About MSP

• Minimum Support Price (MSP) is a form of market intervention by the Government to insure agricultural producers against any sharp fall in farm prices. 
• MSP is the price at which the government procures certain crops from farmers to ensure support price to farmers and affordable prices to the consumer. 
• The minimum support prices are announced by the Government at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). 

How many crops does the minimum support price cover?

• As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, niger seed), and 4 commercial crops (copra, sugarcane, cotton and raw jute).
• CACP submits its recommendations to the government. The Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister takes a final decision on the level of MSPs and other recommendations made by CACP.

Why in News?

• The Union Cabinet has approved MSP hikes for all kharif season crops, in alignment with the government’s policy of keeping MSPs at least 1.5 times above the cost of production, aiming at reasonably fair remuneration for the farmers. 

How is the production cost arrived at?

• As per CACP, there are three definitions of production cost which includes A2, A2+FL and C2. 
  • A2 covers all paid-out expenses, including cash and in kind. It includes costs on seeds, chemicals, hired labour, irrigation, fertilisers and fuel. 
  • A2+FL covers actual paid cost and also unpaid family labour. 
  • C2 cost method is more comprehensive and makes the calculation by including a wider range of inputs. It includes actual paid out costs, imputed value of family labour, interest on the value of owned capital assets, rent paid for leased-in land and the rental value of owned land.
• CACP considers both A2+FL and C2 costs while recommending MSP. 
• It should be noted that there is currently no statutory backing for these prices, nor any law mandating their enforcement. 

Why in News?

• The Cabinet Committee on Economic Affairs (CCEA) chaired by the  Prime Minister, has approved the increase in the Minimum Support Prices (MSP) for all mandated Rabi Crops for Marketing Season 2025-26.