Minimum Support Price

Minimum Support Price is the guaranteed amount paid to farmers when the government buys their produce. MSP is based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

Which considers various factors such as:

Cost of production,
Demand and supply,
Market price trends,
Inter-crop price parity, etc.

CACP is an attached office of the Ministry of Agriculture and Farmers Welfare. It came into existence in January 1965. The Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister of India takes the final decision (approve) on the level of MSPs. The MSP is aimed at ensuring remunerative prices to growers for their produce and encouraging Crop Diversification.

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Q. With reference to Minimum Support Price Consider which one of the following is correct?

Minimum Support Price is fixed by Commission for Agricultural Costs and Prices (CACP)
Minimum support price announced only when supply is more than demand

Select the right answer using the code given below:

a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 and 2

Crops Under MSP:

Crops getting Minimum Support Price: As of now, 23 crops are being supported by the centre by fixing of MSP. They belong to the family of cereals (7), pulses (5), oilseeds (7) and commercial crops (4).

Cereal	7
Pulse	5
Oilseed	8
Other (Cotton, Jute, Coper, DH- Coconut	4

Q. Consider the following statements: (2020)

For all cereals, pulses, and oil seeds, procurement at the Minimum Support price (MSP) is unlimited in any State or UT of India.
In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.

Which of the statements given above is/are correct?

a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 and 2

Q. Consider the following: (UPSC CSE Prelims 2018)

Areca nut
Barley
Coffee
Finger millet
Groundnut
Sesamum
Turmeric

The Cabinet Committee on Economic Affair, has announced the Minimum Support Price for which of the above?

a. 1, 2, 3 and 7 only

b. 2, 4, 5 and 6 only

c. 1, 3, 4, 5 and 6 only

d. 1, 2, 3, 4, 5, 6 and 7

Correct Answer: (B) 2, 4, 5 and 6 only

Three Kinds of Production Cost:

The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.

A2
A2+FL
C2

A2 covers direct costs incurred by farmers, including expenses on seeds, fertilizers, pesticides, labor, and more. A2+FL includes A2 costs and the value of unpaid family labor.

Q. Concerning Minimum Support Price Consider, which one of the following is correct?

Minimum Support Price announced is 50% of Cost of Production
Minimum Support Price takes into consideration, Cost C2

Select the right answer using the code given below:

a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 and 2

How Decentralized Procurement better than Central Procurement?

FCI, the nodal central agency of Government of India, along with other State Agencies undertakes procurement of wheat and paddy under price support scheme.
Coarse grains are procured by State Government Agencies for Central Pool as per the direction issued by Government of India on time to time. The procurement under Price Support is taken up mainly to ensure remunerative prices to the farmers for their produce.

De-centralised procurement of food grains help in
Cutting transportation
Storage costs
Widening the coverage
Efficiency

Economic Cost to FCI

The economic cost has three main components –

Procurement cost,
Procurement price, and
Distribution cost.

The procurement incidentals are the initial costs incurred during procurement of food grains. The FCI buys food grains from the farmers at the pre-announced Minimum Support Price. The distribution costs include freight, handling charges, storage charges, losses during transit and establishment cost.