The Minimum Support Price (MSP) is the rate at which the government buys grains from farmers. MSP is a part of the package to ensure food security and keep adequate food stocks in the public distribution system. The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
MSP is decided on the basis of seven criteria, of which cost of production is the most important.
Factors taken into consideration for fixing MSP include:
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: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.
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