Agricultural Pricing

Minimum Support Price

Imagine you are a farmer. You’ve invested money, time, and labour into growing your crop. But when harvest season comes, the market price crashes—perhaps because of bumper production or import surpluses.

In such a scenario, MSP becomes your economic safety net.

Minimum Support Price (MSP) is the price at which the Central Government promises to purchase crops from farmers, irrespective of the prevailing market price.

It is not a law but a policy instrument aimed at ensuring that farmers don’t suffer losses due to volatile market conditions.

Who Decides MSP?

The decision is ultimately taken by the Cabinet Committee on Economic Affairs (CCEA). However, it is based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

Think of the CACP as a team of agricultural economists who work like accountants and strategists—factoring in:

• Cost of production (A2, A2+FL, and C2 formulae)
• Demand and supply dynamics
• Price trends in domestic and international markets
• Impact on consumers, especially in inflation-sensitive commodities

In Budget 2025-26, there was no legal guarantee introduced for MSP, but the procurement mechanism and financial allocations continue to play a crucial role in farm policy.

What Crops Are Covered?

Currently, the government announces MSPs for around 26 crops including cereals, pulses, oilseeds, and some commercial crops.

But in practice:

• Major procurement is for wheat and rice, mainly for the Public Distribution System (PDS).
• As a result, farmers tend to focus more on wheat and rice, leading to regional skew and discouraging crop diversification.

Commodities Covered under MSP

Type	Examples
Cereals (7)	Rice, Wheat, Maize, Barley, Ragi, etc.
Pulses (5)	Tur, Moong, Urad, Gram, Lentil
Oilseeds (7)	Soybean, Groundnut, Mustard, etc.
Commercial Crops (4)	Sugarcane, Cotton, Copra, Jute

Despite covering 23 crops, in practice, MSP is effectively operational only for wheat and rice, and that too in select states. This imbalance is a major criticism.

Refer here for detailed information on MSP crops.

✅ New Development:

In March 2025, a parliamentary panel recommended MSP for all organic crops, and suggested that the MSP should be higher than that of non-organic varieties to encourage sustainable farming.

How Does MSP Work in Practice?

Let’s understand this:

• If market price > MSP, the farmer will sell in the open market.
• If market price < MSP, the government steps in and procures the crop at MSP through agencies like FCI, NAFED, etc.

🟩 Purpose:

1. Prevent distress sales
2. Ensure food grain procurement for PDS
3. Support farm income and encourage investment in agriculture

Recent Developments

🔹 Cabinet Approves hike in MSP for Kharif Crops (May 2025)

• The government has increased the Minimum Support Prices (MSP) of Kharif Crops for Marketing Season 2025-26, to ensure remunerative prices to the growers for their produce. 
• The highest absolute increase in MSP over the previous year has been recommended for nigerseed (Rs.820 per quintal) followed by Ragi (Rs.596 per quintal), Cotton (Rs.589 per quintal) and Sesamum (Rs.579 per quintal).

🔹 Wheat MSP Hiked (2025–26):

• MSP for wheat raised to ₹2,425 per quintal—a 6.6% hike—to ensure price support amidst inflation and global wheat shortages.
• The move came ahead of Rabi sowing to boost wheat output and avoid imports.

🔹 Robust Procurement (April 2025):

• FCI procured over 2.08 million tonnes of wheat, a 44% increase over last year.
• Madhya Pradesh offered a ₹175/quintal bonus over MSP, increasing farmer participation.

🔹 Demand for Legal Guarantee:

• Farmers’ unions are still demanding a legal guarantee for MSP.
• Budget 2025-26 was criticised by farmer groups for lacking structural reforms or legal backing for MSP.

🔹 NITI Aayog’s Proposal – Price Deficiency Payment System (PDPS):

Instead of physical procurement, this model proposes:

• Direct cash compensation to farmers if market price falls below MSP.
• Payments via Direct Benefit Transfer (DBT) linked to Aadhaar.
• Encourages crop diversification and reduces need for storage.

Challenges in Implementation

Despite being a vital safety measure, MSP suffers from serious ground-level challenges:

• ❌ Only 10% of farmers are aware of MSP before sowing.
• ❌ Procurement centres are often far, increasing transport costs.
• ❌ Lack of proper infrastructure—drying yards, godowns, digital weighing machines.
• ❌ Delays in payment and insistence on documentation like revenue records.
• ❌ Skewed procurement—mostly rice and wheat, leading to overproduction and soil degradation in some states.

Way Forward – Reforms and Recommendations

• Awareness Drives: MSP details must reach farmers before sowing through Panchayats, mobile alerts, and local media.
• Decentralised Procurement: Establish village-level procurement centres to reduce logistical costs.
• Real-Time Pricing Data: MSP should reflect current-year input costs, not outdated averages.
• Infrastructure Boost: Drying platforms, digital weighing bridges, storage godowns must be added.
• State Involvement: Better Centre–State coordination in MSP implementation.
• Adopt PDPS in phased manner to ensure wider benefit and efficient budget use.

Conclusion

Minimum Support Price is not just a price—it is a promise. A policy tool that can transform Indian agriculture—if executed well.

But in its current form, MSP is not universal, not legally binding, and not equitable across states or crops.

To truly empower farmers, India must modernize MSP implementation, expand its reach, and adopt digital, decentralized models like PDPS.

Storage Facilities in Indian Agriculture

The irony of Indian agriculture is this: We produce enough food, yet we lose a significant portion of it after harvesting.

This wastage doesn’t happen due to drought or pests in the field, but after the harvest is complete—in transport, handling, and storage.

Hence, robust storage infrastructure is not just desirable, it is indispensable for ensuring food security, price stability, and farmer income protection.

Why Storage is Crucial?

Let’s say a farmer harvests tomatoes. Now, tomatoes can rot in 2–3 days in high temperatures. If there’s no nearby cold storage, or if roads are blocked, he may be forced to sell at throwaway prices or face total loss.

This scenario isn’t rare—it’s widespread. According to data:

• Fruits and vegetables: Losses range from 4.6% to 15.9%.
• Pulses and oilseeds: Losses range between 6.4% to 8.4%.
• These are post-harvest losses—a silent agricultural crisis.

What Causes These Losses?

The reasons are systemic:

• ❌ Improper harvesting techniques
• ❌ Inadequate packaging
• ❌ Poor transport infrastructure
• ❌ Lack of storage capacity
• ❌ Unhygienic or damp godowns
• ❌ Remote location of existing facilities

Even when storage space is available, the conditions are often unfit—leading to fungal infections, spoilage, or rodent damage.

Types of Storage Facilities in India

India uses a mix of traditional, semi-modern, and modern storage structures. Let’s understand each:

A. Underground Storage Structures

• Dug-out pits or wells, walls often plastered with cow dung.
• Pros: Protected from weather, theft, and pests.
• Cons: Not suitable for large-scale or long-term storage.

B. Surface Storage Structures

• Bag storage or bulk storage in warehouses or open plinths.
• Common in rural households and small traders.

C. Cover and Plinth (CAP) Storage

• Stacks of grain bags on raised plinths, covered with tarpaulin.
• Economical but temporary—vulnerable to wind, rain, and pests.
• Used by agencies like FCI in surplus years.

D. Silos

• Modern, mechanised structures for bulk grain storage.
• Grains are conveyed mechanically and stored in large, vertical tanks.
• Capacity: ~25,000 tonnes each.
• Advantage: Controlled environment, less grain loss, efficient logistics.
• India is expanding silo-based storage, especially under PPP models.

E. Warehousing

• Built scientifically for long-term storage.
• Protects both quantity and quality of produce.
• Managed by:
  • Central Warehousing Corporation (CWC)
  • State Warehousing Corporations (SWCs)
  • Food Corporation of India (FCI)

Cold Storage: Vital for Perishables

You can’t store mangoes the same way you store wheat.

That’s where cold storage comes in—for fruits, vegetables, dairy, fish, meat, etc.

❄️ Key Facts:

• First regulated under Cold Storage Order, 1964 (Essential Commodities Act).
• Designed to prolong shelf life and reduce perishability.

❄️ Challenges:

• ❌ Delayed land conversion from agricultural to industrial use
• ❌ No tax relief for cold storage units
• ❌ Power availability issues
• ❌ Poor connectivity to farms

As of 2025, cold chain infrastructure remains woefully inadequate, with a gap of nearly 35 million tonnes in cold storage capacity, as per recent government estimates.

Innovative and Modern Solutions

✅ At Farm-Gate:

• Minimal Processing Centres: With sorting, grading, weighing, pre-cooling, and storage.

✅ In Transit:

• Reefer Trucks: Refrigerated containers that carry perishables while maintaining low temperatures.
• Mobile Pre-Cooling Vans: Portable units to pre-cool produce before loading.

✅ Distribution Level:

• Cold Storage Hubs with:
  • Variable humidity chambers
  • Blast freezers
  • Controlled atmosphere units
• Food Irradiation Plants: To kill pathogens and extend shelf life without chemicals.

Mega Food Parks: The Integrated Model

Launched in 2008 by the Ministry of Food Processing Industries, Mega Food Parks aim to:

• Link farmers to markets
• Create cluster-based infrastructure
• Integrate production, processing, storage, and retail

Each park includes:

• Cold storage units
• Packaging centres
• Testing labs
• Processing plants
• Transport and logistics hubs

As of 2025, over 20 Mega Food Parks are operational, but the scheme needs greater private participation and state-level convergence.

Way Forward: Reforms Needed

✔️ Expand scientific storage capacity, especially silos and cold storage
✔️ Set up decentralized godowns at village level
✔️ Incentivize private sector in storage infrastructure
✔️ Use remote sensing and IoT to monitor stored crops
✔️ Integrate warehouses with e-NAM and agri-marketing platforms
✔️ Encourage public–private partnerships (PPP) in cold chain logistics

Conclusion

Agriculture doesn’t end with harvest—it begins with storage.

Without adequate and efficient storage, even the most productive harvest becomes a liability, not an asset.

India’s agricultural transformation will only be sustainable when production, preservation, and distribution are treated as a unified system—not isolated activities.

APMC: Understanding the Agricultural Market Maze

Let’s say a farmer in Maharashtra harvests onions. Where does he sell them?

He can’t just go to the nearest town and sell in the open market. In most states, by law, he has to take his produce to an APMC mandi—a regulated market established under state legislation.

APMC stands for Agricultural Produce Market Committee.

It’s a system created to protect farmers from exploitation by private traders, by ensuring fair trade practices through licensed intermediaries (traders, commission agents, brokers) in designated mandis.

The Intended Role of APMCs

Originally, the APMC system was introduced to prevent distress sales by farmers and ensure:

• ✅ Transparent price discovery through auction
• ✅ Elimination of unregulated exploitation
• ✅ Timely payment to farmers
• ✅ Standardised weights and measures

This was especially relevant in the 1960s and 70s when farmers were vulnerable to local moneylenders and private traders offering very low prices.

How Does It Actually Work?

In practice, the APMC often works like this:

• A farmer brings his produce to the mandi.
• A licensed middleman or broker negotiates the price with buyers (often in informal settings).
• The produce is sold, but the farmer pays a commission, market fee, handling charges, and other deductions.

Analogy: It’s like you want to sell your product on Amazon, but before you can list it, you must go through a third-party agency that charges you fees and may not give you the real value of your product.

Core Issues with the APMC System

Though the APMC was designed to protect farmers, over time it has become part of the problem:

• ❌ Monopoly of middlemen: Traders form cartels and manipulate auction prices.
• ❌ Limited access: Farmers have to travel long distances to mandis.
• ❌ Restricted competition: Farmers cannot sell outside the mandi in many states.
• ❌ Lack of transparency: Price discovery is often opaque and poorly regulated.
• ❌ Delays in payment and lack of grievance redressal.

Many APMCs, instead of ensuring a free and fair market, turned into closed clubs dominated by politically connected traders and brokers.

The Rise of Alternatives: Breaking the Monopoly

By 2011–12, several agritech startups and state governments began experimenting with electronic market platforms—apps and portals where farmers could:

• Sell produce directly to buyers
• Get real-time price updates
• Bypass middlemen
• Receive payments digitally

This would increase price discovery, reduce exploitation, and promote market efficiency.

But there was resistance.

The middlemen—who had established strong political and economic power—became the biggest hurdle. In many cases, state governments were hesitant or unable to bypass their influence.

Progressive States: Dismantling the APMCs

Still, some bold steps were taken:

• ✅ Bihar (2006): First state to dismantle the APMC Act and allow private markets.
• ✅ Karnataka: Developed the Rashtriya e-Market Services (ReMS) platform, integrating over 150 markets under one electronic system.
• ✅ Other states like Maharashtra, Gujarat, and MP partially opened their mandis to private players.

However, dismantling APMCs without proper alternatives also had mixed results—some farmers lost access to even the basic mandi infrastructure.

Towards Reform: e-NAM and Beyond

The central government launched the e-NAM (National Agriculture Market) in 2016 to create a pan-India electronic trading portal:

• Connects existing mandis via online platforms
• Aims for “One Nation, One Market”
• Allows interstate trading
• Provides price and arrival data

As of 2025, over 1300 mandis are integrated into e-NAM, but actual adoption on ground remains limited due to:

• Lack of digital literacy among farmers
• Infrastructure gaps at APMC mandis
• Resistance from local trader lobbies

Conclusion: APMC Needs Reform, Not Abandonment

“Mandis are like schools—necessary, but they must be well-run. Shutting them down isn’t the solution; upgrading them is.”

The APMC system is neither entirely bad nor fully effective. The way forward lies in:

• ✔️ Reforming APMCs to promote competition and transparency
• ✔️ Strengthening e-NAM with robust logistics
• ✔️ Allowing parallel private markets
• ✔️ Empowering farmer-producer organisations (FPOs)
• ✔️ Ensuring timely payments and grievance mechanisms

In essence, we must liberalise the market, but not at the cost of the small farmer.

Procurement Price (PP) for Food Grains: Explained

Let’s start with a simple scenario.

Imagine the government wants to make sure that there is enough wheat and rice in stock so it can distribute these to the poor through the Public Distribution System (PDS).

To do that, it must buy food grains from the farmers.

The Procurement Price is the price at which the government purchases food grains from farmers, primarily for buffer stock and PDS requirements, through the Food Corporation of India (FCI) and other designated agencies.

In simple terms: PP = The government’s buying price for grains, mainly rice and wheat.

Procurement Price vs Minimum Support Price (MSP)

Now here’s where people often get confused — Is Procurement Price the same as MSP?

Not exactly.

Let’s understand this with a comparison:

Aspect	Minimum Support Price (MSP)	Procurement Price (PP)
What is it?	Price guaranteed to the farmer if no better market price is available	Actual price at which government procures food grains
Applicability	Applies to 26+ crops (food and non-food crops)	Applies to only food grains (mainly wheat and rice)
Purpose	To protect farmers from distress sales	To maintain buffer stocks and fulfill PDS obligations
Declared by	Cabinet Committee on Economic Affairs (based on CACP recommendations)	Determined by Government while actual procurement is done
Relationship	MSP is declared before sowing to guide farmers	PP is often equal to MSP, but can be higher in special cases

So, you can think of MSP as a floor price, and PP as the transaction price—what the government actually pays when it steps in to procure food grains.

When is PP Higher than MSP?

Most of the time, MSP = PP for food grains.

But sometimes, the government may offer a higher PP than MSP. Why?

To incentivize more procurement, especially when foodgrain stocks are low and the government urgently needs to fill up the buffer reserves.

For instance:

• If farmers are reluctant to sell at MSP due to higher open market prices or other costs,
• Or if there’s a shortfall in procurement targets,

…then the government may declare a higher Procurement Price to meet its stocking goals.

This is a policy tool that gives the government flexibility.

Who Does the Procurement?

• The Food Corporation of India (FCI) is the main agency for procurement.
• It works alongside state procurement agencies, especially in states like Punjab, Haryana, Chhattisgarh, Madhya Pradesh, and Uttar Pradesh.

The procured food grains go into:

• Central Pool Stocks
• Buffer stock reserves
• PDS for schemes like NFSA (National Food Security Act)

Why is Procurement Price Important?

• It helps ensure national food security.
• Provides assured market access to farmers for staple crops.
• Stabilizes grain prices in the market by controlling supply-demand mismatches.
• Helps implement welfare schemes that rely on subsidized food distribution.

Conclusion

To sum up:

MSP is a promise, PP is the purchase.

The Procurement Price is a practical mechanism by which the government turns policy into action—buying grains at assured rates to serve both farmers and the poor.