AGRICULTURAL PRICING

By- Megha Garg ( Unit-2)

Agricultural Pricing
Agricultural Price Policy in India has been developed by the government for agricultural products
to ensure that farmers receive fair prices to encourage or motivate them to spend more on
agriculture. Keeping in mind, the government announces Minimum Support Prices (MSP) for
major agricultural products every year. These prices are fixed after consulting the Commission
for Agricultural Costs and Prices (CACP).
◦ The Commission of Agricultural Costs and Prices (CACP) while recommending prices takes
into account important factors, such as:
◦ I. Cost of production
II. Changes in input prices
III. Input/output Price Parity
IV. Trends in market prices
V. Inter-crop Price Parity
VI. Demand and supply situation
VII. Effect on Industrial Cost Structure
VIII. Effect on the general price level
IX. Effect on the cost of living
X. International market price situation
XI. Parity between prices paid and prices received by farmers (Terms of Trade)
Motives (advantages) behind the announcement of
Minimum Support Price (MSP):
To prevent fall in the price in the situation of over production.
II. To protect the interests of the farmers by ensuring them a minimum price for their crops in the
situation of a price fall in the market.
III. To meet the domestic consumption requirement
IV. To provide price stability in the agricultural product
V. To ensure a reasonable relationship between prices of agricultural commodities and
manufactured goods
VI. To remove the price difference between two regions or the whole country.
VII. To increase the production and exports of agricultural produce.
VIII. To provide raw materials to the different industries at reasonable prices in the whole country.
Definition:
◦ Definition: MSP is a part of India’s Agriculture Price Policy. MSP is the price at which the government
purchases crops from the farmers. MSP is the guaranteed ‘minimum floor price’ that farmer must get
from the government in case the market price of the crops falls below the MSP. The Rationale behind
MSP is to support the farmer from excess fall in the crop prices.
◦ The MSP for various crops is announced by the central government at the beginning of every crop
seasons on the recommendation of CACP. The MSP is a fixed assured price that farmers gets in case
price falls heavily due to a bumper harvest. MSP in a sense work as an insurance policy for the farmers
to save them from price falls.
◦ The most important aim of the MSP policy is to save the Indian farmer from making distress sales. In the
event of glut and bumper harvest, when market prices fall below the announced MSP, the government
through its agencies buys the entire stock offered by the farmers at the MSP.
MSP is currently announced for 24
commodities including
• Seven cereals: Paddy, Wheat, Jowar, Bajra, Barley, Maize and Ragi.
• Five Pulses: Gram, Arhar, Moong, Urad and Lentil.
• Eight Oilseeds: Groundnut, Rapseed/Mustard, Toria, Soyabean, Sunflower, Sesamum, Niger seed and
Safflower seed.
• Cash Crops: Raw Cotton, Copra, Raw Jute and Virginia Flu Curved Tobacco.
Calculation of MSP
◦ The CACP in deciding the MSP for various crops takes into account a lot of comprehensive factors
including the supply and demand factors of each crop.
The Initial Success of the MSP Policy
Disadvantages of the Minimum Support Price:
◦ Subsidizing farmers through higher product prices is an inefficient method because it penalizes
the consumer with higher prices. Also, it means large farmers will benefit the most. They have
received more than they need but small farmers are still struggling.
◦ Farmers use fertilizers in huge quantities to increase their production but it creates problems
for those people who do not get benefits from this increment in production.
Conclusion: The basic motive behind the Agriculture policy of the Government of India is to save
the interests of both farmers and consumers. The prices of the food grains should be decided
very wisely so that neither farmers nor consumers get to suffer.
AGRICULTURAL
MARKETING
◦ Agricultural marketing covers the services involved in moving an agricultural product
from the farm to the consumer. These services involve the planning, organizing,
directing and handling of agricultural produce in such a way as to satisfy farmers,
intermediaries and consumers.
◦ Before Independence, farmers while selling their products to traders experienced
massive incorrect weighing and manipulation of accounts. The farmers did not have
required information about the prices and were forced to sell at low prices with no
proper storage facility.
◦ Sometimes, the product could be sold at a weekly village market in the farmer’s village
or in a neighboring village. If these shops are not available, then the product is sold at
irregular markets in a nearby village or town, or in the mandi. So, the government took
various measures to control the activities of the traders.
◦ The scope of agricultural marketing is not only limited with the final agricultural
produce. It also focuses supply of agricultural inputs (factors) to the farmers.
◦ Efficient marketing infrastructure such as wholesale, retail and assembly markets and
storage facilities is essential for cost-effective marketing, to minimize post-harvest losses
and to reduce health risks.
The four Government Measures to Improve
Agriculture Marketing
• The initial step was to regulate the market and plan a clean, transparent and simple
marketing strategy. This regulation helped both the farmers and the consumer. But it
still needs to realize the full potential of rural markets.
• The second measure was the procurement process like transportation facilities,
warehouse, cold storage, godowns, and the processing unit. However, the current
infrastructure is inadequate to adhere to the growing demand and therefore needs
to be improved.
• The third aspect is to decide on the fair price for the product. In the past, it has been
a set back due to the unequal coverage of farmer members and the absence of a
suitable link between marketing, processing cooperatives, and inefficient financial
management. Example of a successful cooperative is the Gujarat milk cooperative
which transformed the social and economic landscape of Gujarat.
• The last one is policies such as.
• Guarantee of Minimum Support Prices (MSP) for agricultural products
• Storage of surplus stocks of wheat and rice by Food Corporation of India (FCI)
• Distribution of food staples and sugar through PDS
CONT….
Buffer Stock
◦ The stock of foodgrains (wheat and rice) procured by the government through FCI (Food
Corporation of India) makes the buffer stock. The FCI purchases wheat and rice from farmers
in those states which have surplus production. The government fixes an MSP (Minimum
Support Price) to buy the foodgrains. MSP is revised from time to time. A part of this buffer
stock is utilised to supply foodgrains to poor people at subsidized rates. This is done through
the PDS (Public Distribution System). The rest of the stock is maintained to meet any
eventuality in any part of the country.
CONT….
◦ Public Distribution System (PDS)
◦ This is a chain of fair price shops (ration shops) through which subsidized food, sugar and kerosene are given to
the poor people. A family needs to have a ration card to avail the facility of PDS. A family with a ration card can buy
35 kg of grains, 5 litres of kerosene, 5 kg of sugar, etc. Items and quantities can vary from one state to another.
◦ Rationing was introduced in India in the backdrop of the Bengal famine. This system was again revived in the
1960s to tackle acute shortage of food.
◦ In the 1970s, three important food intervention progammes were introduced to tackle the shortage of food:
◦ Public Distribution System (PDS)
◦ This system was made to ensure smooth supply of subsidized food items to the poor.
◦ Integrated Child Development Services (ICDS)
◦ These services were introduced to provide proper nutrition to poor children.
◦ Food for Work (FFW)
◦ This programme was introduced to help the poor to earn food in lieu of some work.
AGRICULTURAL
FINANCE
Agricultural finance policy refers to the laws and regulations that govern how farmers borrow money and
what they can use it for. It includes all financial activities related to crop and livestock production,
agricultural processing, food marketing, and rural development. The agriculture sector in India is one of
the biggest employers of labor force. With such a large percentage of the population employed in
agriculture or allied sectors, agriculture finance plays a significant role.
Farm loans
Farm loans are important for Agricultural Finance. Agricultural lenders use farm loans as a tool to manage
risk and enhance profitability. Agricultural policy is also important for lenders when considering farm
loans.
Farmers
Farmers are the backbone of the agricultural industry. They produce the food that we eat and play a vital
role in our economy. The agricultural policy affects farmers in many ways, including the availability of farm
loans.
Loans
Loan programs are an important part of agricultural policy. Agricultural lenders use loan programs to
manage risk and enhance profitability. Agricultural policy is also important for lenders when considering
farm loans.
 Types of Farm Loans in India
◦ Crop Loans - Also known as crop production loans, which are extended to farmers for the purchase of
inputs like seeds, fertilizers, pesticides, etc. that are required for the production.
◦ Dairy Farm Loans - As the name suggests, these are given for activities related to dairy farming, such as
buying a milking machine, constructing a shed, etc.
◦ Poultry Farm Loans - These loans are for financing poultry farming activities, such as buying chicks and
feed, constructing a shed, etc.
◦ Sheep Farm Loans - Just like poultry farm loans, these are for financing sheep farming activities.
◦ Horticulture Farm Loans - These loans are extended to farmers for horticulture activities, such as the
purchase of saplings, pesticides, etc.
◦ Land Purchase Loans - These are given to farmers for the purchase of agricultural land.
◦ Agricultural Farm Equipment Loans - These are for financing the purchase of agricultural farm
equipment, such as tractors, harvesters, thrashers, etc.
◦ Aquafarm Loans - These are for financing the purchase of fish and other aquatic life for farming.
◦ Organic Farm Loans - As the name suggests, these loans are for organic farming activities.
The sources of agricultural finance in India are broadly classified as institutional and non-institutional
sources. Institutional sources are related to institutions such as cooperatives, regional rural banks (RRBs)
or scheduled commercial banks (SCBs). Non-institutional agricultural finance refers to financing support
offered by traders, money lenders or other individuals like agents, landlords or even family members.
Institutional Sources of Agricultural Finance in India
• Co-operative societies - Co-operative societies offer the least expensive loans for agriculture and
related activities. Primary Agricultural Co-operative Societies (PACS) are among the oldest forms of
agri finance in India and provide short and medium-term loans for agricultural activities. Long-term
loans are provided by Primary Co-operative Agriculture and Rural Development Banks (PCARDBs).
State Co-operative Agriculture and Rural Development Banks (SCARDBs) also offer long-term loans.
• Land Development Banks - Among the various sources of agricultural finance in India are land
development banks. Also called land mortgage banks, they are registered under the Co-operative
Societies Act. In some states, they are known as Agricultural and Rural Development Banks (ARDBs).
These banks offer long-term loans with land as collateral.
• Commercial Banks - While co-operative societies offer credit to farmers in need of finance, commercial
banks also offer credit to farmers in need of financial support. Scheduled commercial banks offer
loans to farmers for buying farm equipment and costs related to activities after harvest. Loans are also
offered for dairy and fisheries. Banks offer Kisan Credit Cards, which can be used for the withdrawal
of cash at an ATM. The Kisan Credit Card scheme was introduced in 1998 in order to enable credit
easily for farmers.
• Regional Rural Banks - One of the essential sources of farm finance is regional rural banks, which are
scheduled commercial banks owned by the government. They were set up based on the
recommendations of the Narasimhan Working Group in 1975, followed by the Regional Rural Banks
Act, 1976.
• Micro Finance - Micro finance is another option that farmers who don’t have access to credit via banks
and financial institutions or those who don’t have adequate collateral can fall back on. Micro finance
involves small loans with no collateral and is provided by Microfinance Institutions (MFIs).
• Non-Banking Financial Companies - Apart from all these various sources of agriculture finance in India,
there is one more significant source – the NBFC. Backed by online and easy-to-use app-based
platforms, an NBFC takes banking and credit to those farmers not touched by mainstream banking.
Role of NABARD
◦ Among the sources of farm finance to banks and institutions in India is the National Bank for
Agriculture and Rural Development (NABARD). It offers refinance to regional rural banks, state co-
operative banks, district central co-operative banks and state governments as well.
Non-institutional Sources of Agricultural Finance in India
• Moneylenders, Agents, Traders and Landlords - Moneylenders have for decades served as the source for
many agricultural families in India’s rural credit landscape. However, the interest rates are high and
moneylenders have in many instances pushed families into a debt trap. The same applies to landlords
who also charge high and unsustainable rates of interest. Commission agents or traders also offer
finance to farmers but interest rates are relatively high when compared to institutional sources of
farm finance.
• Relatives and Friends - Although relatives can prove to be of help, they may help us in case of financial
emergencies and not frequently.