The Centre has finally constituted a committee headed by former Union Agriculture Secretary Sanjay Agrawal here to look into the issues of Minimum Support Price (MSP), as promised to protestant farmers after the repeal of three farm laws.

Panel on MSP: Terms of reference

• The panel will consist of representatives of the Central and State governments, farmers, agricultural scientists and agricultural economists.
• This panel will be constituted:

1. To promote zero budget-based farming,
2. To change crop patterns keeping in mind the changing needs of the country
3. To make MSP more effective and transparent

• It also says that the committee will discuss methods to strengthen the Agricultural Marketing System as per the changing requirements of the country
• It would ensure higher value to the farmers through remunerative prices of their produce by taking advantage of the domestic output and export.
• On natural farming, the committee will make suggestions for programs and schemes for value chain development, protocol validation, and research for future needs.
• It would support area expansion under the Indian Natural Farming System through publicity and through the involvement and contribution of farmer organizations.

What is MSP?

• The MSP assures the farmers of a fixed price for their crops, well above their production costs.
• MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.
• They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
• The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

Fixing of MSPs

• The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
• It also takes 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.

What changed with the 2018 budget?

• The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 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.

How was this production cost arrived at?

• The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
• ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
• ‘A2+FL’ includes A2 plus an imputed value of unpaid family labor.
• ‘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.

How much produce can the government procure at MSP?

• The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
• Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
• The marketed surplus ratio for different crops is estimated to range differently for various crops.
• It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soybean, etc.
• Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
• This is the MSP value of production that is the marketable surplus — which farmers actually sell.

Nature of MSP

• There is currently no statutory backing for these prices, nor any law mandating their enforcement.

Farmers demand legalization

• Legal entitlement: There is a demand that MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce.
• Private traders’ responsibility: Some says that most of the cost should be borne by private traders, noting that both middlemen and corporate giants are buying commodities at low rates from farmers.
• Mandatory purchase at MSP: A left-affiliated farm union has suggested a law that simply stipulates that no one — neither the Government nor private players — will be allowed to buy at a rate lower than MSP.
• Surplus payment by the govt.: Other unions have said that if private buyers fail to purchase their crops, the Government must be prepared to buy out the entire surplus at MSP rates.
• Expansion of C2: Farm unions are demanding that C2 must also include capital assets and the rentals and interest forgone on owned land as recommended by the National Commission for Farmers.

Government’s position

• The PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns — often determined by MSP and procurement.
• The panel will have representatives from farm groups as well as from the State and Central Governments, along with agricultural scientists and economists.

Issues with legal backing

• Demand-supply dynamics: Economic theory, as well as experience, indicates that the price level that is not supported by demand and supply cannot be sustained through legal means.
• States responsibility: The Centre has suggested that the States are free to guarantee MSP rates if they wish, but also offers two failed examples of such a policy:

[I] Sugar FRP

• In the sugar sector, private mills are mandated to buy cane from farmers at prices set by the Government.
• Faced with low sugar prices, high surplus stock, and low liquidity, mills failed to make full payments to farmers, resulting in an accumulation of thousands of crores worth of dues pending for years.

[II] Withdrawal of traders

• The other example is a 2018 amendment to the Maharashtra law penalizing traders with hefty fines and jail terms if they bought crops at rates lower than MSP.
• As open market prices were lower than the (legalized) MSP levels declared by the State, the buyers withdrew from the market and farmers had to suffer.

Will a legal backing for MSP solve all the ills that plague the Agriculture sector?

• Only one side of the coin: Actually, no. Remunerative price or MSP is only one part of the problems farmers face.  Farmers face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis.
• Information deficit: They lack information on which crop to grow, when to sow, apply plant nutrients and which pest is attacking their crop.
• Lack of technology: Farmers are also short of post-harvest technologies to ensure a better shelf life for their produce.
• Irrigation and storage problem: They do not get adequate facilities to irrigate their lands, with nearly 50 percent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis.
• Threat of new loopholes: Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously.

Fiscal cost of making the MSP legally binding

• The MSP value of the total output of all the 23 notified crops worked out to about Rs 11.9 lakh crore in 2020-21.
• Taking an average of 75% yields a number – the MSP value of production actually sold by farmers – just under Rs 9 lakh crore.
• The government is further, as it is, procuring many crops. The MSP value of the 89.42 mt of paddy and 43.34 mt of wheat alone bought during 2020-21 was around Rs 253,275 crore.
• All in all, then, the MSP is already being enforced, directly or through fiat, on roughly Rs 3.8 lakh crore worth of produce.
• Providing a legal guarantee for the entire marketable surplus of the 23 MSP crops would mean covering another Rs 5 lakh crore or so.

Conclusion

• A growing consensus among economists for guaranteeing minimum “incomes”, as against “prices”, to farmers.
• That would essentially entail making more direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM-Kisan) basis.
• The resource requirement of such interventions will be so huge that no government will be left with resources to help farmers through other means like investment in public infrastructure, irrigation, and other incentives.
• The danger of over-reliance on MSP is already visible in the state of Punjab. Agriculture has reached an almost static stage there.
• The state is unable to diversify away from crops like paddy, which is destroying its natural resources and environment, marring long-term prospects of farming.

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On May 4, the government lowered its wheat production estimates by 5.7% to 105 million tonnes (MT) from the projected 111.32 MT for the crop year ending June.

Decline in wheat production

• India is the second largest producer of wheat in the world, with China being the top producer and Russia the third largest — Ukraine is the world’s eighth largest producer of wheat.
• After five straight years of a bumper wheat output, India has had to revise downwards its estimated production.
• Unprecedented heatwaves across the north, west and central parts of the country, and March and April being the hottest in over 100 years, have caused substantial loss to the yield.
• Researchers attributed the lower estimates to “early summer” affecting the crop yields in States, especially Punjab, Haryana and Uttar Pradesh.

Why is there a decline in govt procurement?

• Ukrainian war: Private traders have been prompted to buy more wheat from farmers as the price of wheat at the international level has shot up due to Ukrainian war.
• Higher prices: A large quantity of wheat was being bought by traders at a higher rate than the minimum support price (MSP).
• Hoarding by farmers and traders: Also, farmers are holding on to some quantity of wheat, expecting higher prices for their produce in the near future.

How will this impact the public distribution of grain?

• Wheat procurement is undertaken by the state-owned Food Corporation of India (FCI) and other agencies at MSP to meet the requirements under the Public Distribution System (PDS).
• Other running welfare schemes is the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) introduced during the pandemic.
• The government has revised the grain allocation under PMGKAY for May to September 2022.
• According to the new guidelines, the FCI will fill the gap left by wheat with an increased allocation of rice.
• Pointing out that from next year, fortified rice will be distributed to the entire Public Distribution System (PDS).

Will domestic wheat prices be hit?

• As government wheat procurement has dipped, concerns are being raised about the stability of prices in the country.
• The availability of grain for internal consumption, many agri-experts argue should be a priority.
• The government has dismissed concerns about both prices and stocks, asserting that India is in a comfortable situation with the overall availability of grains.
• India has enough stocks to meet the minimum requirement for next one year for meeting the requirement of welfare schemes.

How is the global supply situation shaping up?

• In order to meet the gap created by reduced Russian and Ukrainian exports, importers are turning to alternative markets.
• Wheat-producing countries like India are looking to increase exports.

Will farmers benefit?

• Farmers will certainly benefit from the scenario as they are being offered a price above the MSP.
• Amid the Russia-Ukraine crisis, new markets in countries like Israel, Egypt, Tanzania and Mozambique have opened up for India.
• However, if private traders continue to buy above MSP, eventually that could stoke inflation.
• More private buying of wheat will help India expand the agri-export basket to new countries, riding the current crisis situation.
• This trade relationship will stay even when the global crisis is over, which means farmers will get about 10%-15% extra price as market prices are ruling above MSP.

What about export plans?

• After Egypt, Turkey has also given approval for the import of Indian wheat.
• India has been eyeing deals with new export markets in European Union countries too.
• Despite the crop loss and revision of the output estimate, the Centre maintained that no curbs would be placed on wheat exports and that it was facilitating traders.

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Context

The MSP must look especially into the requirements of farmers and the landless.

Background of price stabilisation for food grain

• The Essential Commodities Act in 1955 sought to counter price rise due to speculative private trading and then MSP in the 1960s.
• A buffer stock policy was developed over time to involve different kinds of mechanisms such as:
  a) setting cost-based minimum procurement price, paying the difference between procurement price and market price.
  b) storing the procured surplus for sale through the Public Distribution System (PDS) at issue price, and market intervention to stabilise price when deemed necessary.
• This task required interlinking procurement, storage and distribution with more centralised investment and control of each of these tasks.

3 Purposes MSP could serve

MSP could serve, in principle, three purposes:

• Price stabilisation in the food grains market.
• Income support to farmers, and
• As a mechanism for coping with the indebtedness of farmers.

Advantages of wide coverage

• Fulfilling three objectives: In this way, the objectives of income support to farmers, price stabilization, food security, and inducing more climate-friendly cropping patterns can be combined to an extent.
• Solution to debt problem: A real breakthrough in the recurring problem of agricultural debt can be made by the linking of selling of grains under MSP to the provision of bank credit particularly for small farmers.
• The farmer can get a certificate selling grains at MSP which would be credit points proportional to the amount sold; this will entitle them to a bank loan as their right, and calibrate the fluctuations between good and bad harvest years by storing the certificates for later use.

Issues with MSP in current form

• Low accessibility and awareness of the MSP regime: A survey highlighted that 81% of the cultivators were aware of MSP fixed by the Government for different crops and out of them only 10% knew about MSP before the sowing season.
• Arrears in payments: More than 50% of the farmers receive their payments of MSP after one week.
• Poor marketing arrangements: Almost 67% of the farmers sell their produce at MSP rate through their own arrangement and 21% through brokers.
• Partial coverage resulting in skewed cropping pattern: This partial MSP coverage skewed the cropping pattern against several coarse grains and millets particularly in rain-fed areas.

Way forward

• Flexible arrangement of MSP: Each crop within a band of maximum and a minimum price depending on harvest conditions i.e. higher price in a bad and lower price in a good harvest year in general will have its price set in the band.
• High MSP for coarse grains: The price of some selected coarse grains can be fixed at the upper end of its band to encourage their production in rain-fed areas.

Conclusion

Greater coverage of all 23 crops under MSP is a way of improving both food security and income support to the poorest farmers in rain-fed regions.

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The Central government has hiked the minimum support price (MSP) for the coming Kharif season. The decision was taken by the Cabinet Committee on Economic Affairs.

Answer this PYQ from CSP 2018 in the comment box:

Q.Consider the following:

1. Areca nut
2. Barley
3. Coffee
4. Finger millet
5. Groundnut
6. Sesamum
7. Turmeric

The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

(a) 1, 2, 3 and 7 only

(b) 2, 4, 5 and 6 only

(c) 1, 3, 4, 5 and 6 only

(d) 1, 2, 3, 4, 5 and 7

What is the Minimum Support Price (MSP) system?

• MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
• MSP is price fixed by GoI to protect the producer – farmers – against excessive fall in price during bumper production years.

Who announces it?

• MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

Why MSP?

• The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
• They are a guaranteed price for their produce from the Government.
• In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.

Historical perspective

• Till the mid-1970s, Government announced two types of administered prices:

1. Minimum Support Prices (MSP)
2. Procurement Prices

• The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
• Procurement prices were the prices of Kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
• It was announced soon after harvest began.
• Normally procurement price was lower than the open market price and higher than the MSP.

Crops Covered

1. Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
2. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
3. The list of crops is as follows:

• Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
• Pulses (5) – gram, arhar/tur, moong, urad and lentil
• Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
• Raw cotton
• Raw jute
• Copra
• De-husked coconut
• Sugarcane (Fair and remunerative price)
• Virginia flu cured (VFC) tobacco

Exception for Sugar

• The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
• Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis.
• As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.

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The row over legally guaranteed MSP doesn’t seem to be settled down in near terms.

Farmers’ demand

• Farmer unions protesting are raising two fundamental demands.

1. The first is for repealing the three agricultural reform laws enacted by the Centre.
2. The second is to provide a legal guarantee for the minimum support prices (MSPs) that the Centre declares for various crops every year.

• Currently, there is no statutory backing for these prices or any law mandating their implementation.

Note: The MSP is now applicable on 23 farm commodities: 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar, moong, urad and masur), 7 oilseeds (groundnut, soyabean, rapeseed-mustard, sesamum, sunflower, nigerseed and safflower) and 4 commercial crops (sugarcane, cotton, copra and raw jute).

Can MSP be made legally binding?

Yes. There are two ways it can be done.

(1) To force private buyers to pay it

• In this case, no crop can be purchased below the MSP, which would also act as the floor price for bidding in mandi auctions.
• There’s already a precedent: In sugarcane, mills are required by law to pay growers the Centre’s “fair and remunerative price” – UP and Haryana fix even higher “state advised prices” – within 14 days of supply.
• In no other crop is the compulsion to pay the government-announced MSP thrust on the private trade/industry.

(2) The government itself buying the entire crop that farmers offer at the MSP

Various govt agencies such as the Food Corporation of India, the National Agricultural Cooperative Marketing Federation of India, and the Cotton Corporation of India (CCI) do procure a large chunk of commodities on MSP.

But how much produce can the government procure at MSP?

• The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
• Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
• The marketed surplus ratio for different crops is estimated to range differently for various crops.
• It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soyabean etc.
• Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
• This is the MSP value of production that is the marketable surplus — which farmers actually sell.

So, is this MSP money paid out of the government’s pocket?

Not really!

• To start with, one must exclude sugarcane from the calculations. The onus for paying cane MSP, as earlier pointed out, lies on sugar mills and not the government.
• Secondly, the government is already procuring many crops – especially paddy, wheat, cotton, and also pulses and oilseeds.
• Thirdly, government agencies don’t have to buy every single grain that comes to the market. Mopping up even a quarter or third of the market arrivals is usually enough to lift prices.
• Fourth, the crop bought on government account also gets sold. While such sales in wheat and paddy – which are distributed at super-subsidized rates under the National Food Security Act.
• This entails heavy losses, but those are far less in the remaining MSP crops. The revenues realized from sales would partly offset the expenditures from MSP procurement.

All in all, the additional fiscal outgo, from the government undertaking the maximum required procurement for guaranteeing MSP to farmers, may not be more than Rs 1-1.5 lakh crore per year.

So, is the MSP system all okay?

Nope!

• The government undertaking to buy at MSP is definitely better than forcing private players. Their going out of business would ultimately hurt farmers most.
• However, even assured government MSP-based procurement is fraught with problems.
• The coverage of MSPs today does not extend to fruits, vegetables, and livestock products that together have a 45% share in the gross value of the output of India’s agriculture, forestry, and fishing sector.
• The value of milk and milk products alone is more than that of all cereals and pulses combined.

Limitations for govt.

• Extending MSP to all farm produce and guaranteeing it through law is hugely challenging, fiscally and otherwise.
• It also explains why economists increasingly are in favor of guaranteeing minimum “incomes” rather than “prices” to farmers.
• One way to achieve that is via direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM Kisan Samman Nidhi) basis.

Back2Basics:

(1) Rythu Bandhu Scheme

• Under Rythu Bandhu, the Telangana government gives every beneficiary farmer Rs 4,000 per acre as “investment support” before every crop season.
• The objective is to help the farmer meet a major part of his expenses on seed, fertilizer, pesticide, and field preparation.
• The scheme covers 1.42 crore acres in the 31 districts of the state, and every farmer owning land is eligible.

(2) Pradhan Mantri Kisan Samman Nidhi

• Under this program, vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support at the rate of Rs. 6,000 per year.
• This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal installments of Rs. 2,000 each.
• Around 12 crore small and marginal farmer families are expected to benefit from this.

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The recently enacted Farmers bill seeks to dismantle the monopoly of APMC mandis, thereby allowing sale and purchase of crops outside these state government-regulated market yards. This has prompted many fears regarding the continuance of the existing minimum support price (MSP)-based procurement regime.

Try this PYQ:

Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (UPSC 2014)

What does the law say about MSP?

• The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP.
• There is not even a single mention of either “MSP” or “procurement” in the Bill passed by both Houses of Parliament last week.

Is there any legal backing for MSP?

• MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
• They cannot demand it as a matter of right.

What is the basis of MSP then?

• It is only a government policy that is part of administrative decision-making.
• The government declares MSPs for crops, but there’s no law mandating their implementation.
• The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations:

1. 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
2. 5 pulses (chana, arhar/tur, urad, moong and masur)
3. 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and
4. 4 commercial crops (cotton, sugarcane, copra and raw jute) —

What about CACP?

• The CACP come to existence in 1965 and MSPs are being announced since the time of the Green Revolution, starting with wheat in 1966-67.
• The CACP is simply an attached office of the Ministry of Agriculture and Farmers Welfare.
• It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rest finally with the government.
• The government can procure at the MSPs if it wants to. There is no legal compulsion. Nor can it force others (private traders, organised retailers, processors or exporters) to pay.

Exceptions to MSP: Fair and remunerative price (FRP)

• The only crop where MSP payment has some statutory element is sugarcane.
• This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.
• That order, in turn, provides for the fixation of an FRP for cane during every sugar year (October-September).
• But even the FRP — which, incidentally, was until 2008-09 called the ‘statutory minimum price’ or SMP — is payable not by the government.
• The responsibility to make FRP payment to farmers within 14 days of cane purchase lies solely with the sugar mills.

Has there been any move to give MSP legislative backing?

• The CACP, in its price policy report for the 2018-19 Kharif marketing season, had suggested enactment of legislation conferring on farmers ‘The Right to Sell at MSP’.
• This, it felt, was necessary “to instil confidence among farmers for procurement of their produce”. That advice, predictably, wasn’t accepted.

A cause for farmers fury

• The ongoing farmer protests essentially reflect a loss of that very confidence.
• Is the dismantling of the monopoly of APMC mandis in wholesale trading of farm produce the first step at ending even the present MSP-based procurement programme, largely limited to wheat and paddy?
• If APMCs were to turn unviable due to the trades moving outside, how will government agencies undertake procurement that now takes place in mandis?
• These questions are playing in the minds of farmers, particularly in states such as Punjab, Haryana and MP that have well-established systems of governmental MSP purchases.
• For them, freedom to sell to anyone, anywhere and anytime has little value compared to the comfort of assured procurement at MSP.

Govt’s response

• PM has tweeted that the “system of MSP will remain” and “government procurement will continue”.
• The Agriculture Minister, too, has pointed out that past governments never thought it necessary to introduce a law for MSP.

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The Centre will spend ₹1,061 crore to reimburse the Cotton Corporation of India (CCI) and its sub-agent in Maharashtra for procuring cotton at the minimum support price in that State since 2014.

Why Centre reimburses to states?

In the event of fall in market prices, the Centre intervenes through following schemes-

Market Intervention Scheme

• Similar to MSP, there is a Market Intervention Scheme (MIS), which is implemented on the request of State Governments for procurement of perishable and horticultural commodities in the event of fall in market prices.
• The Scheme is implemented when there is at least 10% increase in production or 10% decrease in the ruling rates over the previous normal year.
• Proposal of MIS is approved on the specific request of State/UT Government, if the State/UT Government is ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
• Under MIS, funds are not allocated to the States.
• Instead, central share of losses as per the guidelines of MIS is released to the State Governments/UTs, for which MIS has been approved based on specific proposals received from them.

Price Supports Scheme (PSS)

• The Department of Agriculture & Cooperation implements the PSS for procurement of oil seeds, pulses and cotton, through NAFED which is the Central nodal agency, at the MSP declared by the government.
• NAFED undertakes procurement as and when prices fall below the MSP. Procurement under PSS is continued till prices stabilize at or above the MSP.
• Losses, if any incurred by NAFED in undertaking MSP operations are reimbursed by the central Government.
• Profit, if any, earned in undertaking MSP operations is credited to the central government.

Back2Basics

Minimum Support Price (MSP)

• MSP is a form of market intervention by the GoI to insure agricultural producers against any sharp fall in farm prices.
• The MSP are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• MSP is price fixed to protect the producer – farmers – against excessive fall in price during bumper production years.
• In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.
• The minimum support prices are a guarantee price for their produce from the Government.
• The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

Methods of calculation

• In formulating the level of MSP and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
• The CACP makes use of both micro-level data and aggregates at the level of district, state and the country.
• Other factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.

Procurement agencies

• Food Corporation of India (FCI) is the designated central nodal agency for price support operations for cereals, pulses and oilseeds.
• Cotton Corporation of India (CCI) is the central nodal agency for undertaking price support operations for Cotton.

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