The ongoing protests by farmers in India have brought attention to the contentious issue of Minimum Support Price (MSP). The government’s assurance of a fixed crop price of 1.5 times the cost of production is one of the key demands driving these protests. In this context, it is important to understand the origins, application, and controversy surrounding the MSP system.
Understanding the Minimum Support Price (MSP)
The MSP is essentially a guaranteed ‘minimum price’ set by the Indian government for certain agricultural crops. This price acts as a safeguard for farmers as it ensures that they receive a minimum price for their produce, thus protecting them from any sharp falls in market prices. It is also the price at which government agencies buy these crops from farmers.
The Union Budget for 2018-19 announced that MSP would be maintained at 1.5 times the cost of production. This is calculated for different crops, including seven cereals, five pulses, eight oilseeds, and additional crops like raw cotton, raw jute, copra, de-husked coconut, and sugarcane.
The Commission for Agricultural Costs & Prices (CACP)
The CACP is an important governmental body responsible for recommending the MSP for 22 mandated crops and the fair and remunerative price (FRP) for sugarcane. Established in January 1965, the CACP operates under the Ministry of Agriculture and Farmers Welfare, Government of India.
While the CACP’s role is advisory in nature and its recommendations are not binding on the government, it plays a key role in determining the MSP. The CACP takes into account various factors while recommending MSP, such as the cost of cultivation, supply and demand situation, domestic and global market price trends, parity with other crops, implications for consumers, and impact on the environment.
Changes Introduced in the 2018-19 Union Budget
The 2018-19 Union Budget brought a significant change to the calculation of MSP, stating that the MSP would now be set at 1.5 times the cost of production. The CACP’s new role became to estimate the production costs for each season and calculate the MSP using this predetermined formula.
Determining the Cost of Production
The CACP does not conduct its own field-based cost estimates. Instead, it relies on state-wise and crop-specific production cost estimates provided by the Directorate of Economics & Statistics in the Agriculture Ministry.
These estimates cover three types of production costs: ‘A2’, which includes all paid-out costs directly incurred by the farmer; ‘A2+FL’, which adds an imputed value of unpaid family labour to ‘A2’; and ‘C2’, the most comprehensive cost estimate, which factors in rentals and interest foregone on owned land and fixed capital assets in addition to ‘A2+FL’.
Controversies Surrounding MSP Calculation
Disagreements around the calculation of MSP have arisen due to lack of clarity on which cost — ‘A2’, ‘A2+FL’, or ‘C2’ — is used as the base for the 1.5-times formula. While the government’s stance is that the CACP considers both A2+FL and C2 costs while recommending MSP, farm activists argue that the formula should be applied on the more comprehensive ‘C2’ costs as originally recommended by the National Commission for Farmers.
This ongoing debate continues to fuel widespread protests and demands for a written assurance of the MSP system, making this topic a significant point of discussion in the current agricultural and political landscape.
