Explained: What is the basis of MSP? How is it fixed, and how binding is it?

News: Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 does not provide any safeguards for the continuance of the existing minimum support price (MSP)-based procurement regime.


  • MSP is the minimum price paid to the farmers for procuring food crops. It is announced by the Government at the beginning of the sowing season.
  • There are two objectives of the Minimum Support Price system (a)To prevent distress sale by the farmers in case of a bumper crop and (b)To procure the grains for public distribution by fair price shops.
  • They are recommended by the Commission for Agricultural Costs and Prices (CACP) and approved by the Cabinet Committee on Economic Affairs. Food Corporation of India (FCI) is the nodal agency for procurement along with State agencies.
  • The Centre currently fixes MSPs for 23 farm commodities — 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and 4 commercial crops (cotton, sugarcane, copra and raw jute)
  • There is no law mandating their implementation. The only crop where MSP payment has some statutory element is sugarcane. Sugarcane pricing is governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.

Additional Information:

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020

  • Trade of farmers produce: It opens up agricultural marketing outside the notified Agricultural Produce Market Committee (APMC) for farmers and also removes barriers to inter-State trade.
  • Electronic Trading: It seeks to permit the electronic trading of farmers produced in the specified trade area.

 Commission for Agricultural Costs and Prices (CACP): it is an attached office of the Ministry of Agriculture and Farmers Welfare. It is not a statutory body set up through an Act of Parliament.