In the most recent development, a decision to hike the Minimum Support Price (MSP) for Rabi crops for the marketing season 2020-21 was made at a meeting of the Cabinet Committee on Economic Affairs (CCEA), headed by the Prime Minister. This increase aligns with the principle of establishing the MSPs at a level at least 1.5 times that of the all India weighted average cost of production, as declared in the Union Budget 2018-19.
Understanding the Concept of Minimum Support Price
The MSP refers to the rate at which the government purchases grains from farmers. The concept of MSP was introduced to counterbalance the price volatility of agricultural commodities caused by factors such as fluctuation in supply, lack of market integration, and asymmetry in information.
The Process of Fixing the MSP
The MSP is set based on recommendations from the Commission for Agricultural Costs and Prices (CACP). Several considerations are taken into account while determining the MSP. These include: demand and supply; cost of production; price trends both domestically and internationally; inter-crop price parity; trade terms between agriculture and non-agriculture; a minimum of a 50% margin over the cost of production; and the implications of MSP on consumers of a given product.
The Commission also assesses various constraints that farmers encounter in marketing their produce or improving their crop productivity through on-the-spot visits to states. After careful deliberation, the Commission finalizes its recommendations which are submitted to the government.
Role of the Government and Other Entities in Procurement
Upon receiving the CACP reports, the government distributes them among state governments and concerned Central Ministries for feedback. The final decision on the level of MSPs and other recommendations is then made by the Cabinet Committee on Economic Affairs (CCEA) of the Union government. The procurement of crops is carried out by The Food Corporation of India (FCI), the central nodal agency of the Government of India, along with other State Agencies.
The CACP and Its Role
Established in 1965, the CACP is an affiliated office of the Ministry of Agriculture and Farmers Welfare. As a statutory body, it provides separate reports suggesting prices for Kharif and Rabi seasons.
National Commission on Farmers: Swaminathan Committee
On 18th November 2004, the Union government set up the National Commission on Farmers (NCF) under the leadership of MS Swaminathan. The primary goal was to devise a sustainable farming system, making farm commodities more profitable and cost-competitive. In 2006, the committee suggested that MSPs should be at least 50% more than the cost of production.
| Level | Description |
|---|---|
| A2 | All cash expenditure for crop production including seeds, manure, chemicals, labour costs, fuel costs, and irrigation costs. |
| A2+FL | A2 plus an imputed value of unpaid family labour. |
| C2 | Land rent and interest cost on money used for farming are added to A2 and FL. |
About Rabi Crops
Rabi crops are winter crops, sown from October to December and harvested from April to June. Notable rabi crops include wheat, barley, peas, gram, and mustard. Although grown across India, northern and northwestern states like Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir, Uttarakhand, and Uttar Pradesh lead in production of wheat and other rabi crops.