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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: vin3234@rediffmail.com

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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.

-------x-------

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.