Minimum Support Price (MSP)


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.


                                                Minimum Support Price (MSP)



Format-
- Historical perspective of MSP
- Determination of MSP
- Pricing policy for sugarcane
- Crops covered

 

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
 
Historical perspective of MSP

The Price Support Policy of the Government is directed at providing insurance to agricultural producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall.
 
Government announces two types of administered prices :
(i) Minimum Support Prices (MSP)
(ii) Procurement Prices
 
The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS. It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP.
 
Procurement price of a commodity refers to the price at which govt. procures the commodity from producers/manufactures for maintaining the buffer stock or the public distribution system. These prices are announced by the govt. of India on the recommendations of the Commission for Agricultural Costs and Prices before the harvest season of the crop.
 
Procurement price which is > or = to the MSP.

The major difference between MSP and PP is that while PP is for food grains only,MSP is for 25 crops which includes both food grains and non food grains
 
Determination of MSP
 
In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-
- Cost of production
- Changes in input prices
- Input-output price parity
- Trends in market prices
- Demand and supply
- Inter-crop price parity
- Effect on industrial cost structure
- Effect on cost of living
- Effect on general price level
- International price situation
- Parity between prices paid and prices received by the farmers.
- Effect on issue prices and implications for subsidy
 
The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following :-
 
- Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
- Cost of production per quintal in various regions of the country and changes therein;
- Prices of various inputs and changes therein;
- Market prices of products and changes therein;
- Prices of commodities sold by the farmers and of those purchased by them and changes therein;
- Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
- Demand related information - total and per capita consumption, trends and capacity of the processing industry;
- Prices in the international market and changes therein, demand and supply situation in the world market;
- Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
- Cost of processing of agricultural products and changes therein;
- Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
- Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.
 
Pricing policy for sugarcane
 
The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955. Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis. As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane. A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season. Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are -
- the cost of production of sugarcane;
- the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
- the availability of sugar to the consumers at a fair price;
- the price of sugar;
-the recovery rate of sugar from sugarcane;
- the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December, 2008) and;
- reasonable margins for growers of sugarcane on account of risk and profits (inserted in October, 2009).
 
States also announce a price called the State Advisory Price (SAP), which is usually higher than the SMP.

Crops covered
 
25 commodities are currently covered. They are as follows.
- Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
- Pulses (5) - gram, arhar/tur, moong, urad and lentil
-Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
-Copra
- Raw cotton
- Raw jute
- Sugarcane (Fair and remunerative price)
-Virginia flu cured (VFC) tobacco



Monday, 01st Aug 2016, 09:19:53 AM

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