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Price Support to Farmer: The Indian mechanism to avert crisis

Price support refers to the minimum remunerative price as promised by a government to the farmers.

Features of Price support

  1. It is the floor price set by the government
  2. It keeps the market price well above the competitive equilibrium price level.
  3. With support price in operation, government assures to purchase the surplus produce at the minimum price.
  4. It is assured through either subsidy or through price control.
  5. In case of price support through subsidy, the buyer has to pay a minimum legal price to the seller that should not be below the support price fixed by the government.
  6. In case of price support through price control, a seller has to sell at a price above the support price fixed by the government.

Need of Price support

  1. It protects farmers’ from distress sale.
  2. It protects farmer’s interest, when there is bumper crop
  3. It encourages farmers to go for sustained agriculture production
  4. It helps control the fluctuation in agriculture production
  5. It helps to support sustainable economic development
  6. Sustained high agri- production supports industrialization
  7. Sustained high agri- production supports government to take & implement long term perspective planning and achieve economy of scale in the system.
  8. It helps farmers to tide over the vagaries of nature & weather

Applicability of Price support

This support to farmers becomes affective only when

  1. There is bumper crop due to favorable climate and increase in acreage.
  2. There is sharp fall in agri-price in the world market

However, government takes different measures in these two cases.

In the CASE 2, government

  1. May use quota limit for import, or
  2. May impose import duty on such products.

For the CASE 1, government initiates various price support measures as discussed below

Methods of Price Support in India

  1. Minimum Support Price (MSP)
  2. Price Support Scheme (PSS)
  3. Market Intervention Scheme (MIS)
  4. Fair & Remunerative Price (FRP)
  5. State Advised Price (SAP)

MSP

  1. It is a type of market intervention taken by GOI to insure farmers against any sharp fall in agri- prices due to over production or over supply
  2. It is announced by Govt. of India
  3. It is announced at the beginning of sowing seasons
  4. It is not universal but is announced for selected crops
  5. It recommendation is forwarded to the GOI by Commission for Agricultural costs and Price ( CACP)
  6. It is open ended scheme, i.e. whatever food grains are offered by the farmers, within the stipulated procurement period and which confirms to the quality specifications prescribed by Government of India, are purchased at MSP (plus bonus or other incentives, if any) by FCI and state agencies.

Price Support Scheme

  1. Under this scheme, central nodal agencies procure oil seeds, pulses and cotton at the MSP.
  2. It is implemented at the request of the concerned State Government which agrees
  • To exempt the procured commodity from the levy of mandi tax and
  • Assist central nodal agencies in logistic arrangements including gunny bags, provide working capital for state agencies, creation of revolving fund for PSS operations, etc. as required under the scheme guidelines.

Market Intervention Scheme

  1. It is being implemented by the Department of Agriculture & Cooperation
  2. Under the scheme agricultural & horticultural commodities of perishable nature are procured.
  3. Its basic objective is to provide remunerative prices to the farmers in case of glut in production and fall in price.
  4. It is implemented on the specific request of the State government and UT Administrations. However, request is accepted when the state government or UT Administrations are ready to share the loss with the central government on 50: 50 basis. (It is 75: 25 in the case of North- Eastern States).
  5. Under the scheme no fund is directly allotted to the state governments. Instead, only loss share of central government is released to the State government/ UT Administrations.
  6. The scheme is implemented when there is at least 10% increase in production or 10% fall in ruling price over the previous normal year.
  7. The area of operation for the MIS is the concerned state only.
  8. Under the scheme, NAFED and state agencies procure a predetermined quantity at a fixed Market Intervention Price (MIP) for a fixed period or till the prices are stabilized above MIP, whichever is earlier.
  9. Unlike MSP,
  • It is an adhoc mechanism.
  • It is close ended as against open ended MSP

FRP and SAP

  1. It is the minimum price that sugarcane growers are legally guaranteed by the Union government and paid by the mill owners. However, state governments are free to fix their own State Advised Price.
  2. It is fixed on the recommendation of CACP and after consultation with the State Governments and other stake- holders.
  3. While recommending FRP, CACP take into account various factors like
  • Cost of production
  • Overall demand and supply situation
  • Domestic and international prices
  • Inter crop price parity
  • Likely impact of FRP on general price level and inflation
  1. Generally SAP is substantially higher than the FRP, therefore where ever SAP is declared, it becomes the ruling price.

Analysis of Government’s policy of Price support

With these methods, government tries to not only assure subsistence to the farmers but also enhance food security. I think that there are several limitations associated with this type of system. They may be summed up as

  1. These are negative approach in the sense that they set an indicative market price as MP hovers around  support price.
  2. Since they can not be announced for all crops, they go against Left Out Crops (LOC).
  3. LOCs may be vital nutrient rich crop and so go against balanced diet.
  4. LOCs may have their role in soil nutrient re-cycling and so these measures are against the soil ecology.
  5. These measures also distorts the cropping pattern of a particular Agro-climatic zones, which goes against the sustainable agriculture.

Way forward

These supportive prices only decide the base price which assures minimum return to the farmers. We should initiate such measures that is open ended for farmers so that they can make maximum earning. My suggestion in this regard is that

  1. Government should initiate Universal Basic Income or Income Assurance Scheme to assure a minimum income with the possibility to get maximum possible benefit.
  2. This maximum possible benefit can be assured through better infrastructural development in the rural India, like cold storage chain, ware housing, electricity, road connectivity and accessories marketing facilities and over all promoting e-NAM.
  3. Commercialisation of agriculture with the promotion of food processing units and other allied activities.

Conclusion

To conclude I can say that a minimum income assurance with the value addition to agriculture produce is the real answer to the farmers’ distress, rather then to declare a ceiling for selective crops.

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