MSP is the minimum price paid to the farmer for procuring food crops.
It offers an assurance to farmers that their realisation for the agricultural produce will not fall below the stated price.
The government uses the MSP as a market intervention tool to incentivise production of a specific food crop which is in short supply.
It also protects farmers from any sharp fall in the market price of a commodity.
MSPs are usually announced at the beginning of the sowing season and this helps farmers make informed decisions on the crops they must plant.
MSP is computed on the basis of the recommendations made by the Commission for Agricultural Costs and Prices (CACP).
How does the CACP fix the MSP?
It considers factors such as the cost of production, change in input prices, market price trends, demand and supply, and a reasonable margin for farmers.
The Food Corporation of India, which is the nodal agency for procurement, along with State agencies, establishes purchase centres for procuring food grain under the price support scheme.
The State government decides on the location of these centres with the aiming of maximising purchases.
The Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in 1985) was established in 1965 for advising the Government on agricultural prices policy on a continuing basis.
The first Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.
Importance of MSP—
Farming is a risky business with the farmer’s income dependent on the vagaries of weather and pests, as well as local and international price trends.
The MSP mechanism shields farmers to an extent, from such risks, by guaranteeing a floor price for their produce.
MSP also ensures that the country’s agricultural output responds to the changing needs of its consumers.
MSP is a tool to achieve food security and tackle shortages of key food items.
The crops are covered under MSP—
Kharif Crops— Rabi Crops— Other Crops—
 Paddy  Wheat  Copra
 Jowar  Barley  De-husked Coconut
 Bajra  Gram  Jute
 Maize  Masur (Lentil)  Sugarcane
 Ragi  Rapesed (Mustard)
 Tur (Arhar)  Safflower
 Moong  Toria
 Sunflower Seed