Minimum Support Price (MSP)

Minimum Support Price (MSP), an important part of India's agricultural price policy is a form of market intervention by the Government of India to insure agricultural farmers against any sharp fall in crop prices.

The minimum support prices (MSP) for certain crops are announced by the Government of India at the beginning of the sowing season on the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP indirectly affects farmer's decision, regarding land allocation to crops, quantity of the crops to be produced etc.

MSP ensures adequate food grains production in the country by incentivising and insuring the framers.

At present the government issues MSP for 24 crops including seven cereals (paddy, wheat, barley, jowar, bajra, maize and ragi), five pulses (gram, arhar/tur, moong, urad and lentil), eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed), copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.

These crops covers around 84% of total area under cultivation in all the seasons of a year.

MSP is implemented by either of the tow ways:

1) Procuring farmer's produce directly on notified minimum support price.
2) Incentivise farmers through cash equal to the difference between MSP and the actual price the farmer got from open market.

While central government is responsible to procure Rice and Wheat on MSP, some states also procure other MSP crops in order to help farmers in their respective states. Private sector can also be involved in procurement process of MSP crops.

MSP is determined by "The Cabinet Committee on Economic Affairs (CCEA)" on the recommendations of the Commission for Agricultural Cost and Prices (CACP).

For some type of crops(rice and wheat), vital for food security a much liberal procurement policy is adopted by the government called Open Ended MSP. Government does not set any procurement target for such crops and allows procurement agencies like FCI (Food Corporation of India), state agencies and cooperatives to buy whatever is offered by the farmers for sale at MSP.

The Cabinet Committee on Economic Affairs (CCEA), Government of India, determines the Minimum Support Prices (MSP) of various agricultural commodities in India based on the recommendations of the Commission for Agricultural Cost and Prices (CACP).

Note: In Market Intervention Scheme (MIS), the state government procures perishable commodities like vegetables.