What Is Minimum Support Price (MSP) And Does It Really Benefit Farmers?

5 mins read
by Angel One
Explore the impact of Minimum Support Price (MSP) on farmers in India. Uncover its origins, the recent 50% increase, and the pros and cons. Discover how MSP stabilises farmer income, contributes to food security, and influences market prices.

Minimum Support Price (MSP) for agricultural products has gained significant attention and is currently a subject of widespread discussion. The government’s recent proposal to enhance the MSP by 50% above production costs has sparked a deeper exploration into its potential impact on farmers.

In this article, we’ll take a closer look at what is MSP and try to understand if the recent proposal, which has been a key demand in farmer movements nationwide, actually makes sense.

What Is MSP? 

Let’s uncover its origins. In the early 1960s, when India faced a severe shortage of cereals, new agricultural policies were introduced, signalling the onset of the Green Revolution.

The government established the Food Corporation of India (FCI) in response to the shortage in 1964. This move aimed to ensure fair prices for farmers’ produce, distribution through the public system, and the maintenance of buffer stocks for food security.

To make this system work, a pricing policy was crucial. That’s where the Agricultural Prices Commission was formed in 1965 to guide pricing policies for agricultural commodities and their impact on the economy.

The Price Support Policy emerged as a solution, offering protection for farmers against sharp price declines. At its core was the minimum guaranteed price, or MSP, setting a floor price preventing market prices from falling below it. If the private market showed no interest, the government committed to buying the produce at this minimum guaranteed price.

The Minimum Support Price policy took shape around 1974-76, providing a safety net for farmers. It assured them that even during bumper crops, prices wouldn’t drop below a fixed level, ensuring financial stability and encouraging agricultural production.

Announced at the start of the sowing season, MSPs are determined for 23 commodities based on recommendations from the Commission for Agricultural Costs and Prices (CACP) by the Government of India.

Why Did MSP Gain Such Importance In Agricultural Policies?

MSP has become crucial in agricultural policies because it supports farmers and ensures a steady food supply. The main goals are to assist farmers facing tough times by preventing them from selling their produce at very low prices and to secure enough food for public distribution.

In an ideal situation, the prices in the market should be higher than the MSP set by the government. However, the government’s guarantee becomes a safety net for farmers. It allows them to sell their crops at the MSP if they can’t find a better price elsewhere. This assurance makes MSP a key reference point for farmers. It helps them estimate their income, plan their finances, and influence decisions about borrowing money when needed.

While other factors like technology, irrigation, infrastructure development, market reforms, and better storage facilities impact agriculture in the long run, MSP is unique. It remains contentious because it directly affects farmers’ earnings and is something tangible they can rely on.

Current Status Of MSP

The recent announcement of a significant 50% increase in Minimum Support Price (MSP) has relieved many farmers, signalling positive changes in the agricultural sector. However, examining MSP’s impact in-depth is crucial, considering its pros and cons.

Pros of MSP

  • Stable Income Assurance

MSP acts as a safety net, guaranteeing farmers a stable income. This is particularly vital during unpredictable market conditions, providing financial stability.

  • Comprehensive Price Considerations

MSP factors in various elements affecting agricultural production. Doing so shields farmers from market uncertainties, ensuring a more consistent income.

  • Contribution to Public Distribution and Food Security

MSP plays a pivotal role in supplying produce for the public distribution system, ensuring food security at a national level. The creation of buffer stocks maintains a reliable supply of essential commodities.

  • Influence on Market Prices and Economic Alignment

Beyond individual farmers, MSP significantly affects market prices. This influence encourages farmers to boost production, contributing to overall economic stability.

Opportunities for Improvement

  • Need for Infrastructure Development

While the MSP hike is positive, simultaneous investment in agricultural infrastructure is essential for long-term impact. It’s crucial to pair price increases with improved infrastructure.

  • Cost Considerations and Holistic Evaluation

MSP currently covers specific costs, but debates on including comprehensive costs persist. A careful evaluation is necessary to address these concerns and ensure fair compensation.

  • Balancing Inflationary Impact

Excessive MSP hikes, while beneficial for farmers, may impact food prices and the economy. Striking a balance is vital to benefit farmers without causing broader economic challenges.

  • Addressing Regional Disparities

Applying MSP nationwide doesn’t account for regional differences in production costs. Addressing these disparities is necessary to distribute benefits more equitably among farmers.

  • Bridging the Gap Between Concept and Reality

While farmers theoretically can sell to the government when market prices fall below MSP, practical challenges hinder smooth execution. Addressing these challenges is essential for the system to work seamlessly.

  • Expanding MSP Reach

Despite being notified for 23 crops, MSP’s effective enforcement is limited to a few. Expanding its coverage is crucial to maximise its positive impact on a broader range of crops.

  • Recognising MSP as a Component, Not a Sole Solution

While MSP is significant, it’s essential to acknowledge that it’s not a one-stop solution for all challenges faced by farmers. A comprehensive approach, incorporating technological advancements and infrastructure development, is necessary for sustained agricultural growth.


While the Minimum Support Price serves as a crucial safety net for farmers, the recent 50% increase is a positive step towards ensuring stable incomes and food security. However, challenges such as the need for simultaneous infrastructure development, a comprehensive cost evaluation, and addressing regional disparities must be tackled for sustained impact.


What do you mean by MSP?

MSP, or Minimum Support Price, is a safeguard provided by the Indian government to shield farmers from drastic drops in the prices of their crops. It acts as a financial safety net, ensuring a minimum price for agricultural produce.

How is MSP calculated?

The calculation of Minimum Support Price involves considering various factors like cultivation costs, supply and demand conditions, market trends (both locally and globally), and their impact on consumers and the environment. The Commission for Agricultural Costs and Prices (CACP) recommends MSP based on these evaluations.

Who decides MSP in India?

The Minimum Support Prices for 23 crops in India are determined by the Department of Agriculture and Co-operation, Government of India. These prices are set before the sowing seasons based on recommendations from the Commission for Agricultural Costs and Prices.

What is the difference between MSP and MRP?

MSP, Minimum Support Price, is the assured price paid to farmers for their crops. In contrast, MRP, Maximum Retail Price, is the highest allowable price for consumer goods. The key difference lies in their application – MSP relates to agricultural products, while MRP pertains to retail goods, with trading acting as an intermediary.

Why is MSP good for farmers?

MSP is beneficial for farmers as it provides a safety net, ensuring a guaranteed minimum price for their crops. With this government assurance, farmers can sell their produce at MSP if better prices are not available elsewhere. MSP becomes a vital benchmark for farmers, helping them plan their finances and make decisions about borrowing, thereby offering stability and support in fluctuating market conditions.