The Minimum Support Prices in India are recommended by a statutory body known as Commission for Agricultural Costs and Prices (CACP). It gives recommendations to the government on MSP for Kharif and Rabi seasons.
The Cabinet Committee on Economic Affairs (CCEA), determines the Minimum Support Prices (MSP) of various agricultural commodities based on the recommendations of the CACP keeping in view factors like increase in the cost of production, demand and supply situation, inter-crop parity, and trend of domestic and international market prices etc.
Currently, 25 agricultural commodities are covered under the function given to the CACP for advising the government in respect fixing MSP. The Commission is required to convey its recommendations to the Government well before the sowing season of the crop.
The objective of the price policy underlying MSP is to bring a balanced and integrated price structure for agricultural commodities. The prices should be in accordance with the overall needs of the economy and protecting the interests of the producer and the consumer. Several price and non-price factors are considered while estimating the MSP.
The CACP, while formulating the recommendations on Price Policy, considers a number of important factors including cost of production, changes in input price, trends in market prices, demand and supply situation etc.
The cost of cultivation/production takes into account all paid out costs, such as, on hired labour, bullock labor and machine labor (both hired and owned) expenses on use of material inputs like seeds, fertilizers, manures, irrigation charges including cost of diesel or electricity for operation of pump sets, etc. Besides, cost of production includes imputed values of wages of family labour and rent for owned land. The cost also covers depreciation for farm machinery, building, transportation and insurance charges. State wise and crop wise cost estimation is made for recommending MSPs.