About the Minimum Support Price (#GS III)

What exactly is MSP:

  • The minimum support price (MSP) is the price at which the government buys grains from farmers. MSPs are now set for 23 crops farmed in both the Kharif and Rabi seasons.

What method is used to calculate it:

  • The MSP is the rate at which the government purchases crops from farmers, and it is calculated at least one-and-a-half times the producers' cost of production.
  • MSP would be maintained at 1.5 times the cost of production, according to the Union Budget for 2018-19.
  • The MSP is set twice a year, based on recommendations by the Commission for Agricultural Costs and Prices (CACP), a statutory agency that submits separate reports for the kharif and rabi seasons.

Which production costs are considered for determining MSP:

  • When recommending MSP, the CACP considers both 'A2+FL' and 'C2' expenses.
  • A2 expenditures include all monetary and in-kind expenses incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel, and irrigation, among other things.
  • A2+FL accounts for actual out-of-pocket expenses as well as the value of unpaid family labour.
  • On top of A2+FL, the C2 expenses account for the rent and interest foregone on owned land and fixed capital assets, respectively.

MSP's drawbacks include:

  • The main issue with the MSP is a lack of government procurement equipment for all products except wheat and rice, which are actively procured under the PDS by the Food Corporation of India.
  • Farmers in places where the grain is totally procured by the government benefit the most, while those in states where the grain is procured less are frequently affected.
  • The MSP-based procurement system is also reliant on middlemen, commission agents, and APMC officials, all of whom are difficult to reach for smaller farmers.

Source : THE HINDU.

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