Farouk Gumel - The minimum support price in agriculture - what is it important
                     THE MINIMUM 
SUPPORT PRICE IN 
AGRICULTURE – WHAT 
IS IT IMPORTANT?
Farouk Gumel, Nigeria
Farouk Gumel -  Most governments intervene 
in their agricultural markets although the 
extent of these interventions depend in large 
part on the wealth of the country. In the last 
century or so, the most common of these 
interventions is the Minimum Support Price 
(MSP) mechanism. In this paper, I hope to 
explain in simple terms, what the MSP is and 
how it works.
Minimum Support Price 
(MSP)
• MSP is the price at which the government commits to purchase crops from the farmers. 
This acts as a ‘minimum floor price’ farmers will get for their produce thereby shielding 
them from adverse market conditions because of price drop. 
• Furthermore, in the event of a bumper harvest where there is excess stock, farmers still 
have a guaranteed buyer as the government, through its agencies, will buy the entire 
stock offered by the farmers at the MSP.
• The prices of agricultural commodities 
often vary due to various factors. 
• If a crop has seen a good harvest season 
during a particular year, it may see a 
sharp fall in its prices. This will lead to 
farmers withdrawing from sowing the crop 
in the next year which will affect the 
supply. 
• To counter this, MSP is fixed by the 
government which is supposed to 
encourage higher investments and 
production of crops. Furthermore, by 
buying the excess crops, governments 
build strategic reserves that can be used 
to augment any food shortages in future 
years.
• The successful implementation of MSPs 
however depends on how wealthy the country 
is as the government requires huge budgetary 
allocations for procurement and strong value 
chains for management of the inventory 
acquired. 
• In many poor countries, these programs fail due 
to lack of funding and poor technical capacity 
to manage the grains procured from the 
farmers. 
• This leads to lack of confidence in governments 
and destruction of grains. This subjects 
countries to very volatile swings in their food 
security status – from surplus to famine within a 
few years.
• Africa is one continent where countries have seen 
such volatile swings. Although the policies exist in 
many nations, the implementation has not been 
very impactful due to low funding and technical 
knowledge. 
• Despite Africa’s huge arable land and high 
population of farmers, food shortages and high 
food prices still occur. Typically, many African 
nations create and grant state marketing boards a 
legal monopoly to buy agricultural products from 
farmers and to resell them to domestic consumers 
or export markets. 
• There have been cases where such boards pay 
farmers only a third to half of the domestic 
consumer price or the export price. The result, 
according to the World Bank, is that after growing 
0.2% per annum in the 1960s, per capita food 
production in sub-Saharan Africa fell to 0.9% per 
annum from the 1970s into the early 1980s.
As the global “free trade” movement continues to gain 
momentum, many agricultural jobs in Africa will be 
lost as food imports from stronger and more 
prosperous nations creep in. African farmers need the 
MSP protection to continue production for our strategic 
reserves to be filled.
• Farouk Gumel is an Executive Director at TGI Group, 
a pan-African conglomerate with investments across 
key agricultural value chains. 
• Farouk Gumel argues that the MSP is not a luxury but 
an absolute necessity for Africa’s agricultural 
revolution. Farouk Gumel, whose company owns and 
manages food production facilities, explains TGI’s 
factories are constantly exposed to price and 
volumetric volatilities in their raw material supplies. 
• In the last 3 years of the existence of TGI’s rice mill, 
Farouk Gumel says they have seen huge swings in 
paddy prices and availability which is raising 
concerns when it comes to planning for future 
investments. Such swings, according to Farouk 
Gumel, “can only be eliminated with a strong, 
reliable and consistent MSP program”.
Farouk Gumel
Group Executive Director and Head of Agri-
Businesses for Tropical General Investment 
(TGI) Group.
THANK YOU!!