Which of the following is/are the determinants of MSP? (i) Cost of Production (ii) demand and supply (iii) price trend (iv) intercrop price parity (v) terms of trade between agricultural and non-agricultural sectors

Solution

Cost of Production (CoP) is one of the important factors in the determination of MSP of mandated crops. Besides cost, the Commission considers other important factors such as demand and supply, price trend in the domestic and international markets, intercrop price parity, terms of trade between agricultural and nonagricultural sectors and the likely impact of MSP on consumers, in addition to ensuring rational utilisation of natural resources like land and water. Thus, pricing policy is rooted not in ’cost plus’ approach, though cost is an important determinant of MSP.