Institute of Agriculture and Animal Science
The minimum support price is a form of market intervention by the government to ensure that farmers get reasonable value for their produce in the event of any sharp fall in the farm prices. It is normally announced during the planting season or a month before harvest on the basis of the recommendation of the Ministry of Agricultural Development.
The scheme gives farmers a guarantee that they will get a certain amount of money for their produce even if market prices were to fall due to bumper harvests. Since Nepal is still a developing economy, it is plagued by various market imperfections such as information asymmetry, prevalence of middleman, etc. that impede prices from getting solely determined by the market.
The government has announced the minimum support price for paddy, increasing it by an average 8 percent as farmers prepare for this year’s plantation across the country. The support price fixed by the government means that farmers will get a reasonable price for their harvest even if there is a huge drop in prices. The floor price was recommended by the Ministry of Agriculture and Livestock Development as per the government’s policy to announce the minimum support price (MSP) of key crops to protect farmers against sudden slumps in the market price.
The minimum support price for ‘mota dhan’ (short grain) has been set Rs27.35 per kg, up from Rs25.32 per kg last year. The floor price is the lowest price that can be charged for a commodity.
The minimum support price is a measure taken by the government to protect farmers against sudden slumps in the market price. It is what the government will pay farmers for their crops when there are no other buyers in the market. The measure is intended to encourage farmers to grow crops. The price is computed based on the cost of production, transportation charges and inflation.
In case the market price of paddy drops below the base rate fixed by the government, it must purchase it from farmers at the support price. Last year, the government had fixed the minimum support price of paddy in October-end, almost four months later, as some farmers had already started to harvest their crops.
The government had started setting the minimum support price for paddy since 2016 after suspending the practice for nearly two decades.