MSP Raised for Kharif Crops | 02 Jun 2020

Why in News

Recently, the Cabinet Committee on Economic Affairs has marginally increased the Minimum Support Price (MSP) of more than a dozen crops for Kharif Marketing Season (KMS) 2020-21.

Key Points

• The MSP has been raised in the range of 2%-7.5% for the kharif crops based on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
• The increase in MSP is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the all-India weighted average cost of production, aiming at reasonably fair remuneration for the farmers.
• Issue: This rise will not make much of a difference to farmers, unless there is large scale government procurement in most crops at MSP.
• Kharif crops: They are the crops which are grown during the monsoon or rainy season from June to October. Examples: Paddy, Cotton, etc.

Minimum Support Price

• The MSP is the rate at which the government buys grains from farmers.
• Reason behind the idea of MSP is to counter price volatility of agricultural commodities due to the factors like variation in their supply, lack of market integration and information asymmetry.
• Fixation of MSP: The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• Factors taken into consideration for fixing MSP include:
  
  • Demand and supply,
  • Cost of production (A2 + FL method),
  • Price trends in the market, both domestic and international,
  • Inter-crop price parity,
  • Terms of trade between agriculture and non-agriculture,
  • A minimum of 50% as the margin over cost of production, and
  • Likely implications of MSP on consumers of that product.
• The Commission also makes visits to states for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops.
• Based on all these inputs, the Commission then finalizes its recommendations/reports, which are then submitted to the government.
• The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.
• After receiving the feed-back from them, 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 the CACP.
• Procurement: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.
• MSP Calculation: This MSP is usually estimated based on three types of calculation methods.
  
  • A2: Under this, MSP is set 50% higher than the amount farmers spend on farming including spending on seeds, fertilisers, pesticides, and labour.
  • A2+FL: It includes A2 plus an assigned value of unpaid family labour.
  • C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming are added on top of A2+FL.
• The Central government had set up the National Commission on Farmers (NCF) in 2004 to address the issues of farmers in India including that of calculation of MSP.

Source: IE