MSP is price fixed by the Government of India to protect the producer - farmers - against excessive fall in price during bumper production years.
- The minimum support prices are a guaranteed 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.
- In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
Pricing Policy for Sugarcane
- 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 the 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 a 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.
- A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season.
- Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are:
- the cost of production of sugarcane;
- the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
- the availability of sugar to the consumers at a fair price;
- the price of sugar;
- the recovery rate of sugar from sugarcane;
- the realization made from the sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December 2008) and;
- reasonable margins for growers of sugarcane on account of risk and profits (inserted in October 2009).
- States also announce a price called the State Advisory Price (SAP), which is usually higher than the SMP.
- Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
- The mandated crops are 14 crops of the Kharif season, 6 rabi crops and two other commercial crops.
- In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.
- 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
- De-husked coconut
- Sugarcane (Fair and remunerative price)
- Virginia flu cured (VFC) tobacco
Minimum Support Price for 2020-21
- The sowing season in India of crops varies from state to state and the harvesting of the crop also depends on the variety.
- Thus a harvested crop sown in kharif may reach the market even before October.
- MSP of Kharif Crops for 2020-21 is applicable from 1 September 2020.
- The Fair and Remunerative Price (FRP) of sugarcane payable by sugar mills for 2020-21 sugar season (October-September) is as follows:
- FRP of sugarcane for 2020-21 sugar season at Rs.285/- per quintal for a basic recovery rate of 10%;
- a premium of Rs. 2.85 per quintal for every 0.1% increase above 10% in the recovery; and
- reduction in FRP by Rs. 2.85 per quintal for every 0.1 percentage point decrease in recovery, in respect of those mills whose recovery is below 10% but above 9.5 percent. However, for mills having a recovery of 9.5 % or below, the FRP is fixed at Rs 270.75 per quintal.
Determinants of MSP
- In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-
- 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 the cost of living
- Effect on the general price level
- International price situation
- Parity between prices paid and prices received by the farmers.
- Effect on issue prices and implications for subsidy
The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following:-
- Cost of cultivation per hectare and structure of costs in various regions of the country and changes therein;
- Cost of production per quintal in various regions of the country and changes therein;
- Prices of various inputs and changes therein;
- Market prices of products and changes therein;
- Prices of commodities sold by the farmers and of those purchased by them and changes therein;
- Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
- Demand related information - total and per capita consumption, trends and capacity of the processing industry;
- Prices in the international market and changes therein, demand and supply situation in the world market;
- Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
- Cost of processing of agricultural products and changes therein;
- Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
- Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.
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