Agriculture Price Policy In India: Objectives, Needs, Features, and Effects

Introduction and Meaning

Agriculture Price Policy in India witnesses significant fluctuations in agricultural product prices, surpassing those of industrial goods like machinery and factories. During Five Year Plans, the Agricultural Commodity Price Index (ACPI) experiences greater volatility compared to the General Price Index (GPI). For instance, in 2009-10, agricultural prices surged by 13.3%, while other prices rose by only 3.8%. These fluctuations result from factors such as variations in production, adverse weather conditions, and government regulations.

To manage these ups and downs, the government follows the Agricultural Price Policy (APP) made by the Commission for Agricultural Costs and Prices (CACP). The goal is to keep prices steady, encourage farmers to invest in farming and new tech, and make sure everyone can afford farm goods.

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Objectives of Agriculture Price Policy

The Agricultural Price Policy (APP) strives to achieve a balance between several key objectives:

• Price Stability: While some price fluctuations are natural, the APP aims to minimize excessive volatility in agricultural prices. This protects both farmers and consumers from sudden price swings.
• Incentivize Production: By ensuring profitable returns for farmers through mechanisms like minimum support prices, the APP encourages them to invest in modern techniques and increase agricultural output.
• Consumer Affordability: The APP also considers the needs of consumers. It seeks to ensure a fair and steady supply of agricultural products at reasonable prices, promoting food security and accessibility.

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Need of Agriculture Price Policy

A well-defined agricultural price policy is crucial for India’s agricultural sector for several reasons:

• Encouraging Investments: Farmers need to know that their hard work and investments will pay off. This policy ensures they get a fair price for their crops, reducing the risk of losses.
• Promoting Modern Farming: By guaranteeing minimum prices, farmers are encouraged to use modern methods, making farming more sustainable and increasing productivity.
• Ensuring Stability: Farming is unpredictable, and price swings can make it even tougher. This policy aims to keep prices stable, protecting both farmers and buyers.
• Dealing with Marketing Challenges: Selling perishable goods is tricky, but the right pricing policy can help overcome these challenges, making the market work better.
• Guiding Crop Choices: Farmers can use price signals to decide what to grow, leading to better planning and smarter use of resources.
• Protecting Farmers: This policy stops middlemen from exploiting farmers by offering low prices. It ensures farmers get a fair deal for their hard work and prevents them from losing out on income.

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Main Features of Agriculture Price Policy in India

The Indian government implements its agricultural price policy through several key mechanisms:

1. Institutions: Two key institutions play a vital role

• Commission for Agricultural Costs and Prices (CACP): Established in 1965 (originally as the Agricultural Prices Commission), this body advises the government on pricing policies. It recommends Minimum Support Prices (MSPs) for major agricultural commodities like wheat, rice, cotton, and sugarcane.
• Food Corporation of India (FCI): Food Corporation of India (FCI) plays a pivotal role in procuring and distributing food grains. When market prices dip below a threshold, FCI intervenes by purchasing crops at Minimum Support Prices (MSPs), safeguarding farmers’ interests. Additionally, it maintains buffer stocks of food grains to stabilize market prices and uphold food security.

2. Minimum Support Price (MSP): Each year, based on CACP recommendations, the government announces MSPs for key crops like wheat, rice, maize, cotton, and sugarcane. These MSPs act as a safety net for farmers, ensuring they receive a minimum price for their produce even if market prices fall. The FCI steps in to buy grains at MSPs if market prices dip below this level. For instance, the MSP for wheat in 2021-22 was set at ₹2,015 per quintal, and paddy (unmilled rice) at ₹1,940 per quintal.

3. Buffer Stock Management: The FCI maintains buffer stocks of essential food grains. This stockpile helps regulate price fluctuations. If food grain prices rise excessively, the government releases grains from the buffer stock into the market at a fair price, thereby moderating price increases.

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Effects of Agricultural Price Policy

The Agricultural Price Policy (APP) has had a mixed impact on various stakeholders in the Indian agricultural sector:

Positive Impacts:

• Increased Production: The assured minimum prices offered by the MSP have incentivized farmers to invest in better quality seeds, fertilizers, and equipment. This, coupled with a sense of security in returns, has led to a rise in overall agricultural production.
• Improved Farmer Income: By encouraging higher production and guaranteeing minimum prices, the APP has helped improve farmer incomes and their overall standard of living. Stable prices also reduce income uncertainty.
• Consumer Benefits: The availability of buffer stocks and regulated market intervention through the FCI help ensure a steady supply of essential food grains at reasonable prices for consumers, especially during periods of scarcity.
• Industrial Benefits: Stable agricultural prices benefit industries that rely on agricultural products as raw materials. Predictable costs allow for better planning and potentially lower production costs.

Challenges and Considerations:

• Shifting Crop Patterns: The focus on certain crops with higher MSPs can lead to a shift in cropping patterns, potentially neglecting the production of other essential crops like pulses and oilseeds.

Overall, the APP has played a significant role in supporting India’s agricultural sector. However, ongoing evaluations and adjustments are necessary to address potential drawbacks and ensure a more balanced and sustainable agricultural economy.

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FAQs on Agricultural Price Policy