Between 2011 and 2021, the MSPs of millets such as ragi, jowar and bajra increased the most, with ragi’s having more than tripled in the past 10 years.
Earlier this week, the central government raised the minimum support price (MSP) for paddy and other Kharif crops. While the MSP for paddy has been increased slightly from Rs 72 per quintal to Rs 1,940 per quintal for the 2021-22 crop year, the rates of pulses, oilseeds and cereals have been significantly increased.
Among cash crops, the MSP of cotton has been increased from Rs 211 per cwt to Rs 5,726 for the medium base variety, and from Rs 200 per cwt to Rs 6,025 for the long staple cotton variety for the 2021-22 campaign (July-June).
What is the MSP?
The Minimum Support Price or MSP is the minimum price set by the government at which Indian farmers can expect to sell their produce for the season.
When the market prices of the commodities fall below the MSP level, supply agencies step in to buy the crop and “support” the prices. The system, theoretically speaking, prevents farmers from selling their produce at low prices.
How is the MSP calculated?
As First post had reported earlier, the MSP is usually announced at the start of each planting season by the Cabinet Committee on Economic Affairs based on recommendations from the Agricultural Costs and Prices Commission (CACP).
The ACCP calculates the minimum support price using various factors including cost of production, demand and supply, international prices, inflation, environmental impact, etc.
The MSP in 2018-19 was based on the A2 + FL method. The A2 here represents the farmer’s “actual paid costs” which include payments made in cash and in kind on seeds, fertilizers, pesticides, hired labor, rented land, fuel, fuel, etc. irrigation, etc. cost of family labor ”that goes into the production of a crop.
However, agricultural experts, including the MS Swaminathan Commission, had said the minimum support price for crops should depend on the overall cost of production (also known as the C2 method). This method includes not only costs paid, imputed family labor, but also imputed rents and interest on land and other fixed assets.
In the 2018-19 Union budget, the government announced that the crop MSP will be calculated according to the cost of the production method.
The MSP Cabinet announcement for Kharif crops for the 2021-22 marketing season is calculated as follows 1.5 times the cost of production. The ad describes the cost of production as “an aggregate cost which includes all costs paid such as those incurred due to hired human labor, machine labor, rent paid for land leases, expenses incurred for the use of material inputs such as seeds, fertilizers, fertilizers, irrigation costs, depreciation of agricultural tools and buildings, interest on working capital, diesel / electricity for the operation of pump sets, etc., as well as miscellaneous expenses and the imputed value of family labor ”.
Is the cost of production the same for all states?
Not really. As stated earlier, in addition to material inputs, the cost of production also includes the cost of human labor and is the highest percentage share of all costs incurred to produce a crop. Although a minimum cost of human labor has been set in India, it varies by state and region.
MSP of Kharif cultures over the past 10 years
The MSPs of Kharif crops have increased slightly each year since 2011-12. However, after witnessing a significant increase in some Kharif crops during the year 2018-19, the change in MSP was relatively small for most Kharif crops.
A comparison of the percentage change in MSP of Kharif cultures between 2011 and 2021 reveals five interesting events. First, the prices of ragi more than tripled between 2011 and 2021, while those of other mils like jowar and bajra also increased significantly during the same period. In comparison, the paddy MSP has not increased much. It could also be due to a push for millets by the government of India. Second, the percentage increase in the MSP of Kharif crops was considerably small in the two years leading up to the 2014 elections in Lok Sabha, which the UPA government lost to the NDA.
Third, under the NDA, the MSP of Kharif cultures gradually increases without significant change until 2017, but then increases sharply in 2018-19 just before the 2019 elections in Lok Sabha.
However, the percentage change is uneven. On the one hand, while the MSP for ragi is increasing by more than 50%, on the other end, Tur and Urad dal increase by 4.1 and 3.7% respectively. Among pulses, only Moong Dal recorded a double-digit increase of 25.1%.
Maize (19.3 percent) is also experiencing a strong peak but is comparatively lower than jowar (above 42 percent) and bajra (36.8 percent). On the other hand, MSP paddy increased by 12.9% for the common and 11.3% for grade A.
Fifth, the NDA returns to power and the percentage increase in the MSP returns to the pre-election levels. There is a small peak in 2020-21, but the percentage increase is less for bajra, maize, ragi, moong (marginal), cotton (medium and long staple), sunflower seeds, seeds from Niger in 2021-22 while it is higher for jowar (Hybrid varieties and Maldandi), paddy (common and grade A), tur, groundnut and sesame.
Overall, with the exception of 2018-19, the MSP for Kharif crops did not experience a significant percentage increase.