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Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

Procurement Policy

1. The Central Government extends price support to wheat and paddy through FCI and State Agencies. Procurement at MSP is open ended i.e., whatever foodgrains are offered by the farmers ,within the stipulated procurement period and which conforms to the quality specifications prescribed by Government of India, are purchased at MSP (and bonus/incentive ,if any)  by the Government agencies including FCI for central Pool. Some States also declare State bonus on wheat and paddy over and above MSP.

Government agencies undertake MSP operation at mandis/ temporary purchase centres/aggregation points. Location and number of purchase centres to be opened are decided in consultation with /by the State governments.

 2. Systems of procurement:

2.1 Wheat - FCI undertakes direct procurement in non-DCP states. In the major procuring states like Punjab and Haryana, wheat is mainly procured by state agencies and they preserve the stocks under their custody for which carry –over charges are paid to them. FCI takes over the stocks for dispatch to consuming states as per requirement /movement plan. Payments are made to state govt. /agencies as per cost sheets issued by Governemnt of India after taking over the stocks. In the states like UP and Rajasthan, the wheat procured by state agencies is immediately taken over by FCI for storage /dispatch.

In DCP state like M.P, wheat is procured by the State agencies and only the surplus wheat stocks over & above the State’s requirement under TPDS/NSFA and Other Welfare Schemes are taken over by FCI for dispatch to other consuming regions.

 2.2 Rice –

Custom Milled Rice (CMR) 

CMR is manufactured by milling paddy procured by State govt. /State agencies and FCI. In the states like A.P, Telangana, Punjab, Haryana, Chhattisgarh, Odisha, MP, Tamilnadu, Maharasthra, UP & Bihar paddy is mainly procured by State government /State agencies and the resultant rice is delivered to State Government and FCI by getting the paddy milled from rice millers.

Major responsibility of procurement of wheat and paddy is borne by the State agencies whereas FCI procures almost 70% of total rice procured for Central Pool.  

2.3 Coarse grains- Coarse grains are being procured by the State governments for central pool.  

3. In major wheat and paddy procuring States like Punjab, Haryana & some parts Rajasthan procurement from farmers is undertaken by the FCI/State Agencies through Arhatiyas as per APMC Acts of the concerned State for which commission @ 2.5% of MSP is paid in the States of Punjab & Haryana and @2% in Rajasthan. In other States like MP, Chhattisgarh, UP, Uttrakhand, AP, Tamilnadu, Bihar, Jharkhand, Odisha, West Bengal procurement is made through Co-operative societies and they are paid fixed remunerations at following rates-

Wheat: Rs 27.00 /Qtl

Paddy (Grade ‘A’):  Rs 32/Qtl

Paddy (Common) : Rs 31.25/Qtl

4.Centralized and Decentralized procurement systems:

4.1 Centralized (Non-DCP) procurement system:

Under centralized procurement system, the procurement of foodgrains in Central Pool are undertaken either by FCI directly or State Govt. agencies procures the foodgrains and handover the stocks to FCI for storage and subsequent issue against Government of India allocations in the same State or movement of surplus stocks to other States. The cost of the foodgrains procured by State agencies is reimbursed by FCI as per cost-sheets issued by Government of India as soon as the stocks are delivered to FCI.

4.2 Decentralized (DCP) Procurement

Under DCP system, the State Government of India/its agencies procure, store and distribute (against Government of India’s allocation for TPDS & OWS) rice /wheat/coarse grains within the state. The excess stocks (Rice & wheat) procured by the State /its agencies are handed over to FCI in Central Pool. The expenditure incurred by the State Government on procurement, storage and distribution of DCP stocks are reimbursed by Government of India on the laid down principles. The expenses such as MSP, arhatiya/society commission, administrative charges, mandi labour charges, transportation charges, custody & maintenance charges, interest charges, gunny cost, milling charges and statutory taxes are reimbursed on actual basis.  The cost of excess stocks handed over to FCI is reimbursed by FCI to the State Government/agencies as per Government of India costs sheet.