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MSP and How the 1.5-times formula for crops MSP is calculated?

  Jan 16, 2021

MSP and How the 1.5-times formula for crops MSP is calculated?

Q. What is the news?

The major demand of the protesting farmers in Delhi border has been that the government guarantee in writing the MSP system, which assures them of a fixed price for their crops, 1.5 times of the cost of production.

Q. What is MSP?

Minimum Support Price – An Analysis - ForumIAS Blog

Q. How was the MSP fixed earlier?

The Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture would recommend MSPs for 23 crops.

● The CACP considered various factors while recommending the MSP for a commodity, including cost of cultivation.

● It also took into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

Q. What changed with the Union Budget for 2018-19?

The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1½ times of the production costs for crops as a “pre-determined principle”.

● The CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

Q. Which production costs were taken in fixing the MSPs?

The CACP’s ‘Price Policy for Kharif Crops: The Marketing Season 2018-19’ report stated that its MSP recommendation was based on 1.5 times the A2+FL costs.

● ‘A2’ covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.

● ‘A2+FL’ includes A2 plus an imputed value of unpaid family labour. ‘

It does not take into account C2 costs.‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.