Minimum Support Price (MSP) & Procurement Policy
🟠 Topic 26: Minimum Support Price (MSP) & Procurement Policy
📌 Introduction
Minimum Support Price (MSP) and procurement policies form the foundation of India’s agricultural price support system. These instruments were introduced to protect farmers from price volatility, ensure food security, and provide incentives for surplus production. MSP serves as a safety net for farmers, while procurement policies ensure that buffer stocks are maintained to stabilize prices and manage food distribution through the Public Distribution System (PDS).
🔹 What is Minimum Support Price (MSP)?
📖 Definition
The Minimum Support Price (MSP) is the pre-announced price at which the government purchases crops from farmers, regardless of market prices, ensuring farmers receive fair remuneration.
🔎 Key Objectives of MSP
1️⃣ Income Security for Farmers – Protect farmers from distress sales when market prices fall below cost of production.
2️⃣ Encourage Crop Diversification – Incentivize cultivation of essential crops like pulses, oilseeds.
3️⃣ Food Security – Ensure adequate procurement to build buffer stocks for PDS.
4️⃣ Price Stability – Prevent sharp fluctuations in agricultural prices.
🔹 How is MSP Determined?
The Commission for Agricultural Costs and Prices (CACP) recommends MSPs based on:
| Factor | Explanation |
|---|---|
| Cost of Production | Comprehensive cost (A2+FL) includes family labour cost. |
| Demand-Supply Situation | Expected domestic demand and projected production. |
| Market Price Trends | Past and prevailing market prices. |
| Inter-crop Parity | Balance between prices of competing crops. |
| Impact on Consumers | Ensure food inflation remains manageable. |
| International Prices | Competitiveness with global agricultural markets. |
🔹 Cost Concepts Used in MSP Calculation
| Cost Type | Components |
|---|---|
| A2 | Actual paid-out costs (seeds, fertilizers, wages) |
| A2+FL | A2 + Imputed cost of family labour |
| C2 | A2+FL + Imputed rent and interest on owned land & capital |
- CACP primarily uses A2+FL for recommending MSP.
- Farmers’ organizations demand MSP at C2+50% (Swaminathan formula).
🔹 Crops Covered Under MSP
As of 2023, 23 crops are covered under MSP:
| Category | Examples |
|---|---|
| Cereals | Paddy, wheat, maize, barley |
| Pulses | Tur, moong, urad |
| Oilseeds | Groundnut, mustard, soyabean, sunflower |
| Commercial Crops | Cotton, sugarcane (FRP), copra |
🔹 What is Procurement Policy? 🏛️
📖 Definition
Procurement policy refers to the mechanism through which government agencies like the Food Corporation of India (FCI) purchase crops from farmers at MSP, ensuring:
- Fair price realization for farmers.
- Creation of buffer stocks.
- Supply to the Public Distribution System (PDS).
🔹 Agencies Involved in Procurement
| Agency | Role |
|---|---|
| Food Corporation of India (FCI) | Major procurement agency for wheat & rice |
| NAFED | Procures oilseeds & pulses |
| Cotton Corporation of India (CCI) | Procures cotton |
| State Agencies | Participate in state-level procurement |
🔎 Procurement Process
1️⃣ Farmers sell crops at Procurement Centres.
2️⃣ Moisture content, quality checks conducted.
3️⃣ Payment made through Direct Benefit Transfer (DBT) in many states.
4️⃣ Procured grains stored in central and state warehouses.
5️⃣ Distributed through PDS under NFSA.
🔹 Role of MSP & Procurement in Food Security
- MSP-backed procurement ensures adequate buffer stocks.
- These stocks are used for:
- Food Security Programs – PDS, Mid-Day Meals, ICDS.
- Price Stabilization – Open Market Sale Scheme (OMSS) during food price spikes.
- Emergency Relief – During disasters or droughts.
🔹 Issues and Criticisms of MSP & Procurement
1️⃣ Regional Bias
- Punjab, Haryana, and Western UP dominate procurement.
- Eastern states like Bihar and Assam see very low procurement.
2️⃣ Crop Bias
- Overemphasis on wheat and rice, leading to:
- Monoculture in Punjab-Haryana.
- Neglect of pulses, oilseeds, millets.
3️⃣ Fiscal Burden
- Rising procurement and storage costs put strain on fiscal resources.
- Large stocks often exceed buffer norms.
4️⃣ Environmental Concerns
- Over-extraction of groundwater in Punjab-Haryana for wheat-rice cycle.
- Excessive use of fertilizers and pesticides.
5️⃣ Poor Coverage
- Less than 10% of farmers directly benefit from MSP procurement.
- Small and marginal farmers often sell in local markets below MSP.
6️⃣ Distortion of Markets
- Open-ended procurement distorts agricultural markets.
- Private players avoid procurement areas, leading to state dominance in certain crops.
🔹 Key Reforms Proposed
| Area | Reform Suggestion |
|---|---|
| Diversification | Shift to pulses, millets, oilseeds (under National Food Security Mission) |
| Decentralized Procurement | Strengthen state-level procurement (like Chhattisgarh model) |
| Direct Cash Transfers | Replace MSP with direct income support in some regions |
| Price Stabilization Fund | To manage volatile prices of pulses and oilseeds |
| Market Reforms | Improve access to e-NAM, Farmer Producer Organizations (FPOs) |
📊 Case Study – Decentralized Procurement in Chhattisgarh
- Chhattisgarh procures paddy directly through Primary Agricultural Credit Societies (PACS).
- Payments made through DBT to farmers’ accounts.
- Enhanced farmer participation and reduced distress sales.
Key Statistics (2023)
| Parameter | Value |
|---|---|
| Total MSP Procurement (Wheat & Rice) | ~90 million tonnes |
| States Dominating Procurement | Punjab, Haryana, MP, Chhattisgarh |
| Farmers Benefiting from MSP | ~15% (Direct) |
| Total Crops Covered | 23 |
📚 Practice MCQ
1️⃣ Consider the following statements regarding Minimum Support Price (MSP):
- MSP is recommended by the Commission for Agricultural Costs and Prices (CACP).
- MSP is legally guaranteed for all crops.
- MSP aims to protect farmers from price volatility.
Which of the above statements are correct?
✅ Options:
(a) 1 and 3 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2, and 3
2️⃣ Which organization is primarily responsible for wheat and rice procurement?
✅ Options:
(a) NAFED
(b) FCI
(c) APEDA
(d) NABARD
3️⃣ Consider the following statements regarding MSP procurement:
- Punjab and Haryana dominate MSP procurement.
- MSP is announced for 23 crops.
- Pulses and oilseeds procurement is handled by NAFED.
Which of the above statements are correct?
✅ Options:
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2, and 3
(d) 1 and 3 only
