Minimum Support Prices for Agricultural Produce

Centre rules out an increase in MSP for Cotton


From UPSC perspective, the following things are important :

Prelims level: MSP, Cotton

Mains level: Not Much

While cotton farmers in several States have demanded an increase in the minimum support price (MSP) of the crop, the Centre has said that it is watching the cotton production scenario and decide accordingly.

What is MSP?

  • The MSP assures the farmers of a fixed price for their crops, well above their production costs.
  • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.
  • They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
  • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

Fixing of MSPs

  • The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
  • It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

What changed with the 2018 budget?

  • The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
  • Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

How was this production cost arrived at?

  • The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
  • ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
  • ‘A2+FL’ includes A2 plus an imputed value of unpaid family labor.
  • ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

How much produce can the government procure at MSP?

  • The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
  • Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
  • The marketed surplus ratio for different crops is estimated to range differently for various crops.
  • It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soybean, etc.
  • Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
  • This is the MSP value of production that is the marketable surplus — which farmers actually sell.

Nature of MSP

  • There is currently no statutory backing for these prices, nor any law mandating their enforcement.

Farmers demand legalization

  • Legal entitlement: There is a demand that MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce.
  • Private traders’ responsibility: Some say that most of the cost should be borne by private traders, noting that both middlemen and corporate giants are buying commodities at low rates from farmers.
  • Mandatory purchase at MSP: A left-affiliated farm union has suggested a law that simply stipulates that no one — neither the Government nor private players — will be allowed to buy at a rate lower than MSP.
  • Surplus payment by the govt.: Other unions have said that if private buyers fail to purchase their crops, the Government must be prepared to buy out the entire surplus at MSP rates.
  • Expansion of C2: Farm unions are demanding that C2 must also include capital assets and the rentals and interest forgone on owned land as recommended by the National Commission for Farmers.

Government’s position

  • The PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns — often determined by MSP and procurement.
  • The panel will have representatives from farm groups as well as from the State and Central Governments, along with agricultural scientists and economists.

Back2Basics: Cotton Cultivation in India

  • Cotton, a semi-xerophyte, is grown in tropical & sub-tropical conditions.
  • A minimum temperature of 15C is required for better germination at field conditions.
  • The optimum temperature for vegetative growth is 21-27C & it can tolerate temperature to the extent of 43C but temperature below 21C is detrimental to the crop.
  • Cotton is grown on a variety of soils ranging from well-drained deep alluvial soils in the north to black clayey soils of varying depth in central region and in black and mixed black and red soils in south zone.
  • It is semi-tolerant to salinity and sensitive to water logging and thus prefers well-drained soils.

Sowing season

  • The sowing season of cotton varies considerably from tract to tract and is generally early (April-May) in northern India.
  • Sowing is delayed as its proceeds down south (monsoon based in southern zone).


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