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Introduction
Indian agriculture has struggled more during
the post-independence and it achieved a lot as well.
Stabilization of prices of agricultural commodities on
which average consumers spend a sizeable proportion
of their per capita expenditure continues to remain an
area of major concern for the policy makers.
Price instability imposes costs on both the
producers as well as the consumers. If the price of a
commodity falls below a certain level, producers lose
because the price may not be able to cover the actual
cost of production of that commodity. However,
consumers benefit from low prices because they can
buy more of the same commodity. Alternatively, if the
price of a commodity goes up producers gain but
consumers lose because they have to adjust their
expenditure in response to changes in relative prices.
Apart from these microeconomic considerations there
are macroeconomic effects of changes in agricultural
prices. While positive price incentives to farmers help
the government to achieve self-sufficiency, fluctuations
in agricultural prices spill over to other sectors of the
economy, leading to increase in the overall rate of
inflation. Sometimes, a steep increase in the prices of
agricultural commodities creates serious problem as
happened in the case of wheat during 1996 and onions
and other vegetables during 1998. Therefore, the
government has to balance the twin objectives of self-
sufficiency through the provision of remunerative
prices to producers and protection to consumers by
providing them subsidized food through the Public
Distribution System (PDS). Thus, it was felt that there
is a need for studying the price behaviour of a few
essential agricultural commodities.
In this perspective, Agricultural Price Policy
(APP) was introduced by the government to protect the
interest of the producers and consumers through the
adoption of several regulatory measures and
programmes for increasing the agricultural production.
The essentials of the establishment of agricultural price
policy were to reduce the wide fluctuations in the prices
of agricultural produce and production inputs, to
maintain a stable price level of commercial crops, to
encourage small farmers for making more investment
on farms, to provide better incentives to the producers
and to assure producer a minimum price for his
produce. In order to understand and construct a proper
price policy framework, the Government of India has
appointed a committee under the Chairmanship of Late
Shri. L. K. Jha. Following the Jha Committee report, a
series of measures were taken and as a result the
Agricultural Prices Commission (APC) came into being
in January 1965 with Prof. M.L. Dantwala as its
chairman. The first report was submitted in August
1965 covering the kharif season. The preface of this
report makes clear the focus of the then emerging price
policy. It is stated in the preamble of the report that
“The APC was set up in January 1965 to advise the
Government on price policy for agricultural
commodities, with a view to evolving a balanced and
integrated price structure in the perspective of the
overall needs of the economy and with due regard to the
interests of the producer and the consumer” (GOI,
1965).
Formulation of Agricultural Price Policy
The Food grain Policy Committee in 1966
under the chairmanship of Sri. B. Venkatappaiah
suggested in his report: ‘The APC has also been
established to advise the government on the guaranteed
support prices. To make minimum prices more effective
some measures need to be taken are firstly the
announcement of the prices should be made well before
the sowing season so that farmers can decide on their
Minimum Support Price (MSP): Impact on Farmers Livelihood Security
Jaishree VN, Vinodakumar SN*
CSB Quarter Complex, Central Silk Board, Cinnamora, -785008 Jorhat
Central Muga Eri Research and Training Institute, Central Silk Board, Lahdoigarh-785008, Jorhat
*Corresponding author email: [email protected]
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production plan and Government should give wide
publicity to the support prices besides providing
adequate arrangements at important primary markets
for making purchases at the support prices announced,
whenever the need arises.
The Sen Committee in its report gave a number
of recommendations towards Agricultural Prices
Commission (GOI 1980). Following this; the
nomenclature as well as focus of the APC was changed
in 1985. The APC was renamed as Commission on
Agricultural Costs and Prices (CACP) with completely
changed terms of reference and shifting its emphasis
from maximizing production to develop a production
pattern that is consistent with the overall needs of the
economy. A policy document issued in 1986 under the
title, Agricultural Price Policy: A Long Term
Perspective, officially confirmed the redefinition of the
objectives of the price policy as also the terms of
reference of the CACP (as under GOI, 1986)
Initially, on the recommendation of the Jha Committee,
the APC was constituted and a set of terms of reference
were drafted for the APC are (i) To provide incentive to
the producer for adopting improved technology and for
maximizing production. (ii) To ensure rational
utilization of land and other production resources. (iii)
To keep in view the likely effect of the price policy on
the rest of the economy, particularly on cost of living,
level of wages, industrial cost structure, etc. (iv) To
recommend from time to time, in respect of different
commodities, the measures necessary to make the price
policy effective. (v) To examine, where necessary, the
prevailing methods and cost of marketing of
agricultural commodities in different regions, suggest
measures to reduce costs of marketing and recommend
fair price margins for different stages of marketing. (vi)
To keep under review the developing price situation
and to make appropriate recommendations, as and when
necessary, within the framework of the overall price
policy. (vii) To keep under review studies relating to
the price policy and make arrangements for collection
of information regarding agricultural prices and other
related data and suggest improvements. (viii) To advice
on any problems relating to agricultural prices and
production that may be referred to it by the Government
from time to time (GOI, 1965).
Instruments of Price Policy: APP plays an important
role in achieving growth and equity in Indian economy
in general and agriculture sector in particular. The
major underlying objective of the Indian government’s
price policy is to protect both producers and consumers.
Currently, price policy basically consists of three
instruments Minimum Support Prices (MSP),
Procurement prices and Public Distribution System
(PDS) whereas zonal restrictions are included at the
time of formulation and presently removed.
Agricultural price policy is one of the important
instruments in achieving food security by improving
production, employment and incomes of the farmers.
Minimum support prices (MSP): MSP is a form of
market intervention by the Government of India to
insure agricultural producers against any sharp fall in
farm prices. It aims to ensure a minimum price of the
agricultural produce, which a farmer brings in the
market for the sale. MSP for certain crops are
announced by the Government of India at the beginning
of the sowing season on the basis of the
recommendations of the CACP. MSP is the price fixed
by Government of India to protect the producer -
farmers - against excessive fall in price during bumper
production years. The major objectives are to support
the farmers from distress sales and to procure
foodgrains for public distribution. In case the market
price for the commodity falls below the MSP due to
bumper production and glut in the market, government
agencies will purchase the entire quantity offered by the
farmers at the announced minimum price.
MSPs are fixed at incentive level, so as to
induce the farmers to make capital investment for the
improvement of their farm and to motivate them to
adopt improved crop production technologies to step up
their production and thereby their net income. MSP for
major agricultural products are announced by the
Government each year, after taking into account the
recommendations of the CACP. The price support
policy was initiated by the Government to provide
protection to agricultural producers against any sharp
drop in farm prices. If there is a good harvest and
market prices tend to dip, the government guarantees an
MSP or floor price to farmers, which covers not only
the cost of production, but also ensures a reasonable
profit margin for the producers.
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From the year 1994-95 onwards, Niger-seed
and Sesame were included under the MSP Scheme of
CACP, in addition to the edible oilseeds already
covered by the Commission. Similarly, during 2001-
2002, the government enhanced the terms of reference
of the Commission by including one additional
commodity, namely, lentil (masur). The number of
crops covered by the MSP scheme has thus increased to
25 including seven cereals (paddy, wheat, barley, jowar,
bajra, maize and ragi); five pulses (gram, arhar/tur,
moong, urad and lentil); eight oilseeds (groundnut,
rapeseed/mustard, toria, soybean, sunflower seed,
sesame, safflower seed and niger seed); copra, raw
cotton, raw jute, sugarcane and virginia flu cured (VFC)
tobacco.
A meaningful support price policy should have
minimum guaranteed prices, which would cover at least
the reasonable cost of production in a normal
agricultural season obtained from efficient farming.
CACP carries out state-specific analyses for the cost of
production in respect of various commodities. This is
done through consultations with the state governments.
The Agricultural Prices Commission (APC) during the
sixties and seventies followed the cost of production
approach to arrive at the MSP and procurement prices.
They kept under consideration nine important factors
while fixing the MSP viz., cost of production, changes
in input prices, input/output price parity, trends in
market prices, inter-crop price parity, demand and
supply situation, parity between prices paid and prices
received by farmers, etc. Among these factors, the cost
of production is the most significant one. In fixing the
support prices, CACP relies on the cost concept, which
covers all items of expenses of cultivation including the
imputed value of input owned by farmers such as rental
value of owned land and interest on fixed capital.
CACP follows a definite process to arrive at
recommendations regarding MSP. The sequence of the
process are:(I) The Commission identifies the main
issues of relevance for the ensuing season (short,
medium, or long turn). (II) The Commission sends a
questionnaire to Central Ministries, State Governments,
and other organizations related to trade, industry,
processors, and farmers, both in the cooperative and the
private sector. (III) The Commission holds separate
discussions with the State Governments, Central
Ministries/ Departments and other organizations. The
Commission also interacts with research and academic
institutions and keeps track of relevant studies and their
findings. (IV) The Commission visits certain areas to
make on-the-spot observations and obtain feedback
from local-level organizations and farmers.
Conclusion: Agricultural Price Policy has assumed a
greater significance in the current phase of
liberalisation. But the situation in the agricultural sector
underwent substantial changes in the wake of
liberalisation. In this context, questions are being raised
about the efficacy and effectiveness of the instruments
of price policy specifically the Minimum Support
Prices. Under these circumstances it assumes greater
significance to understand the efficacy and
effectiveness of minimum support prices.
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Pradhan Mantri Annadata Aay Sanrakshan Abhiyaan
Indian Govt. promised that farmers will see 50 %
higher crop prices in 2018-19 as compared to the
cost of production and new scheme would bring
more farmers and the procurement net would see a
rise.