Context
Recently, the Centre has approved the Minimum Support Prices (MSP) for the Kharif season 2022-23, stating that the rates are at least 1.5 times of the weighted average cost of production.
- The rates for 14 Kharif crops have been increased, the hikes ranging from 4% to 8%.
What is Minimum support price (MSP)?
- The MSP for a crop is the price at which the government is supposed to procure/buy that crop from farmers if the market price falls below it.
- MSPs provide a floor for market prices, and ensure that farmers receive a certain “minimum” remuneration so that their costs of cultivation (and some profit) can be recovered.
Objective
- The government incentivises the production of certain crops, thus ensuring that India does not run out of staple food grains.
- MSPs create the benchmark for farm prices not just in those commodities for which they are announced, but also in crops that are substitutes.
Crops under MSP
- The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
- CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.
- The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 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.
MSP depends on Different Kinds of Production Cost
- The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.
- ‘A2’: Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
- ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour.
- ‘C2’: It is a more comprehensive cost that factors in rentals and interest for owned land and fixed capital assets, on top of A2+FL.
- CACP considers both A2+FL and C2 costs while recommending MSP.
- CACP reckons only A2+FL cost for return.
- However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.
- The Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by CACP.
