CACP

1. Institutional position and purpose

The CACP was created in January 1965 as the Agricultural Prices Commission, when India faced food shortages and was preparing to expand the adoption of high-yielding varieties. Agricultural price policy sought to reduce uncertainty for cultivators, encourage investment and raise foodgrain production. Its renaming in 1985 reflected a more explicit emphasis on agricultural costs as well as prices.

It functions as an attached office of the Department of Agriculture and Farmers Welfare. It is an executive-created, non-statutory advisory institution, not a constitutional body or an independent price regulator. Its recommendations are considered by the Union government; the Cabinet Committee on Economic Affairs takes the final decision on MSPs and sugarcane FRP. Distinguishing the recommending institution from the approving authority is a common examination requirement.

The prescribed composition includes a chairperson, member secretary, one official member and two non-official members. The non-official members ordinarily represent the farming community and have active association with it. Actual vacancies may vary. CACP’s task is to balance remunerative returns for cultivators with consumer affordability, food security and the broader economy, rather than mechanically recommending the highest possible price.

• CACP recommends prices; the Union government announces them.
• Procurement is undertaken by designated agencies, not CACP.
• Its recommendations are influential but are not binding on the government.

2. Crop coverage and price recommendations

CACP recommends MSPs for 22 mandated crops: seven cereals, five pulses, seven oilseeds and three commercial crops. The cereals are paddy, wheat, barley, jowar, bajra, maize and ragi. The pulses are gram, arhar or tur, moong, urad and lentil. The oilseeds are groundnut, rapeseed-mustard, soybean, sunflower seed, sesamum, safflower and nigerseed. Cotton, raw jute and copra form the remaining three.

Sugarcane is treated separately through the Fair and Remunerative Price. Thus, the frequently cited coverage of 23 commodities means 22 MSP crops plus sugarcane; it does not mean 23 MSP crops. MSP for toria and de-husked coconut is also fixed on the basis of the respective prices for rapeseed-mustard and copra, rather than counting them as additional mandated crops.

Price policy reports are prepared for kharif crops, rabi crops, copra, raw jute and sugarcane. Recommendations are generally made before sowing of the relevant crops so that prices can influence production decisions. However, the incentive actually received by a farmer depends on market conditions, produce quality, access to procurement centres and the timing of sale.

Sugarcane FRP operates under the Sugarcane (Control) Order, 1966, issued under the Essential Commodities Act, 1955. It is the minimum price payable by sugar mills to growers and is linked to a specified basic sugar recovery rate, with prescribed adjustments. Some states announce State Advised Prices, often above FRP. Sugarcane pricing therefore differs from ordinary MSP-backed public procurement.

3. How recommendations are formulated

CACP examines production costs alongside demand and supply, domestic and international prices, inter-crop price parity, terms of trade between agriculture and non-agriculture, and likely effects on consumers and the overall economy. Cost is central but is not the sole consideration. A recommendation must also account for food inflation, buffer stocks, import dependence, export prospects and the need to use land and water efficiently.

Cost estimates draw substantially on the Comprehensive Scheme for Studying the Cost of Cultivation of Principal Crops in India. CACP also uses information from central ministries, state governments and other sources, and consults stakeholders. Since detailed cultivation-cost observations become available with a lag, costs must be projected for the relevant season using available evidence on changes in input prices and other determinants.

A2 comprises actual paid-out costs in cash and kind, including hired labour, seeds, fertilisers, pesticides, irrigation, fuel and rent paid for leased-in land. It also accounts for specified expenses such as depreciation and interest on working capital. A2+FL adds the imputed value of unpaid family labour. C2 is more comprehensive, adding rental value of owned land and interest on owned fixed capital assets.

Beginning with the 2018-19 agricultural season, the government adopted the principle of fixing MSPs for mandated crops at least 1.5 times the all-India weighted average cost of production. The operational cost base is A2+FL. CACP also considers C2 as a benchmark reference. Consequently, a 50% margin over A2+FL must not be confused with a 50% margin over C2. Nor does a national average-based MSP ensure an identical margin for farmers in every state.

4. MSP, procurement and farmer realisation

MSP is an announced support price, while procurement is an institutional operation through which eligible produce is actually purchased. The Food Corporation of India and state agencies procure wheat and paddy for the Central Pool under applicable specifications and arrangements. Public stocks support the National Food Security Act, 2013, other welfare requirements and buffer stocking. CACP neither purchases this grain nor manages the resulting stocks.

For notified pulses, oilseeds and copra, the Price Support Scheme under PM-AASHA provides a different procurement framework, involving designated central agencies and state-level arrangements. Cotton and jute have specialised procurement institutions. Coverage, activation conditions and operational procedures differ across commodities. Therefore, the existence of an MSP should not be equated with uniform, unrestricted procurement across all crops.

A farmer may sell below MSP because procurement is unavailable locally, produce fails quality specifications, transport is costly or immediate repayment obligations force a quick sale. Small marketable surpluses can also weaken bargaining power. Conversely, when market prices exceed MSP, farmers may obtain better returns through private buyers. MSP is therefore neither a ceiling on market prices nor, under a general nationwide law, a compulsory minimum price for every private agricultural transaction.

5. Economic significance and policy challenges

Credible price support can reduce downside risk, encourage productive investment and stabilise supplies of essential commodities. Relative MSPs can also signal a policy preference for pulses, oilseeds or millets. However, farmers respond to expected sale proceeds rather than the announced price alone. Diversification requires dependable markets, suitable technology, storage, processing and procurement where necessary.

Assured rice-wheat procurement in some regions has supported national food security but has also reinforced crop concentration. In water-stressed areas, incentives favouring paddy can aggravate groundwater depletion. Excessive procurement can raise storage costs and food subsidy requirements, while very high support prices may weaken export competitiveness or create tension between producer interests and consumer affordability.

Improving the system requires better cost data, transparent recommendations, timely procurement payments and more geographically balanced market access. Farmer producer organisations, grading, assaying, warehousing and competitive markets can improve price realisation. The examination takeaway is that CACP operates within a wider agricultural policy system: price recommendations alone cannot resolve low productivity, fragmented holdings, production risks or weak marketing infrastructure.

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