Minimum Support Price (MSP): Does It Benefit Farmers?

There has been a great debate recently over minimum support price (MSP) for agricultural produce. Fresh talks have begun over the government’s move of hiking the MSP to 50% over production cost and whether it will benefit farmers. Let us look at whether the move makes sense given that it has always been one of the major demands in all of the farmer movements in the country.

What is MSP? How did it come into place?

It was in the early 1960s when India was facing an enormous shortage of cereals that new agricultural policies were born marking the start of the Green Revolution.

In 1964, the government set up the Food Corporation of India (FCI) to procure foodgrains from farmers at remunerative prices, and through the public distribution system distribute them to consumers and also maintain buffer stock for food security.

In order to buy foodgrains, there had to be a policy on pricing. In 1965, an Agricultural Prices Commission was set up to advise on the pricing policy for agricultural commodities and its impact on the economy.

It was then that the Price Support Policy of the Government came in, providing a foolproof solution to agricultural producers against a sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. If no one else buys it, the government will buy the stock at this minimum guaranteed prices. This is what came to be known as the minimum support price or MSP.

This policy took its final shape around 1974-76. The MSP serves as a long-term guarantee for investment decisions of producers. It came with an assurance that prices would not fall below a fixed level, even in case of a bumper crop.

MSP was introduced to provide financial stability to the agricultural system and encourage production.

MSPs are announced for 23 commodities on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) by the Government of India at the beginning of the sowing season.

Why did MSP gain such importance in agricultural policies?

So, what is MSP for farmers and why is it so significant? The primary objectives of MSP are to support farmers from distress sales at severely low prices and to procure foodgrains for public distribution.

Ideally, the market price will always remain higher than the MSP fixed by the government. With a government guarantee, the farmer can always sell at the MSP if he/she cannot procure a better price elsewhere.

Thus, MSP becomes a very important benchmark for the producer because it helps him estimate the revenue, aiding the financial planning and also influencing borrowing decisions, if any.

Who Decides MSP?

The Minimum Support Price (MSP) is decided by the Central Government of India, primarily based on the recommendations made by the Commission for Agricultural Costs and Prices (CACP). This body operates under the Ministry of Agriculture and Farmers’ Welfare.

Each year, the CACP submits its recommendations before the sowing season. These are then examined and finalised by the Cabinet Committee on Economic Affairs (CCEA), which is chaired by the Prime Minister.

How is MSP Calculated?

The calculation of MSP is a multi-layered process involving economic, social, and environmental considerations. The following factors are evaluated by the CACP while recommending MSP:

1. Cost of Production (CoP) is assessed, including paid-out costs and family labour.
2. Demand and Supply conditions of each crop are analysed.
3. Market Price Trends (domestic and global) are studied.
4. Inter-crop Price Parity is ensured to balance prices across crops.
5. Terms of Trade between the agriculture and non-agriculture sectors are reviewed.
6. Environmental Impact is factored to promote sustainable cropping.
7. Margin Over CoP is added — MSP = 1.5 times A2+FL cost (as per Swaminathan Committee).

Types & List of Crops Covered Under MSP

The MSP announcement is done for 23 mandated crops. These crops are categorised into Kharif crops, Rabi crops, and commercial crops.

Below is the MSP comparison for the 2023–24 and 2024–25 marketing seasons.

MSP for Kharif Crops (₹ per quintal)

MSP for Rabi Crops (₹ per quintal)

MSP for Commercial Crops (₹ per quintal)

MSP vs Market Price 

In many cases, market prices fall below MSP, particularly in the absence of effective procurement. Hence, while MSP offers a safety net, its actual benefit depends on whether the government agencies actively procure the crops.

Pros of MSP:

• It is a one-price policy guaranteeing assured pay, which directly influences farmers pockets. (Prices for all crops from 2009 to 2018.)
• It considers various factors when fixing the price and does not leave the farmer at the mercy of the market.
• Procurement for the public distribution system and buffer stock for food security come from this policy.
• It has a heavy influence on market prices and also helps the farmer grow production and match up with other sectors in terms of income.

Cons of MSP & what can be done better:

• Raising MSP without improving storage, transport, and procurement systems offers little beyond short-term relief. The pricing formula itself is debated—many argue for including full costs like land rent (C2), not just inputs and labour (A2+FL).
• Sharp hikes may fuel inflation or burden the exchequer if government resale prices remain lower. A uniform price doesn’t reflect local production costs, leaving small and marginal farmers at a disadvantage in regions with weak infrastructure.
• Though MSP exists for 23 crops, real protection is limited to a few like wheat and rice due to inconsistent procurement. For many, selling below MSP remains a reality, as ground-level mechanisms to enforce it are still lacking.
• MSP helps—but without broader reforms, it can’t solve every farming crisis.

Conclusion

The Minimum Support Price (MSP) system remains a vital pillar of India’s agricultural policy. It ensures income stability for farmers by guaranteeing a floor price for key crops, even when market conditions are unfavourable. MSP continues to be a critical tool in promoting food security, crop diversification, and farmer welfare.