Agricultural Economics: Agricultural Price Policy in India 2022

Agricultural Economics: Agricultural Price Policy in India 2022

Agricultural Economics

Agricultural economics started as a branch of economics that precisely dealt with land usage. It concentrated on maximizing crop output while preserving a good soil ecosystem. Throughout the 20th century, the field expanded and the current scope of the field is much broader. Agricultural economics today includes a variety of involved areas, including considerable overlap with conventional economics. Agricultural economics influences food policy, agricultural price policy, and environmental policy.

Agricultural Economics
Agricultural Price Policy in India

Agricultural Price Policy in India/ Agricultural Price Policy of Government of India.

  • The Government of India keeping in mind the need for a price policy, set up a committee under the chairmanship of Prof. Jha in 1964-65. The Jha committee recommended the prices for agricultural commodities for the year 1964-65.
  • The committee further recommended setting up Agriculture Pricing Commission.
  • Currently, the commission is called Commission for Agricultural Cost and Price (CACP).
  • The commission is expected to determine and announce administrative prices every year.
  1. Determination of Appropriate Level of Price
  2. Announcement of Administered Prices
  3. Implementation of Administered Prices

(A) Determination of Appropriate Level of Price

The Commission for Agricultural Cost and Price (CACP) while determining an appropriate level of price is expected to consider the following factors:

  • The cost of production
  • Changes in inputs prices
  • Market prices
  • Demand and supply
  • Risk factors
  • Effect on the general price level 
  • Effect industrial cost
  • Effects on the cost of living 
  • international price situation
  • Parity between the price of different crops, 
  • Parity between input and output prices and also parity between the price received by the farmers and paid by the consumers and the trend of the price level in the past 

(B) Announcement of Administered Prices

Government announces 3 types of Administrative prices, namely MSP (Minimum Support Price), Procurement Price, and Statutory Minimum Support Price

Minimum Support Price: The minimum support price announced each year by the Commission for Agricultural Cost and Price takes into account the factor mentioned above and special consideration is given to cost factors.

The minimum support price fixed by the government in long-term guarantees to enable the producer to pursue his efforts with the assurance that the price of his produce would not be allowed to fall below the level fixed by the government.

It served as a floor price and guaranteed income to the farmers. 24 major crops are covered under MSP.

The formula for MSP can be expressed as:

MSP = C2 + C3

C2 cost includes all actual expenses in cash and kind incurred in production by actual owner + rent paid for leased land + imputed value of family labour + interest on the value of owned capital assets + rent value of owned land net of land revenue

C3 cost is equal to C2 + 10% of the cost to account for managerial remuneration to the farmer.

Statutory Minimum Support Price: In the case of two commodities, jute and sugarcane, the minimum support price had been assigned a statutory status. It is illegal for anybody to purchase the commodity at less than its minimum support price. In the case of sugarcane, no factory can pay a low price lower than the statutory minimum. In the case of the Jute, the market Infrastructures continue to remain too weak, hence the enforcement of the minimum support price has become a difficult task.

Procurement Price: Procurement price is the price at which the government procured grains from producers usually the procurement price is lower than the open market price but higher than the minimum support price

Issue Prices: The issue price at which the government supplies the food grains at ration shops. They are lower than the procurement prices to protect below the poverty line consumers’ interest. The difference between MSP and the issue price is met by the government through the subsidy. For Antyodaya Anna Yojana (AAY) scheme the issue price was ₹ 300 per quintal. From 2002 to 2003 the issue price for AAY categories remained unchanged. The MSP for these items was much higher than the issue price.

(C) Implementation of Administered Prices

Implementing administered price for the following measures are taken by the government: 

Responsibility task of Different Agencies:

  1. The Food Corporation of India FCI undertakes the price support operation for most Food grains. 
  2. The NAFED National Agricultural Cooperative Marketing Federation undertakes Pulses and oilseed etc. operations.
  3. The Cotton and Jute Corporation of India are entrusted with the price support operation for cotton and jute.
  4. Sugar Mills are required to pay at least the minimum price to the producer in the case of sugarcane.
  5. For tobacco, the responsibility for implementing the price policy decisions depends on Tobacco Board. Similar specialized commodity boards exist for rubber, coffee, tea, spicy, coconut, oil-seeds and vegetable oils, Horticulture, etc.

National Crop Forecasting Centre (NCFC): It was established by the government in January 1999 to keep a careful watch on the prices of primary products including wage goods and other items of common man’s consumption and recommended vigorous intervention necessary by the government in the market. NCFC will put a warning system that signals likely supply shortfalls. This was found necessary till now in the case of onion, pulses, and edible oil.

High Powered Price Monitoring Board: It was setups in 1999 for monitoring the essential commodity prices and anticipating the needs of the government’s interventions in the market.

Buffer Stock: Buffer stocks are the stocks build-up by the government to stabilize the price. Food Corporation of India and NAFED build up the buffer stocks of essential grains which are utilized when they are shortage of output. From 1992 onwards buffet stocks have gone up continuously. Currently, we have enough buffer stocks of essential grains. 

Warehousing: The Government has made arrangements to set up the warehouse including a warehouse of FCI. Such a warehouse helps the formers to store the farm’s products till they are demanded in the market.

Regulated market: Most of the states have regulated markets which have helped stabilizer agriculture prices. Regulated markets fix appropriate prices in the interest of farmers.

Credit Facility: The government has made efforts to provide credit finance to farmers at low-interest rates to enable them to stock their products and sell them later at better prices. This brings about stability in agriculture prices.


Agricultural Economics

Reference: Manan Prakashan

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