EXPLAINED: HOW THE 1.5-TIMES FORMULA FOR CROPS MSP IS CALCULATED

EXPLAINED: HOW THE 1.5-TIMES FORMULA FOR CROPS MSP IS CALCULATED

How the government fix the MSPs of crops before every planting season?

• The Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture would recommend MSPs for 23 crops.
• These included 14 grown during the Kharif/post-monsoon season and six in rabi/winter (wheat, barley, chana, Masur, mustard and safflower), apart from sugarcane, jute and copra.
• The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
• It also took 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.

About Minimum Support Price (MSP)

• It is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices —a guaranteed price to save farmers from distress sale.
• It is 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, 1985).

Objectives of Minimum Support Price (MSP)

• Its major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
• It aimed at making farming remunerative the Government announced to fix the MSP for crops 50 per cent above their production cost since 2018–19.

New Minimum Support Price (MSP)-What changed with the 2018 budget?

• The new MSP is fixed by the CACP over the Cost A2+Fl (where, Cost A2 includes all paid-out costs borne by the farmer on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc. and the Fl is imputed cost of unpaid family labour).
• While farm activists demand it be fixed over the Cost C2 (which is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets on top of Cost A2+Fl).