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Meaning of Price Policy
Movement of price is a common feature.
But rapid and violent movement or fluctuations in the
prices of agricultural commodities have serious
consequences on the economy of the country.
As the sudden steep fall in the price of a particular
crop, result in huge loss to the farmers producing that
crop as their income declines.
This will force the farmers not to cultivate the crop next
year leading to a serious shortage in the supply of that
food item and that may force the government to import
that food crop from foreign countries.
Alternatively, a sudden hike in the price of a particular
crop may cause huge suffering to the consumers which
may force the consumers to discard it or to curtail their
other expenditure substantially for meeting the
consumption expenditure on that crop.
In both ways, the large scale fluctuation in the price of
agricultural produce will create a disastrous effect on the
economy of the country.
Price policy of the government for agricultural produce
seeks to ensure remunerative prices to growers for their
produce in order to encourage higher investment and
production and also for safeguarding the interests of
consumers by making available food supplies at
reasonable prices.
The price policy of the country also seeks to evolve a
balanced and integrated price structure in keeping with
the overall needs of the economy.
Introduction to Agricultural Price Policy
Agricultural Price Policy in India emerged in the context
of food scarcity and price fluctuations provoked by
drought of mid-sixties and war with Pakistan.
The policy was framed keeping in view three different
angles, viz.,
 providing food grains for the Public Distribution System,
ensuring reasonable (affordable to consumers) prices for
food grains, and
 Inducing adoption of the new technology.
Trend of Agricultural Price Policy
Agricultural price policy in India was introduced since
But the agricultural price policy formulated in India has
varied widely for different years and also for different
This policy put much emphasis on the prices of food
grains like wheat, rice and coarse cereals such as jowar,
bajra, maize etc.
In India, the price policy was first introduced in 1947
with the formation of Food grains Policy Committee.
The objective of this policy was to reduce of imports of
food grains and substantial increase in the production of
food grains.
Again in 1950, Food grains Procurement Committee
was appointed which introduced the system of rationing
and control in the supply of food grains in the country.
In this policy no attention was paid to provide incentive
price to farmers.
It was only in 1966, a clear-cut policy was introduced
for providing incentive price to farmers.
In 1966, the government appointed another foodgrains
Policy Committee which recommended the following
matter in connection with the prices of agricultural
In order to create a favorable condition for increasing
production, the government announced the minimum
support prices well in advance of the sowing season.
Procurement price was kept higher than support price
so that it can offer proper incentive to the producer and
reasonable price to consumer.
To create a favorable climate for long-term investment,
minimum support prices was kept fairly stable.
Making adequate marketing arrangement for making
purchases at minimum support prices.
Moreover, in 1965, the Food Corporation of India (FCI)
was set up for making necessary procurement, storage
and distribution of food grains.
The Fifth Plan also formulated the agricultural price
policy in order to meet two important considerations.
Firstly for providing incentive for sustained and higher
agricultural production and secondly for inducing the
farmers to plan the production of various crops as per
estimated demand.
In order to build up buffer stocks, various public sector
organisations announced purchase prices at different
times which was higher than minimum support prices.
At present, the government decides on the MSPs for
various agricultural commodities taking into account the
recommendations of the Commission for Agricultural
Costs and Prices (CACP), the views of state governments
and central ministries.
Objectives of Agricultural Price Policy
To meet the domestic consumption requirement.
To provide price stability in the agricultural product.
To ensure reasonable relation between the prices of
food grains and non food grains.
To ensure reasonable relationship between prices of
agricultural commodities and manufactured goods.
To smooth seasonal and cyclical fluctuations of prices
of agricultural commodities.
To remove price difference between two regions.
To make available food to consumers in the time of
To increase the production and exports of agricultural
To provide raw material to the industries at reasonable
Need for Agricultural Price Policy
To ensure stability in price of agriculture products.
To ensure constant usage of modern inputs in agriculture, it is
necessary that farmers are assured minimum price for their
Due to specific nature of agriculture products, there are many
difficulties in agriculture marketing, such as perishability, problems
of storage etc;
Price policy is important for proper crop planning.
To prevent exploitation of farmers from zamindars etc; in
absence of price policy person may purchase products at very low
Features of Agricultural Price Policy
Institutions: The government has set up two institutions to
implement the price policies.
Agriculture Price Commission (1968): This commission
advices the government regarding agriculture price policy,
also determines MSP and procurement prices of
agriculture products.
Food Corporation Of India (1985): This corporation
organizes procurement of food grains at price determined
by govt. and their sale through public distribution system.
Fixation of MSP or procurement prices: The government
determines minimum support price of many agriculture
product such as wheat, rice, maize, every year based on
recommendation made by Agriculture Price Commission.

Maximum Price Fixation: Government also determines

maximum prices for certain agriculture product. The govt.
sells many agriculture products such as grain, sugar, rice
at prices through fair prices under PDS.
Buffer stock: To prevent change in prices of agriculture
products beyond a certain limit, govt. maintains buffer
stock of goods.
This is done by FCI.
When price of food grain starts increasing, Govt. starts
selling food grains from buffer stock at specific prices. As
a result, increase in price of food grain can be checked.
Protecting the Consumers
In order to safeguard the interest of the consumers, the
agricultural price policy has made provision for buffer
stock of food grains for its distribution among the
consumers through public distribution system.
Effects of Agricultural Price Policy
Important effects of Agricultural Price Policy are as
(i) Incentive to Increase Production:
Agricultural price policy has been providing necessary
incentive to the farmers for raising their agricultural
output through modernisation of the sector.
The minimum support price is determined effectively
by the government which safeguards the interest of the
Accordingly, minimum support price of wheat fixed by
the government increased from Rs 388.26 per quintal in
2003-04 to Rs 429.27 in 2007-08 and then to Rs 1525 in
(ii) Increase in the Level of Income of Farmers
The agricultural price policy has provided necessary
benefit to the farmers by providing necessary
encouragement and incentives to raise their output and
also by supporting its prices.
All these have resulted in an increase in the level of
income of farmers as well as their living standards.
(iii) Change in Cropping Pattern
The agricultural price policy has resulted in a
considerable change in cropping pattern of Indian
The production of wheat and rice has increased
considerably through the adoption of modern techniques
by getting necessary support from the Governments.
But the production of pulses and oilseeds could not
achieve any considerable change in the absence of such
price support.
(iv) Benefit to Consumers
The policy has also resulted in considerable benefit to the
consumers by supplying the essential agricultural
commodities at reasonable price regularly.
(v) Benefit to Industries
The agricultural price policy has also benefitted the agro
industries of the country, like sugar, cotton textile, vegetable
oil etc.
By stabilising the prices of agricultural commodities, the
policy has made provision for adequate quantity of raw
materials for the agro industries at reasonable prices.
(vi) Price Stability
The agricultural price policy has stabilised the prices of
agricultural products to a large extent.
It has become successful to contain the undue
fluctuation of prices of agricultural products.
This has created a favorable impact on both the
consumers and producers of the country.
Commission for Agricultural Costs And Prices
The organization :
The Agricultural Prices Commission was set up in
January, 1965 to advise the Government on price policy
of major agricultural commodities.
 It kept a view of evolving a balance 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.
Since March 1985, the Commission has been known as
Commission for Agricultural Costs and Prices under
various committee.

Minimum support prices (MSP) for major agricultural

products are fixed by the government, each year, after
taking into account the recommendations of CACP.
The Commission is composed of
I. Chairman, a Member Secretary,
II. two official members
III. three non-official members who are representatives of
the farming community, having long field experience
and active association with the farming community.
Objectives / Terms of Reference of CACP
To advise on the price policy of paddy, rice, wheat,
jowar, bajra, maize, ragi, barley, gram, tur, moong, urad,
sugarcane, groundnut and such other commodities.
To recommend from time to time, in respect of
different agricultural commodities, measures necessary
to make the price policy effective.
To take into account the changes in terms of trade
between agricultural and non agricultural sectors.
To examine, where necessary, the prevailing methods
and cost of marketing of agricultural commodities in
different regions.
To undertake studies in respect of different crops as
may be prescribed by Government from time to time.
To advise on any problems relating to agricultural
prices and production that may be referred to it by
Government from time to time.
Food Security
Food security refers to the availability of food and one's
access to it. A household is considered food-secure when its
occupants do not live in hunger or fear of starvation.
Objectives of the Food Security
Effective price support operations for safeguarding the
interests of the farmers.
Distribution of food grains throughout the country for
public distribution system.
Maintaining satisfactory level of operational and buffer
stocks of food grains to ensure National Food Security.
Food Corporation of India
Food Corporation of India was set up on 14 January 1965.
Food Corporation of India is responsible to procure, store
and distribute the food grains.
FCI is a statutory body established via Food Corporation
Act 1964.
It has its first District Office at Thanjavur - rice bowl of
Tamil Nadu - and headquarters at Chennai.
FCI has divided the entire country into five zones viz.
North, South, East, West and North-East with a zonal office
in each zone.
Out of them, the largest zone is North Zone comprising
eight states including Punjab and Haryana.
FCI was established to implement the following
objectives of the National Food Policy:
1. Effective price support operations for safeguarding the
interests of the farmers.
2. Distribution of food grains throughout the country for
Public Distribution System.
3. Maintaining satisfactory level of operational and buffer
stocks of food grains to ensure National Food Security.
4. Regulate market price to provide food grains to
consumers at a reliable price.
Each year, it purchases roughly 15 to 20% of India's
wheat output and 12 to 15% of its rice output.
The purchases are made from the farmers at the rates
declared by the Government of India.
This rate is called as MSP (Minimum Support Price).
Minimum Support Price
Minimum Support Price (MSP) is a form of market
intervention by the Government of India to insure
agricultural producers against any sharp fall in farm
The minimum support prices are announced by the
Government of India at the beginning of the sowing
season for certain crops on the basis of the
recommendations of the Commission for Agricultural
Costs and Prices (CACP).
MSP is price fixed by Government of India to protect
the producer - farmers - against excessive fall in price
during bumper production years.
The minimum support prices are a guarantee price for
their produce from the Government.
The major objectives are to support the farmers from
distress sales and to procure food grains for public
In case the market price for the commodity falls below
the announced minimum price due to bumper
production, government agencies purchase the entire
quantity offered by the farmers at the announced
minimum price.
Determination of MSP
In formulating the minimum support prices the
Commission takes into account following factors:-
Cost of production
Changes in input prices
Input-output price parity
Trends in market prices
Demand and supply
Inter-crop price parity
Effect on industrial cost structure
Effect on cost of living
Effect on general price level
International price situation
Parity between prices paid and prices received by the
Cost of cultivation per hectare and structure of costs in
various regions of the country.
Cost of production per quintal in various regions of the
Prices of various inputs
Prices of commodities sold by the farmers and of those
purchased by them.
Supply related information - area, yield and
production, imports, exports and domestic availability
and stocks with the Government/public agencies or
Demand related information - total and per capita
consumption, trends and capacity of the processing
Prices in the international market
Demand and supply situation in the world market
Cost of processing of agricultural products
Cost of marketing - storage, transportation, processing,
marketing services, taxes/fees and margins retained by
market functionaries; and
Macro-economic variables such as general level of
prices, consumer price indices and those reflecting
monetary and fiscal factors.
Crops Covered under MSP
25 commodities are currently covered. They are as follows-
Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
Pulses (5) - gram, arhar/tur, moong, urad and lentil
Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean,
sunflower seed, sesamum, safflower seed and nigerseed
Raw cotton
Raw jute
Virginia flu cured (VFC) tobacco
Commodity Variety MSP for 2015-16 (Rs MSP for Increase over
per quintal) 2016-17 (Rs previous year
per quintal) (Rs per quintal)
Paddy Common 1410 1470 60
Grade 'A' 1450 1510 60
Jowar Hybrid 1570 1625 55
Maldandi 1590 1650 60
Bajra 1275 1330 55
Maize 1325 1365 40
Ragi 1650 1725 75
Arhar (Tur) 4625 (includes Rs.200/- 5050 (include 425
Bonus) s Rs.425/-
Moong 4850 (includes Rs.200/- 5225 (include 375
Bonus) s Rs.425/-
Urad 4625 (includes Rs.200/- 5000 (include 375
Bonus) s Rs.425/-
Cotton Medium 3800 3860 60
Staple *
Long Staple 4100 4160 60
Groundnut in shell 4030 4220 (includes 190
Sunflower seed 3800 3950 (includes 150
Soyabeen Yellow and 2600 2775 (includes 175
Black Rs.100/-
Sesamum - 4700 5000 (includes 100
Nigerseed - 3650 3825 (includes 300
RABI CROPS (To be marketed in 2016-17)

Wheat 1450 1525 75

Barley 1150 1225 75

Gram*** 3175 3425 250

Masur (Lentil)*** 3075 3325 250

Rapeseed/Mustard 3100 3350 250

Safflower 3050 3300 250

Public Distribution System
PDS means distribution of essential commodities to a
large number of people through a network of FPS on a
recurring basis.
Commodities involved are:
The Public Distribution System is one of the important
elements of the Government’s ‘Food Security’ system.
 PDS involves management of supplies of essential
commodities and maintenance of their uninterrupted
flow at affordable prices to the identified beneficiaries.
Operation of PDS
By Central Govt: They are responsible for procurement,
storage, transportation (upto the district headquarters)
and bulk allocation of food grains.

By State Govt: They are responsible for distributing these

food grains to consumers through a network of Fair Price
Working of PDS

Farmer or Fair Price

Producer Shops

Grains MSP Distribute


Allocation of Grains

FCI States
Central issue Price
Problems in PDS
The poor do not have cash to buy grains in bulk at a
time, and often they are not permitted to buy in
Low quality of food grains
Week monitoring and lack of transparency
 Price charged exceeds the official price by 10 to 14%
Allocations from GoI are valid only for a month, and if
the state government is not able to lift within that time,
its quota lapses.
Suggestions for Rationalisation of Agricultural
Price Policy
Following are some of important suggestions which can
be advanced for the rationalisation of agricultural price
policy of the country.

Establishment of Some More Agencies

Apart from Food Corporation of India, some more
agencies should be set up for ensuring rational prices of
other agricultural products and also for procuring other
agricultural products.
In the meantime the government has already set up
Cotton Corporation and Jute Corporation, which needs to
be further strengthened.
Moreover, the government should set up a separate
agency for providing necessary minimum price support
to perishable commodities like potato and other
vegetables, fruit, etc., considering its growing potential
market both for internal consumption and exports.
The operational efficiency of existing agencies like FCI
should be improved.
Extension of the Price Policy
The agricultural price policy should be extended to
cover more commodities over and above the
commodities covered at present.
The commodities like pulses, potato, onion and other
important vegetables and fruits may also be covered.
Rationalisation of Price Fixation
The prices of agricultural commodities should be fixed
in the most rational manner so that it could cover the
entire costs of production.
While fixing the prices, the increasing cost of
agricultural input should be taken into consideration.
Protection of Consumers
The agricultural prices should be so determined that it
can also protect the interest of the general consumers.

The agricultural price policy should be framed in such a
manner so that it can induce the farmers to go for
modernisation of their agricultural practices.
Improvement in Agricultural Marketing
In order to ensure the success of the agricultural price
policy, the improvement of the agricultural marketing
system is very important.
The farmers should be set free from the clutches of
middlemen and all intermediaries.
Improvement of PDS
The public distribution system should be improved so
as to ensure a success in the operation of agricultural
price policy.
The operation of fair price shops should be
streamlined and be made more efficient and