Minimum Support Price: Its Prospects and Challenges | Top MBA Colleges in Bangalore

Posted by Prof. Mangala V Reddy On 26/09/2022 07:50:40

Minimum support price (MSP) is an indicative ?oor price to protect farmers against any undue fall in prices, especially during harvest. The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers. It is a “minimum price” for any crop that the Government considers as remunerative for farmers and hence deserving of “support”. The concept of the Minimum Support Price (MSP) system acts as a security to farmers so that they get the right amount for their products and helps them sustain their losses so that it doesn’t affect them drastically. MSP is set up for essential crops by the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture & Farmers Welfare, Government of India to purchase directly from the farmers. MBA hospital management colleges in Bangalore

This law emerges to safeguard the farmer to a minimum profit for the harvest. While recommending the price policy of various commodities under its mandate, the Commission keeps in mind the various Terms of Reference (ToR) given to CACP in 2009. Accordingly, it analyses the demand and supply; cost of production; price trends in the market - both Domestic and International; inter-crop price parity; terms of trade between agriculture and non-agriculture; a minimum of 50 percent as the margin over cost of production; and likely implications of MSP on consumers of that product. top MBA colleges in Bangalore

This system was started in 1966-67 for wheat and expanded further to include other essential food crops and then to sell the produce to the poor under public distribution system for a subsidized rate. MSP helps the Government to control the growth of crops that are low in production. Around 23 crops are covered over 80% of India’s total agricultural produce, which includes cereals like millet, wheat, maize, paddy, barley, ragi, and jowar; pulses like tur, chana, Masoor, urad, and moong; oilseeds, safflower, mustard, Niger seed, soybean, groundnut, sesame, and sunflower. MBA College in Bangalore with Business Analytics

Challenges faced under Minimum Support Price

  • Except for wheat and rice, which the Food Corporation of India actively purchases under the PDS, the main issue with the MSP is a lack of government equipment for the procurement of all crops. 
  • Farmers in states where the government purchases all the last mile grain reap greater benefits, whereas those in states where the government purchases less grain are frequently impacted. 
  • The MSP-based procurement system also relies on intermediaries, commission agents, and APMC representatives, all of whom are difficult for smaller farmers to access.
  • Problems with disposal: Unlike Niger seed, sesame, or safflower, which cannot be distributed through the public distribution system, cereals and pulses can.
  • Increased procurement costs would result in higher food grain prices, which would eventually have an impact on the poor.
  • If the MSP is greater than the going pricing on the international market, it would also influence India's agricultural exports. 11% of all commodity exports are comprised of farm products.
  • Demands from other sectors: Farmers growing fruits and vegetables, spices, and other crops will seek the same if the Centre passes legislation guaranteeing 100 percent procurement in all 23 crops where MSP is announced.


It may be noted that the cost of production is an important factor that goes as an input in the determination of MSP, but it is certainly not the only factor that determines MSP. “Any product that is produced needs to be traded at a viable price”. However, according to the Ministry of Agriculture, the overall market also responds to the declaration of MSP and the government’s procurement operations, which results in private procurement on or above the MSP for various notified crops.  If there is no Minimum Support Price (MSP), then, the farmer can decide the crop to be produced by himself with respect to the production and post-harvest cost. The farmer can contact industries for the best price by growing the particular crop of industrialist choice (contract farming). It is the decision of the farmer to sell his produce to MSP or the Market price. MBA colleges in Bangalore list

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