Context: Recently, the Cabinet Committee on Economic Affairs (CCEA) has approved an increase in the minimum support prices (MSPs) for all mandated Kharif crops, including paddy, pulses and cotton, for the 2020-21 marketing season.
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.

About the Minimum Support Price (MSP)

• The Minimum Support Price (MSP) is the rate at which the government buys grains from farmers. The main 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.

How Minimum Support Price (MSP) is Fixed?

• The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP). There are a number of factors which are taken into consideration while fixing the MSP.

These includes:

• 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 of crops at MSP

• The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies is responsible for undertaking the procurement of crops.

Calculation of Minimum Support Price (MSP)

• The 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.

About National Commission on Farmers: Swaminathan Committee

• Union government constituted this committee on 18th November, 2004, the with MS Swaminathan as its Chairman.
• AIM: To come up with a sustainable farming system, make farm commodities cost-competitive and more profitable.
• RECOMMENDATIONS: The commission, in 2006, recommended that MSPs must be at least 50% more than the cost of production and recommended the C2 method for MSP calculation.
• However, the government calculates its MSP based on the A2+FL method.

About Commission for Agricultural Costs and Prices

• The Commission for Agricultural Costs and Prices (CACP) is an attached office of the Ministry of Agriculture and Farmers Welfare.
• ESTABLISHMENT: It was formed in 1965 as a statutory body.
• COMPOSITION: Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official).
• The non-official members are representatives of the farming community and usually have an active association with the farming community.
• MANDATE: It is mandated to recommend Minimum Support Prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production.
• SUBMISSION OF REPORT: CACP submits separate reports recommending prices for Kharif and Rabi seasons.