• The Cabinet Committee on Economic Affairs, chaired by the Hon’ble Prime Minister Shri Narendra Modi, has approved the increase in the Minimum Support Prices (MSP) for all mandated Rabi Crops for Marketing Season 2024-25.

• The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
• MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.

Basis for MSP

• 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 — 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and 4 commercial crops (cotton, sugarcane, copra and raw jute) — based on the CACP’s recommendations.
• But the CACP itself is not any statutory body set up through an Act of Parliament.
• This, despite its coming to existence in 1965 and MSPs being announced since the time of the Green Revolution, starting with wheat in 1966-67.
• The CACP, an attached office of the Ministry of Agriculture and Farmers Welfare, Government of India.
• It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rests 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,” .
• The government does buy wheat and paddy at their MSPs.
• But that’s more out of political compulsion and the need to supply the PDS’s foodgrain requirements, more so post the NFSA.

Production Cost

• The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.
• ‘A2’: Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc
• ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour
• ‘C2’: It is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
• CACP considers both A2+FL and C2 costs while recommending MSP.
• CACP reckons only A2+FL cost for return.
• However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.

 Sugarcane

• 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 a ‘fair and remunerative price’ (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.

 Legislative backing for MSP

• The CACP, in its price policy report for the 2018-19 kharif marketing season, had suggested enactment of a 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.