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Minimum Support Price (MSP)

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  • Last Updated : 29 Nov, 2021

The minimum support price (MSP) was initially introduced during the implementation of the Green Revolution technology in 1966-67. The minimum support price (MSP) is an administered agricultural product price established by the Government of India to purchase directly from farmers, depending on a wide variety of monetary and non-price characteristics. This is not legally enforceable. There are two main goals for the introduction of MSP:

  1. To ensure that the farmer makes a minimal profit on the produce.
  2. To get food grains for public distribution.

The government used MSP to promote local output and encourage farmers to grow high-yielding cultivars. They were promised a minimum support fee. It is basically a type of market intervention used by the Indian government to protect agricultural farmers against a dramatic drop in farm prices during bumper harvest years. It is a crucial component of India’s agricultural price strategy. At the time of independence, India had a massive shortfall in cereal production. India opted to adopt significant agricultural reforms after a challenging first decade.

How might MSP help farmers escape the low-income trap?

1. Expenses for production are covered: 

The mechanism of MSP is set up in such a way that it takes into consideration the total production expenses of farmers; for example, fertilizer, seed, rent, insurance, gasoline, and other costs of maintaining a farm, tractor expenditure, electricity, etc. are the typical and required expenses for agricultural activity.

2. Protecting against middlemen: 

Profiteering intermediaries are the largest impediment to raising farmers’ income in India. A large portion of the earnings from farmers’ output is taken by commission agents, dealers, and wholesalers. Farmers in remote areas had to rely on middlemen to purchase their crops. The middlemen used to buy crops from producers, for a low price and then sell them for a huge profit. The farmers are left with virtually little. With the help of MSP, farmers may now sell their goods straight to the government and get a profit for their crops. 

3. Crop security: 

The MSP for a specific crop is determined prior to the planting season in order to keep farmers informed about market conditions. The MSP is essentially an assurance to farmers that if they don’t get a higher price for their crops in the markets, the government would buy their crops at the predetermined amount (MSP). This was interpreted as a safeguard against loss for farmers.

4. Distress sale: 

According to NABARD’s (National Bank for Agriculture and Rural Development) All India Rural Financial Inclusion Survey 2016-17, an agriculture household’s average monthly income from all sources combined is less than Rs.9,000/- (cultivation, wage labor, animal husbandry.) As a result, farmers seldom have sufficient money to purchase inputs for the following agricultural season. Small and marginal farmers have a hard time getting credit (loans). So, if they are obliged to sell their produce at a loss, they will be unable to purchase high-quality seeds, fertilizers, insecticides, or tractor-rent for the following cropping season, further reducing their revenue from the following cycle. This is something that MSP prohibits. 

5. Ensuring that farming is a lucrative business: 

The MSP is recalculated every two years. It is based on recommendations from the Commission for Agricultural Costs and Prices (CACP), a governmental body that issues reports for the Kharif and Rabi seasons and its main goal is to protect crops from the up and down of the market price of crops.

6. Aids in making well-informed decisions: 

Before planting season, the government releases MSPs for 23 crops, including cereals, pulses, oilseeds, and certain cash crops. This information allows the farmer to make an informed decision about which crop to plant for the best economic return within the constraints of his farm’s size, climate, and irrigation system. 

7. Serves as a guide for private buyers: 

MSP works as a price indicator, giving a price signal to the market and indicating that if any merchant does not offer higher prices than MSP, the farmer may not be able to sell his goods to them. As a result, it serves as a market anchor or standard for agro-commodities. While this does not guarantee that market prices will be higher than MSP, it does assure that they will not be significantly lower.

8. Crop diversification: 

The MSP established by the Indian government for the first time for wheat, has now been expanded to roughly 23 crops. Farmers will be encouraged to plant a variety of crops in order to maximize their revenue. Crop diversification has the potential to quadruple farmers’ income and ensure food security for the country, notwithstanding the problems that must be addressed.

Conclusion:

The Minimum Support Price is a crucial component of India’s agricultural price strategy. It provides enough payment to farmers and supports the food security program through PDS. Procurement agencies come in to acquire the crop and support prices when market prices fall below declared MSPs. The Minimum Support Price is an essential government policy that establishes a minimum price for main agricultural products to safeguard farmers from market fluctuations. Hence, the Minimum Support Price policy should be maintained since it protects farmers against bad market conditions by guaranteeing them a minimum return on their goods.

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