Minimum Support Price (MSP)

What is Minimum Support Price (MSP)?

The Minimum Support Price (MSP) is a form of market intervention by the Government of India to ensure agricultural producers a minimum profit for their produce in case the open market prices fall below the cost of production.

Key Features of MSP

Announced by: The Central Government based on recommendations by the Commission for Agricultural Costs and Prices (CACP).

Coverage: MSP is announced for 23 crops, including cereals (rice, wheat), pulses, oilseeds, and cash crops (cotton, jute, sugarcane).

Objective:

• To safeguard farmers against price volatility in the market.
• To encourage higher production of specific crops.
• To ensure food security by maintaining buffer stocks.

Procurement: The Food Corporation of India (FCI) and other state agencies procure the crops at MSP for the Public Distribution System (PDS).

How is MSP Determined?

The CACP considers the following factors while recommending MSP:

• Cost of production (A2+FL cost, which includes actual paid-out costs and family labor).
• Supply and demand conditions in the domestic and international markets.
• Price trends in the domestic and global markets.
• Inter-crop price parity.
• Terms of trade between agricultural and non-agricultural sectors.
• Likely implications for consumers (inflation).