MSP Full Form: Minimum Support Price

MSP Full Form

MSP Full Form Fully Explained!

CategoryFull Form
Agriculture, Price TermMinimum Support Price

Minimum Support Price (MSP) is a type of market intervention carried out by the Government of India to insure the farmers against any abrupt drop in the prices of their farms. MSP are declared in the Government of India at the start of the sowing season for specific crops on recommendation of Commission for Agricultural Costs and Prices (CACP). 

MSP is set by the Government of India to protect the farmers who produce the food from a sudden drop in price during the peak production years. Minimum support rates are a guaranteed that their products will be purchased by the government. 

The main goal is to help farmers avoid the sale of their distress crops and to acquire grain for distribution to the public. If the market price for the commodity is lower than the minimum price that was announced because of the high production and a glut in the market, the government purchases the entire amount offered by farmers at the stated minimum price.

The historical perspective of MSP (MSP Full Form)

The Price Support Policy of the Government is designed to offer assurance to farmers against sharp declines in the prices of their crops. The minimum guarantee prices are set to establish the floor at which market prices can’t be lowered. From the mid 1970s on The Government had announced two kinds of price administration :

  • Minimum Support Prices (MSP)
  • Procurement Prices

The MSPs were the base prices, and were established by the government as an assurance for the long-term producers’ investment decisions, with the promise that the prices for their commodities could not be lower than the levels set by the government regardless of an over-producing crop.

The prices for procurement were those of kharif, rabi and other cereals that allowed the grain to be purchased domestically from public authorities (like those of the FCI) for distribution through PDS. The announcement was made shortly after the harvest had begun. 

Usually, the price for procurement was less than the open market price, and more that the MSP. The policy of having two official prices was announced with some variations up to 1973-74 in the case of paddy. For wheat, it was halted in 1969, and was reintroduced in 1974-75 for a year. 

Due to the overwhelming demands to boost the MSP In 1975-76, the current method was devised with just one set of price was declared in the case of paddy (and other Kharif crops) and the wheat that was purchased to be used in buffer stocks.

Determination of MSP

When formulating its recommendations regarding the amount of minimum support prices, as well as other non-price measures, Commission considers in addition to a complete analysis of the overall economic structure one particular product or group of products, these elements that are:

  • Production costs
  • Changes in prices for inputs
  • Price parity in input-output
  • Prices of the market are changing
  • Supply and demand
  • Price parity for inter-crops
  • Effect on industrial cost structure
  • Impact on cost of living
  • Effect on general price level
  • The international price conditions
  • Parity between the prices paid and prices paid by farmers.
  • Effects on prices of issues and the implications for the subsidy

The Commission makes use of both micro-level information as well as aggregates at the levels of state, district, and even the entire nation. The data and information utilized by the Commission comprises, among other things, the following :

  • Cost of cultivation per hectare , and cost structure in different regions of the country as well as the changes that occur therein;
  • The cost of producing per quintal across different areas of the country, and the variations therein
  • Prices of various inputs , and variations in them;
  • The market prices of goods and their changes
  • Prices of the commodities that are offered by the farmers, and of the ones bought by them, and the changes in the same;
  • Information on supply related to the area production, yield, exports, imports, and domestic stock availability with public agencies, the Government or the industry
  • Demand-related information: consumption per capita and total, trends , and capacities in the industry of processing
  • International market prices and their fluctuations demand and supply situations on the world market.
  • The prices of derivatives of farm products such as jaggery, sugar Jute products, edible and non-edible cotton yarn and their variations;
  • Cost of processing agricultural products, and any changes;
  • Storage costs for marketing processing, transportation, marketing services, fees and taxes maintained by market functionaries and
  • Macro-economic indicators include the general prices as well as consumer price indexes and others that reflect the effects of fiscal and monetary factors.

The rise in MSP of Kharif Crops is in accordance in line with Union Budget 2018-19 announcement of fixing the MSPs to an amount of at minimum 1.5 multiples of that of the All-India Weighted Average Cost of Production (CoP), in order to ensure fair and fair compensation for farmers.

The Sugarcane Price Policy (MSP Full Form)

The price of sugarcane is controlled by the lawful regulations in the Sugarcane (Control) Order, 1966, which was issued in accordance with the Essential Commodities Act (ECA) 1955. Prior to the 2009-10 sugar season it was the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane, and farmers were allowed to share the profits from sugar mills on a 50:50 basis. Because this shared profit sharing was not implemented in the Sugarcane (Control) Order, 1966, the Sugarcane (Control) Order, 1966 was amended in the month of October 2009 and the notion that was SMP was replaced with fair and remunerative price (FRP) for sugarcane. 

A new provision reasonable margins for sugarcane growers in consideration of the risk and profit were added as an additional consideration in calculating FRP. the change became effective in during the sugar harvest of 2009-10. Therefore the CACP must be in compliance with the legal requirements within the Control Order, which are

  • the price of producing sugarcane
  • the return to growers from other crops, as well as the overall trend in the price of agricultural commodities
  • sugar can be made available to customers at a reasonable price;
  • the price of sugar
  • the rate at which sugar is recovered from sugarcane
  • the profit realized from the sales of by-products such as. bagasse, molasses and mud or their estimated value (inserted in December 2008) and
  • reasonable margins for producers of sugarcane due to profits and risk (inserted in October of 2009).

States also publish an additional price, known as”the State Advisory Price (SAP) that is typically more expensive in comparison to the SMP.

Crops are covered

Government announces minimum support price (MSPs) in 22 mandated crops as well as fair and remunerative prices (FRP) of sugarcane. The crops that are mandated are 14 crops in the kharif season, six Rabi crops, as well as two commercial crop varieties. Furthermore the MSPs of coconuts de-husked and toria have been determined on the basis of the MSPs for rapeseed/mustard as well as copra, respectively. The list of crop varieties is as follows.

  • Cereals (7) (paddy wheat, barley, bajra, jowar, maize and Ragi
  • Pulses (5) Gram moong, arhar/tur lentil and urad
  • Oilseeds (8) groundnut, toria, rapeseed/mustard sesamum, sunflower seed, Safflower seed and nigerseed
  • Raw cotton
  • Raw Jute
  • Copra
  • Coconuts that have been de-husked
  • Sugarcane (Fair and Remunerative price)
  • Virginia flu-cured (VFC) tobacco

Latest Minimum Support Price

  • Kharif (2021-22);
  • Rabi (2022-23)

The time of sowing in India of the crops is different between states and the harvesting time of the crop is also dependent on the the variety. 

So a crop that is harvested in kharif could be sold on the market before October. MSP for Kharif Crops in 2021-22 will be effective from the 1st of September in 2021. 

MSP for all mandatory Rabi crops is applicable for Rabi Marketing Season (RMS) 2022-23.

The rise in Minimum Support Price (MSP Full Form) of Kharif Crops for the marketing season 2021-22 is in keeping to the Union Budget 2018-19 announcement of fixing the MSPs to an amount of at least 1.5 times what is the All-India weighted average cost of Production (CoP), in order to ensure fair compensation for farmers. 

The expected returns for farmers above their cost of production are believed to be the highest for the crop of Bajra (85 percent) followed by the urad (65 percent) and Tur (62 percentage). 

For the rest of the crops the return to farmers above the cost of production is expected to be at minimum 50 percent. (MSP Full Form)

CommodityVarietyMSP for 2020-21 (Rs per quintal)MSP for 2021-2022 (Rs per quintal)Increase over previous year (Rs per quintal)
 Grade ‘A’1888196072
Bajra 21502250100
Maize 1850187020
Ragi 3295337782
Arhar (Tur) 60006300300
Moong 7196727579
Urad 60006300300
CottonMedium Staple*55155726211
 Long Staple **58256025200
Groundnut in shell 52755550275
Sunflower seed 58856015130
RABI CROPS (Rabi Marketing Season (RMS) 2022-23)
Wheat 1975201540
Barley 1600163535
Gram 51005230130
Masur (Lentil) 51005500400
Rapeseed & Mustard 46505050400
Safflower 52375441114
Toria 46505050400
Copra (2021 crop season)Milling 996010335375
 Ball 1030010600300
De-husked coconut 25712700129
Raw Jute (for 2021-22 season) 42254500275
Sugarcane $ (for the sugar season 2021-22)  290
* Staple length (mm) of 24.5 -25.5 and Micronaire value of 4.3 -5.1
** Staple length (mm) of 29.5 -30.5 and Micronaire value of 3.5 -4.3
$ Fair and remunerative price

The Fair and Remunerative Price (FRP) of sugarcane that sugar mills must pay for the sugar season 2021-22 (October-September) will be as the following:

  • FRP of sugarcane for the 2021-22 sugar season is Rs.290/per quintal, for an average recovery rate of 10%
  • Premium of the amount of Rs. 2.90 per quintal, for every 0.1 percent rise over 10 percent in the recovery and
  • reduction in FRP of the amount of Rs. 2.90 per quintal, for every 0.1 percentage point less recovery
  • There is no deduction for sugar mills with a recovery rate of less than 9.5 percent. Farmers who are in this situation will be paid an amount of Rs. 275.50 per quintal in sugarcane during the period of sugar production 2021-22.

Sources : Farmer PortalUnion Budget PortalArthapedia (MSP Full Form)

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