Minimum Support Prices (MSP)


The Cabinet Committee on economic affairs has increased the minimum support prices for all Rabi crops for the financial year 2024-25. The increase. The increase for what, the major rabi crop is rupees 150 per quintal and the new price will be rupees 2,275.


Minimum Support Prices (MSPs) are a set of price levels at which the government in many countries agrees to purchase agricultural products from farmers.

 MSPs are designed to provide a safety net for farmers and ensure that they receive a fair and remunerative price for their produce, particularly in cases where market prices fall below the cost of production.

The concept of MSPs is most commonly associated with India, where it plays a significant role in the country's agricultural policy, but it is used in various forms in several other countries as well.

Here are some key points about Minimum Support Prices:

  1. Price Guarantees: MSPs guarantee farmers a minimum price for their crops, typically covering a range of staple crops like rice, wheat, pulses, and oilseeds.
  2. Government Procurement: The government, through its various agencies and entities, purchases the specified crops at the predetermined MSPs. This procurement helps in building buffer stocks and ensures price stability.
  3. Fair Income: The primary aim of MSPs is to provide farmers with a fair and stable income, protect them from market price fluctuations, and prevent distress selling.
  4. Food Security: MSPs are an essential component of a country's food security strategy. By procuring staple crops at guaranteed prices, governments can build and maintain strategic food reserves to address food shortages and emergencies.
  5. Support to Agriculture: MSPs serve as a policy tool to support agricultural activities, incentivize production, and maintain farmer confidence. However, it can also lead to overproduction in some cases.
  6. Market Prices vs. MSP: The relationship between market prices and MSPs can vary. In some cases, market prices may be higher than MSPs, but in others, they can be lower. When market prices are lower, the government steps in to buy at the MSP to protect farmers' income.
  7. Crop Procurement: The procurement process is typically managed by government agencies such as the Food Corporation of India (FCI) in India. These agencies purchase the crops at designated procurement centres.
  8. Criticism and Challenges: MSPs have been criticized for sometimes benefitting larger farmers more than small and marginal farmers, leading to concerns about inequality. Additionally, the procurement system can strain government finances and storage capacity, and it may disrupt market dynamics.
  9. Revisions and Announcements: MSPs are typically revised annually by the government, taking into account factors such as production costs, demand-supply dynamics, and global market conditions. The government announces these prices before the planting season to guide farmers' decisions.

MSPs are a critical policy tool in many countries to ensure food security, provide income stability to farmers, and maintain stable agricultural production. However, their implementation and impact can vary significantly from one country to another and even from one crop to another within the same country.

Calculation of MSP

In India, Minimum Support Prices (MSPs) are determined using a combination of cost-based and market-based approaches, taking into account various criteria. The process involves detailed analysis and consultation with experts, farmers, and agricultural economists. Here are the key components and criteria used in the calculation of MSPs for major crops in India:

  1. Cost of Production (A2+FL): The A2+FL cost includes both actual paid-out costs and the imputed cost of family labor and land. It comprises several sub-components, including:
    • A2 Costs: These are the actual expenses incurred by farmers for inputs like seeds, fertilizers, pesticides, hired labor, fuel, irrigation, and other variable costs.
    • A2+FL Costs: In addition to A2 costs, A2+FL includes the imputed value of unpaid family labor and rental value of owned land.
  2. Market Prices: The government takes into account current and historical market prices of the crop to assess price trends and volatility. This helps in determining a fair price that provides adequate remuneration to farmers.
  3. Demand and Supply Factors: Analysis of the demand and supply dynamics of the crop is crucial. This includes evaluating the domestic and international demand for the crop, the level of production, and potential imports or exports.
  4. Input Prices: Changes in the prices of inputs like seeds, fertilizers, pesticides, and labor costs are considered. Fluctuations in input prices can significantly impact the cost of production.
  5. Rental Value of Land: The rental value of owned land is imputed into the cost of production (A2+FL) to account for the opportunity cost that farmers incur by using their land for cultivation.
  6. Risk and Uncertainty: Some allowance may be included in the MSP calculation to account for the risk and uncertainty faced by farmers due to factors like weather and market fluctuations.
  7. Price Policy and Government Objectives: The government's broader price policy and objectives, including food security, farmer welfare, and inflation control, play a significant role in setting MSPs.
  8. Cropping Patterns: Historical cropping patterns and the suitability of a crop for a particular region are considered to ensure crop diversification and sustainable agricultural practices.
  9. Crop Season: MSPs are determined for both Rabi and Kharif crop seasons. Different costs and market conditions can exist for these seasons, so separate MSPs are announced.
  10. Public Consultation: The government often seeks input from state governments, farmer organizations, and agricultural experts during the MSP determination process.

The final MSPs are announced by the government before the sowing season to provide clarity to farmers. MSPs are available for a variety of crops, including rice, wheat, pulses, oilseeds, and more.

It's important to note that the MSP calculation process is complex and involves a combination of economic, social, and agricultural factors. It is designed to provide a minimum level of income to farmers and ensure food security in the country while considering the economic viability of agricultural production.

Significance of MSP in India

The Minimum Support Price (MSP) system in India holds significant importance for various stakeholders, the economy, and the agricultural sector. Here are the key aspects of the significance of MSP in India:

  1. Income Security for Farmers:
    • MSPs provide income security to farmers by ensuring that they receive a minimum price for their agricultural produce. This mitigates the risks associated with fluctuating market prices, ensuring a predictable and fair income.
  2. Poverty Alleviation:
    • A substantial portion of the Indian population relies on agriculture for their livelihood. MSPs contribute to poverty alleviation by improving the financial well-being of small and marginal farmers who constitute a large part of the farming community.
  3. Food Security:
    • MSPs support food security in India by incentivizing the production of staple crops such as rice, wheat, and pulses. These crops are crucial for the Public Distribution System (PDS) and other government welfare programs aimed at ensuring access to food for vulnerable populations.
  4. Price Stability:
    • By setting a floor price, MSPs help stabilize market prices for agricultural commodities. This stability is beneficial for consumers and the overall economy by reducing price volatility and inflationary pressures.
  5. Agricultural Productivity:
    • MSPs encourage farmers to invest in modern agricultural practices, high-yielding varieties, and mechanization, ultimately leading to increased agricultural productivity.
  6. Crop Diversification:
    • MSPs play a role in crop diversification by providing price incentives for various crops. This helps in maintaining soil health, reducing the risk of pest infestations, and promoting sustainable agriculture.
  7. Rural Employment:
    • The agricultural sector is a major source of rural employment. A reliable source of income through MSPs ensures that agriculture remains an attractive livelihood option for rural communities.
  8. Political Relevance:
    • MSPs have political significance as they are an important electoral promise and a topic of discussion during election campaigns. Political parties often highlight their commitment to MSPs to appeal to farming communities.
  9. Socio-Economic Impact:
    • A significant portion of India's population resides in rural areas, and many people are directly or indirectly dependent on agriculture. The financial health of the agricultural sector influences the socio-economic well-being of millions of individuals and families.
  10. Agricultural Policy Tool:
    • MSPs are an essential tool in the government's agricultural policy. They are used to achieve multiple policy objectives, including income support, food security, and poverty reduction.
  11. Market Stabilization:
    • The MSP system helps in stabilizing agricultural markets. When market prices fall below MSPs, the government often procures crops to support farmers and prevent distress selling.
  12. Sustainable Agriculture:
    • By encouraging farmers to adopt sustainable and modern agricultural practices, MSPs contribute to long-term agricultural sustainability and environmental conservation.

While MSPs offer several advantages, it's important to note that the system is not without its challenges. It can lead to issues such as overproduction, procurement and storage challenges, fiscal pressures, and regional disparities in MSP coverage. The government continually reviews and refines the MSP system to address these challenges while preserving its significance in supporting Indian agriculture and the livelihoods of millions of farmers.

Cons of MSP
  1. Overproduction: The MSP system can lead to overproduction of certain crops, resulting in surplus stocks and storage challenges. The government often has to procure excess produce.
  2. Storage and Logistics: The government faces challenges in procuring, storing, and managing surplus stocks, which can strain storage infrastructure and lead to losses due to inadequate facilities.
  3. Fiscal Pressures: The cost of procuring crops at MSPs and managing surplus stocks places a financial burden on the government. This can impact fiscal deficits.
  4. Distorted Farming Practices: Focusing on crops with high MSPs can lead to a distortion in crop choices, as farmers may prioritize MSP-linked crops over more regionally suitable or sustainable alternatives.
  5. Regional Disparities: Not all crops or regions benefit equally from the MSP system. The coverage and impact of MSPs vary across states and crops, leading to regional disparities.
  6. Waste and Inefficiency: Surplus stocks can lead to inefficiencies and waste, as some of the procured produce may not be effectively distributed or utilized.
  7. Limited Coverage: MSPs primarily cover a limited number of crops (e.g., rice, wheat, pulses), leaving out many other agricultural products that farmers produce.
  8. Dependency on Government Procurement: Farmers often become heavily dependent on government procurement at MSPs, which may discourage them from exploring alternative marketing options.
  9. Market Distortions: The minimum support price can distort market dynamics and pricing mechanisms by creating artificial floors for certain crops, which can affect market participants and competition.

The MSP system in India has been subject to ongoing debate and reform discussions. While it offers vital support to farmers, especially small and marginal ones, it also faces various challenges and inefficiencies. The government continually reviews and refines the system to strike a balance between the benefits and drawbacks, with the goal of promoting a sustainable and inclusive agricultural sector.

Way Ahead

The Minimum Support Price (MSP) system in India has been a cornerstone of agricultural policy for decades. As it moves forward, there are several areas where reforms and improvements can be made to ensure the system remains effective and beneficial for farmers. Here are some potential ways ahead for the MSP system in India:

  1. Crop Diversification: Encourage crop diversification to reduce overreliance on a few staple crops. Promote the cultivation of less water-intensive, climate-resilient, and nutritionally rich crops to enhance food security and income diversification.
  2. Region-Specific MSPs: Tailor MSPs to account for regional variations in production costs, climate conditions, and crop suitability. This would help address regional disparities in the benefits of the MSP system.
  3. Economic Viability: Ensure that the MSPs are economically viable for farmers and reflect the true cost of production. Regularly review and adjust MSPs to keep pace with inflation, input price fluctuations, and changing market conditions.
  4. Crop Procurement and Storage: Invest in better procurement and storage infrastructure to efficiently handle surplus stocks and minimize wastage. This includes upgrading warehousing, transportation, and cold storage facilities.
  5. Technology Integration: Leverage technology, including digital platforms and mobile apps, to streamline the procurement process and reduce inefficiencies in the procurement of crops at MSPs.
  6. Contract Farming: Promote contract farming and direct purchase agreements with private companies to provide farmers with alternative marketing channels. This can reduce the burden on government procurement agencies.
  7. Farmer Education and Training: Offer training and education programs to farmers on modern agricultural practices, efficient resource utilization, and sustainable farming techniques.
  8. Market Reforms: Encourage market reforms and the development of more competitive and efficient agricultural markets. This would enable farmers to access better prices and reduce market distortions.
  9. Income Support Schemes: Explore the implementation of complementary income support schemes for farmers that provide financial support directly to them, irrespective of the crops they grow. This would complement MSPs.
  10. Environmental Sustainability: Promote eco-friendly and sustainable agricultural practices to minimize the environmental impact of intensive cultivation.
  11. Crop Insurance: Enhance crop insurance schemes to provide financial protection to farmers in case of crop failure or damage due to natural disasters.
  12. Private Sector Participation: Encourage the active participation of the private sector in agriculture, which can help in infrastructure development and value chain integration.
  13. Risk Management: Develop risk management strategies for farmers to address price volatility, weather-related risks, and market uncertainties.
  14. Research and Development: Invest in agricultural research and development to create high-yielding and climate-resilient crop varieties.
  15. Transparency and Accountability: Ensure transparency in the MSP setting process and publicize the criteria and methodologies used. Enhance accountability in the procurement process to minimize corruption and favoritism.
  16. Sustainable Farming Practices: Promote and incentivize sustainable farming practices, organic farming, and agroecology to improve soil health and reduce the use of harmful chemicals.
  17. Institutional Support: Strengthen farmer producer organizations (FPOs) and cooperative societies to enhance farmers' collective bargaining power and market access.

Reforming the MSP system in India requires a multi-faceted approach, involving policy adjustments, investments in infrastructure, agricultural diversification, and the empowerment of farmers.

These changes should aim to strike a balance between supporting farmers' income and promoting sustainable and equitable agricultural growth.

Posted by on 19th Oct 2023