MINIMUM SUPPORT PRICE

CONTEXT:

The major demand of the protesting farmers has been that the government guarantee in writing the MSP system, which assures them of a fixed price for their crops, 1.5 times of the cost of production.

What is MSP?

The MSP (minimum support price) assures the farmers of a fixed price for their crops.

FIXING OF MSP

• The Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture would recommend MSPs for 23 crops.
• The CACP considered various factors while recommending the MSP for a commodity, including cost of cultivation.
• It also took into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

CHANGES IN UNION BUDGET FOR 2018-19

• The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1½ times of the production costs for crops as a “pre-determined principle”.
• Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

PRODUCTION COSTS THAT TOOK IN FIXING THE MSP:

• The CACP’s ‘Price Policy for Kharif Crops: The Marketing Season 2018-19’ report stated that its MSP recommendation was based on 1.5 times the A2+FL costs.
• ‘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.
• It does not take into account C2 costs.‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

SOURCE: ECONOMIC TIMES