Agricultural Prices, Price Policy and Minimum Support Prices
What the domain covers
This domain tests administered prices, MSP, procurement, the CACP, sugarcane pricing and the objectives of agricultural price policy. It also tests the difference between support price and market price.
Core rules and concepts
- CACP recommends MSP; the Cabinet Committee on Economic Affairs approves it.
- MSP covers 22 mandated crops; sugarcane has a Fair and Remunerative Price, while Uttar Pradesh also announces a State Advised Price.
- Procurement is by FCI and state agencies; MSP supports food security and PDS supply.
- The 2018-19 MSP formula used A2 + FL cost, not C2.
- MSP is a support price, not a statutory minimum price for private trade.
Worked example
A crop has Cost A2 of ₹900/quintal and family labour of ₹200/quintal, so A2 + FL = ₹1,100. At 1.5 times that cost, the indicative price is ₹1,650. If the announced MSP is ₹1,500, it is below the 1.5-times formula but still above A2 + FL. If Cost C2 is ₹1,200, return over C2 is ₹300/quintal, or 25%. Reasoning: always identify which cost concept the question uses.
Traps that cost marks
Confusing FRP with UP’s SAP; using C2 when the question refers to the 1.5-times formula; assuming MSP guarantees a market price; ignoring procurement and storage costs.