Minimum Support Price: A system ensuring financial stability for farmers, strengthening food security

By Vikas Meshram*

In India, around 60% of the population depends on agriculture, which serves as the main livelihood source for millions. Despite this, farmers often do not receive fair compensation for their labor, exposing them to financial instability. To address this issue, the government has introduced the Minimum Support Price (MSP) system. The purpose of MSP is to provide farmers with a guaranteed price for their crops, helping to prevent financial losses.

Recently, the central government has increased MSP for six Rabi crops, with a minimum increase of Rs. 130 and a maximum of Rs. 300 per quintal. Wheat MSP has been raised by Rs. 150 to Rs. 2,425 per quintal, while mustard has seen the highest increase of Rs. 300 per quintal. Additionally, the MSP for lentils has increased by Rs. 275 per quintal. Starting in April 2025, the government will begin the purchase and sale season for Rabi crops at the new MSP rates. Notably, the MSP now covers 1.5 times the cost of production for most crops, a demand that farmers have consistently put forward. So far, the government has included MSP for 23 crops. Farmers have often protested to raise MSP further, and with this recent increase, questions arise about whether future protests might continue.

MSP is a system in which the government guarantees a set price for crop purchases from farmers, aiming to ensure that they receive a minimum income for their produce. MSP protects farmers from the volatility of market prices. The MSP system began in 1967 and is based on recommendations from the Commission for Agricultural Costs and Prices (CACP). The calculation considers various factors such as production costs, market trends, and supply-demand dynamics. Production costs are divided into three types, including family labor, to determine MSP.

The central government sets the MSP, with the CACP playing a significant role by recommending prices based on factors including the following cost components:

1. A2 Cost: Covers direct production costs like seeds, fertilizers, pesticides, water, fuel, and labor.

2. A2+FL Cost: Includes A2 costs plus family labor.

3. C2 Cost: Includes A2+FL costs along with rent for land and other financial management expenses.

Currently, MSP is set based on A2+FL costs. However, farmers and farmer unions advocate for MSP based on C2 costs, which include all production expenses. Increasing MSP benefits farmers by providing a profitable return and encouraging crop diversity. Farmers have repeatedly protested for MSP on all crops and submitted comprehensive lists to the government. While the government promotes crop diversification, its implementation largely depends on the government's approach. Farmers expect guaranteed prices for all crops, believing that assured returns would naturally lead to crop diversity.

According to the central government, increasing MSP will enhance farmers' income. However, farmer leaders believe that additional measures could further support farmers’ income, including the creation of a Price Stability Fund. This fund would compensate farmers when market prices fall below MSP. Additionally, farmers should be encouraged to grow high-value crops, and reliance on contract farming with companies should be minimized, as contract defaults often lead to financial losses and debt, pushing farmers into distress.

Some experts argue that MSP dependence might hinder innovation in agriculture. Farmers may become reliant on government support and be less inclined to take risks, which could lead to a cycle of reliance on MSP for crops like wheat and rice. However, to fully protect farmers, the government would need to guarantee MSP procurement of all crops. This would provide farmers with financial stability and encourage crop diversification.

Agricultural experts suggest that decisions should prioritize farmers' needs, as food security is critical for national stability and dignity. MSP has proven to be a vital intervention mechanism in regulating market prices while ensuring food security. Unlike nations with smaller populations and strong industrial economies like Qatar and Bahrain, which can rely on imports for food security, India cannot follow this model due to its large population and dependency on agriculture for employment. If MSP were granted legal backing, the government procurement process would gain certainty. Legal MSP would reduce the financial pressure on farmers due to market instability, encouraging them to bring their crops to market and stabilize prices based on supply-demand dynamics.

Overall, MSP not only strengthens food security but also guarantees fair prices for farmers, sustaining food grain production. Effective MSP implementation can stabilize food prices, contributing to poverty alleviation.

MSP is an essential system supporting farmers’ financial security, yet improvements are needed to make it more efficient. Farmers should receive fair compensation for their hard work, and all crops should benefit from guaranteed prices. By strengthening MSP, farmers' income would increase, and India's food security would become more resilient.

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*Social worker

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