The MSP full form is Minimum Support Price. It is a pre-announced price at which the Government of India purchases crops from farmers to protect them against market price drops.
The Minimum Support Price system ensures that farmers do not have to sell their produce at distress rates, thereby providing them with a guaranteed minimum income.
What is the Minimum Support Price?
The minimum support price was introduced during the Green Revolution in the 1960s to boost agricultural productivity and ensure food security. It is declared by the Central Government before each cropping season (Rabi and Kharif) based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
The CACP evaluates several factors while determining MSP, including the cost of cultivation and overall demand-supply dynamics. The goal is to provide a safety net for farmers so that even when market prices decline, they still receive a fair and stable return for their hard work.
How MSP Works in Agriculture?
In MSP agriculture, the government sets this price to ensure a reasonable profit margin over the cost of production. The cost is calculated using three components:
- A2: Actual paid-out costs such as seeds, fertilisers and hired labour
- A2+FL: Includes A2 plus family labour costs
- C2: Covers A2+FL along with rent and interest on owned land and capital assets
MSP for Different Crops
The MSP of crops covers 22 major agricultural commodities and a Fair and Remunerative Price (FRP) for sugarcane. These include cereals, pulses, oilseeds and commercial crops. The MSP for different crops ensures that production remains balanced across various regions and crop types.
For example, the MSP for paddy is fixed to protect rice farmers from market volatility. If the market price of paddy drops below the announced MSP, agencies like the Food Corporation of India (FCI) purchase the crop at the MSP, ensuring farmers do not incur losses.
