definitions of production costs: A2, A2+FL and C2.
  • A2 costs basically cover all paid-out expenses, both in cash and in kind, incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel, irrigation, etc.
  • A2+FL cover actual paid-out costs plus an imputed value of unpaid family labour.
  • C2 costs are more comprehensive, accounting for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.

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