The Cabinet Committee on Economic Affairs (CCEA) has recently made headlines for its decision to increase the minimum support price (MSP) of more than a dozen crops for the Kharif Marketing Season (KMS) 2020-21. This elevation, which ranges between 2%-7.5% depending on the crop, comes based on the advice of the Commission for Agricultural Costs and Prices (CACP).
This hike aligns with the Union Budget 2018-19’s announcement about fixing the MSPs at a level that ensures at least 1.5 times of the all-India weighted average cost of production. The primary purpose behind this move is to ensure a fair return for the farmers.
The Importance of Large Scale Government Procurement
Despite the recent rise, the MSP increase might not make a significant difference for the farmers without extensive government procurement of most crops at MSP.
About Kharif Crops
Kharif crops refer to the plants grown during the monsoon or rainy season, from June to October. Some popular examples include Paddy, Cotton, etc.
Understanding Minimum Support Price
MSP indicates the rate at which the government purchases grains from farmers. The idea behind MSP is to counterbalance the price fluctuation of agricultural products due to factors like supply variation, lack of market integration, and information asymmetry.
Fixation Process of MSP
The MSP is set based on the CACP’s recommendations. It considers various aspects, such as demand and supply, cost of production, price trends in both domestic and international markets, inter-crop price parity, trade terms between agriculture and non-agriculture sectors, a minimum of 50% margin over the cost of production, and the likely effects of MSP on product consumers.
Role of the Commission for Agricultural Costs and Prices
The CACP, an attached office of the Ministry of Agriculture and Farmers Welfare formed in 1965, undertakes on-site assessments of farmers’ constraints in marketing their produce or enhancing their crops’ productivity levels. Based on these inputs, it finalizes its recommendations/reports submitted to the government.
Procurement and MSP Calculation
The Food Corporation of India (FCI), along with other State Agencies, procures crops. This MSP is usually estimated based on three types of calculation methods: A2, A2+FL, and C2.
The National Commission on Farmers and the Swaminathan Committee
The Central Government established the National Commission on Farmers (NCF) in 2004 to address the issues faced by farmers in India, including that of MSP calculation. On 18th November 2004, the Union Government constituted the Swaminathan Committee, headed by MS Swaminathan, to devise a sustainable farming system and make farm commodities cost-competitive and more profitable.
The Workings of the Commission for Agricultural Costs and Prices
The CACP, a statutory body consisting of a Chairman, Member Secretary, one Member (Official), and two Members (Non-Official), is tasked with recommending Minimum Support Prices (MSPs) to encourage cultivators to adopt modern technology, boost productivity, and enhance overall grain production. It submits separate reports suggesting prices for Kharif and Rabi seasons.
