Minimum Support Price (MSP)

Minimum Support Price (MSP)
•    MSP is a pre-determined price at which the government procures crops from farmers.
•    It acts as a price safety net, protecting farmers from distress sales when market prices fall.
Coverage
•    MSP is announced annually for 22 mandated crops.
•    Announced by the Government of India based on recommendations of the Commission for Agricultural Costs and Prices (CACP).
•    CACP recommends MSP after considering: views of State Governments and Inputs from Central Ministries/Departments
Factors Considered by CACP
CACP takes into account:
•    Cost of production
•    Demand–supply conditions (domestic & global)
•    Domestic and international prices
•    Inter-crop price parity
•    Terms of trade between agriculture and non-agriculture sectors
•    Likely impact of price policy on the overall economy
•    Minimum 50% margin over the cost of production
Cost Calculation under MSP
The production cost includes:
•    Hired human labour
•    Bullock/machine labour
•    Rent for leased land
•    Seeds, fertilizers, manures
•    Irrigation charges
•    Depreciation of farm equipment/buildings
•    Interest on working capital
•    Diesel/electricity for pump sets
•    Miscellaneous expenses
•    Imputed value of family labour
Why MSP is Important 
•    Provides income security to farmers
•    Reduces market risk
•    Influences cropping patterns
•    Impacts food security and inflation
•    Has fiscal implications for the government