MSP and Procurement

Prerequisites

• Land Reforms in India: who owns and records the land on which procurement registration depends
• The Green Revolution: why MSP, FCI and procurement were created in the mid-1960s
• Rice Bowl of India: Cropping Pattern: how procurement works on the ground in Chhattisgarh

The Hook: Two Prices for One Quintal

Why it matters: Prelims asks about CACP, the cost concepts, the number of mandated crops and the procurement schemes. Mains GS-III asks whether MSP should be a legal right, how procurement distorts cropping, and how Chhattisgarh’s model works.

What Is the Minimum Support Price?

The Minimum Support Price (न्यूनतम समर्थन मूल्य) is the price at which the Government of India announces it will buy a crop from farmers if market prices fall below it. It is a floor price and a form of price insurance announced before sowing, so that farmers can plan.

Crops covered

How CACP decides: the cost concepts

CACP considers cost of production, demand and supply, domestic and international prices, inter-crop price parity, terms of trade between agriculture and industry, the effect on consumers, and a minimum 50% margin over cost.

• Union Budget 2018-19 announced MSP at at least 1.5 times the cost of production, from kharif 2018-19. The cost used is A2 + FL.
• The National Commission on Farmers (chair M.S. Swaminathan, 2004–06) recommended MSP at least 50% above the weighted average cost of production. Farm unions read this as C2 + 50%, and that is the basis of today’s demand.

Current MSPs (dated)

KMS = Kharif Marketing Season; RMS = Rabi Marketing Season. Learn the method, not just the number: these figures change every year.

Procurement: Who Actually Buys the Grain?

The institutions

Two procurement models

Procurement is “open-ended” for wheat and rice: in principle, any quantity offered at MSP that meets quality norms (Fair Average Quality, FAQ) is bought. For other crops, purchase is limited and sporadic.

Price support beyond wheat and rice

From procurement to the plate

Procured grain feeds the National Food Security Act, 2013 (NFSA): up to 75% of the rural and 50% of the urban population; 5 kg per person per month for priority households and 35 kg per household for Antyodaya households. Under the PM Garib Kalyan Anna Yojana, NFSA grain is free for five years from 1 January 2024. Chhattisgarh had passed its own Food Security Act on 21 December 2012, before the NFSA; see Public Distribution System in Chhattisgarh.

graph LR
    A["Farmer
sells at MSP"] --> B["Procurement centre
PACS / mandi"]
    B --> C["State agency or FCI
(MARKFED in CG)"]
    C --> D["Custom milling
paddy to rice"]
    D --> E["Central pool
and buffer stock"]
    D --> F["State PDS
NFSA, PMGKAY"]
    E --> F
    E --> G["OMSS sales,
exports, welfare schemes"]

Agricultural Marketing Reforms (Context)

The MSP Debate (Mains material)

Why MSP matters

1. Price floor and risk cover for farmers; reduces distress sales.
2. Food security: procurement fills the central pool for the PDS and buffer stocks.
3. Signals for crop choice and investment.
4. Income support in regions where markets are thin.

Problems

1. Narrow reach: the Shanta Kumar High Level Committee (2015), using NSSO data, found only about 6% of farmers sold to procurement agencies at MSP. Effective procurement is concentrated in rice and wheat and in a few states (Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Telangana, Odisha and others).
2. Distorted cropping: assured rice–wheat procurement pulls land from pulses, oilseeds and millets, raises import dependence (edible oil) and drives groundwater depletion in the north-west.
3. Fiscal cost: a large food subsidy bill; storage losses; excess stocks above buffer norms.
4. Leakages and middlemen in some mandis; delayed payments in some states.
5. WTO limits: MSP-based procurement counts towards the Aggregate Measurement of Support under the Agreement on Agriculture; developing countries have a de minimis limit of 10% of the value of production. The “peace clause” (Bali Ministerial, 2013) protects public stockholding for food security from challenge; India was the first country to invoke it, for rice.

Should MSP be a legal guarantee?

Middle path (useful in answers): price deficiency payments for pulses and oilseeds; assured procurement of pulses (2025 mission); crop-neutral income support; stronger FPOs and e-NAM; MSP procurement aligned with water availability.

Chhattisgarh Angle

1. Decentralised procurement state for paddy; procurement through primary cooperative societies and MARKFED.
2. Effective price ₹3,100 per quintal, up to 21 quintals per acre (as of kharif 2025-26): the farmer gets the Central MSP at the procurement centre and the State pays the difference under the Krishak Unnati Yojana (launched 12 March 2024).
3. Scale: about 141 lakh tonnes of paddy from about 25 lakh farmers in 2025-26 (as reported).
4. Issues: surplus paddy beyond central-pool needs and PDS requirements must be stored and auctioned at a loss; the fiscal burden on the state budget; incentive to keep growing paddy. The state’s answer is crop-shifting assistance and the Millet Mission (see Agricultural Schemes in Chhattisgarh).

Memory Tricks

Don’t Confuse

Common Mistakes

Practice

All questions below are original practice questions in CGPSC style. They are not previous-year questions.

Level 1: Foundation

1. CACP was set up in 1965 under the name ______.
2. The cost concept used for the “1.5 times cost” MSP rule since 2018-19 is ______.
3. The Decentralised Procurement scheme was introduced in ______.

Level 2: Prelims MCQs

Q1. Consider the following statements about the Minimum Support Price:

1. MSP is recommended by the Commission for Agricultural Costs and Prices, which is a statutory body.
2. MSP is announced for 22 mandated crops, while sugarcane has a Fair and Remunerative Price.
3. The cost concept C2 includes the rent of owned land and interest on owned fixed capital.

Which of the statements given above is/are correct?

• (a) 1 and 2 only
• (b) 2 and 3 only
• (c) 3 only
• (d) 1, 2 and 3

Q2. Match List I (Scheme) with List II (Feature):

• (a) A-1, B-2, C-4, D-3
• (b) A-2, B-1, C-3, D-4
• (c) A-2, B-1, C-4, D-3
• (d) A-4, B-1, C-2, D-3

Q3. Under the Decentralised Procurement (DCP) scheme:

• (a) FCI alone procures foodgrains and the state only distributes them
• (b) The State government procures, stores and distributes foodgrains, handing surplus to FCI
• (c) Private traders procure at MSP and are reimbursed by the Centre
• (d) Only pulses and oilseeds are procured

Q4. The MSP of common paddy for the Kharif Marketing Season 2026-27 is:

• (a) ₹2,183 per quintal
• (b) ₹2,369 per quintal
• (c) ₹2,441 per quintal
• (d) ₹3,100 per quintal

Q5. The “peace clause” agreed at the WTO Bali Ministerial (2013) is related to:

• (a) Export subsidies on cotton
• (b) Public stockholding programmes for food security
• (c) Fisheries subsidies
• (d) Intellectual property in seeds

Level 3: Mains Answer Writing

Q1. (60 words) Distinguish between A2, A2+FL and C2 cost concepts used in fixing MSP.

Q2. (150–200 words) Should Minimum Support Price be given a legal guarantee? Discuss with reference to Chhattisgarh’s paddy procurement experience.

Quick Revision Table

Key Takeaways

What’s Next

• Agricultural Credit: where the money for inputs comes from before the crop is sold
• Crop Insurance and Income Support: PM-KISAN as the alternative to price support
• Major Crops of India: how price signals shape the crop map
• Public Finance, Budget and Taxation: the food and fertiliser subsidy bill