Minimum Support Price

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. Till the mid 1970s, Government announced two types of administered prices :

• Minimum Support Prices (MSP)
• 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. This policy of two official prices being announced continued with some variation upto 1973-74, in the case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one year only. Since there were too many demands for stepping up the MSP, in 1975-76, the present system was evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat being procured for buffer stock operations.

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.

The increase in MSP for Kharif Crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers.

Source : Farmer Portal

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).

Crops covered

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops 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
• Raw cotton
• Raw jute
• Copra
• De-husked coconut
• Sugarcane (Fair and remunerative price)
• Virginia flu cured (VFC) tobacco

Latest Minimum Support Price - Kharif (2022-23); Rabi (2023-24)

Sowing season in India of crops varies from state to state and the harvesting of the crop also depends on variety. Thus a harvested crop sown in kharif may reach in the market even before October. MSP of Kharif Crops for 2021-22 is applicable from 1 September 2021. MSP for all mandated Rabi crops is for Rabi Marketing Season (RMS) 2023-24.

The increase in MSP for Kharif Crops for Marketing Season 2022-23 is in line with the Union Budget 2018-19 announcement of fixing the MSP at a level of at least 50 percent over the All-India weighted average Cost of Production, aiming at reasonably fair remuneration for the farmers. It is notable that, return over MSP for bajra, tur, urad sunflower seed, soybean and groundnut is more than 50 percent  over the All-India weighted average Cost of Production at 85%, 60%, 59%, 56% , 53%  and 51% respectively. 

The increase in MSP for Rabi Crops for Marketing Season 2023-24 is in line with the Union Budget 2018-19 announcement of fixing the MSP at a level of at lease 1.5 times of the All-India weighted average Cost of Production, aiming at reasonably fair remuneration for the farmers.  The maximum rate of return is 104 percent for rapeseed & mustard, followed by 100 percent for wheat, 85 per cent for lentil; 66 per cent for gram; 60 per cent for barley; and 50 per cent for safflower.

The Fair and Remunerative Price (FRP) of sugarcane payable by sugar mills for 2022-23 sugar season (October-September) is as follows:

• FRP of sugarcane for 2022-23 sugar season at Rs. 305/qtl for a basic recovery rate of 10.25%
• premium of Rs. 3.05/qtl for each 0.1% increase in recovery over and above 10.25%; and                                                                                       
• reduction in FRP by Rs. 3.05/qtl for every 0.1% decrease in recovery
• No deduction in case of sugar mills where recovery is below 9.5%. Such farmers will get Rs. 282.125/qtl for sugarcane in ensuing sugar season 2022-23 in place of Rs. 275.50/qtl in current sugar season 2021-22.

Related resources

• Minimum Support Prices since 2007-08 - recommended by CACP and fixed by government

Sources : Farmer Portal, Union Budget Portal, Arthapedia