Agricultural Price Policy in India

Agricultural Price Policy aims to help farmers receive fair prices for their agricultural produce so that they continue investing in agriculture. The Government of India devised the Agricultural Price Policy to support farmers by means of announcing a Minimum Support Price (MSP) for their agricultural services.

The government establishes minimum support prices for important agricultural products based on the Commission on Agricultural Costs and Prices (CACP) recommendations. We have shared further information about the objectives, advantages and disadvantages of the Agricultural Price Policy here.

Agricultural Price Policy - Overview

At the time of independence, Agricultural Price Policy was heavily influenced by the multiplicity of regulations implemented during WWII. It comprised strict controls on agricultural movement between states, procurement of food grains through a mandatory charge on growers, market purchases, and quotas in almost all states. However, over time, the Agricultural Price Policy in India evolved. Here is how -

• The Government of India started experimenting with State buying and selling of food grains in April 1959, following the suggestions of the Food Grains Enquiry Committee of 1957.
• This committee called for "domination over the wholesale trade in food grains," and its successive approval by the National Development Council in Nov 1958.
• State commerce was to be limited to two key commodities: wheat and rice. However, the idea ran into problems since it was implemented haphazardly and without consideration for economic dynamics.
• Keeping this in mind, every year the government declares Minimum Support Prices (MSP) for main agricultural products as part of their Agricultural Price Policy.
• Through the ration shops, the government supplies food grains to BPL families. These rates are set after conferring with the Agricultural Costs and Prices Commission.

Agricultural Price Policy in India - Objectives

India’s Agricultural Price Policy is aimed at protecting the interests of Indian farmers by guaranteeing the Minimum Support Price for their agricultural products. Here are some of the other objectives of this policy -

• Protecting farmers’ interests: The Agricultural Price Policy in India eliminates the need for intermediaries by introducing land reforms, establishing institutions that directly support farmers, etc.
• Maintaining a reasonable price for agricultural products: Another objective of the Agricultural Price Policy is to ensure that food is sold and purchased at a price that the farmers and consumers both benefit from.
• Increasing agricultural production: When farmers benefit from their seasonal produce, they are more likely to continue investing in agricultural services. Agricultural Price Policy in India ensures that the Minimum Support Prices are being met.

Factors Affecting Agricultural Price Policy

The Commission on Agricultural Costs and Prices (CACP) takes crucial factors into account when recommending pricing as per the Agricultural Price Policy. Given below are some factors that determine the Agricultural Price Policy in India -

1. Production costs
2. Input price changes
3. Price Parity Between Inputs and Outputs
4. Market Price Trends
5. Price Parity Between Crops
6. The Supply and Demand Situation
7. Impact on Industrial Cost Structure
8. General price level effects
9. Cost of living effects
10. Price parity between paid and received by farmers (Terms of Trade)

Agricultural Price Policy in India - Advantages

The Government of India introduced the Agricultural Price Policy to offer farmers the support that they require to continue producing important crops. This policy supports the farmers by offering them certain incentives. Here are some of the advantages of the Agricultural Price Policy in India -

• This policy helps avoid a price drop in the event of excess production.
• It protects the farmers' interests by guaranteeing them a minimum price for their products in the event of a market price drop.
• It addresses the need for domestic consumption.
• It helps maintain agricultural product price stability.
• It helps eliminate price disparities between two regions or across the entire country.
• It increases agricultural product output and exports.

Agricultural Price Policy - Disadvantages

The primary goal of the Agricultural Price Policy in India is to protect the interests both of farmers and consumers. Food grain prices should be set with great care so that neither farmers nor customers suffer. Here are some of the disadvantages of the Agricultural Price Policy -

• In order to enhance farmers' revenue, the poor in the country must pay more. This technique will exacerbate the country's inefficient allocation problem.
• Supporting farmers via higher prices is inefficient because it penalizes consumers by increasing costs. It also means that large growers will reap the greatest benefits. Even if they have got more than they require, small farmers continue to struggle.
• Farmers employ a large amount of fertilizer to improve their production, but this causes problems for those who do not benefit from the increased production.

FAQs on Agricultural Price Policy

Q.1. What is Agricultural Price Policy?

Agricultural Price Policy was introduced by the Government of India to ensure that the farmers receive the due compensation for their agricultural products and continue to invest in agriculture. Agricultural Price Policy in India sets the Minimum Support Price for agricultural products.

Q2. What is the purpose of Agricultural Price Policy?

The purpose of an Agricultural Price Policy in India is to ensure good prices for products to stimulate increased investment and production and protect consumers' interests by ensuring food supplies available at reasonable costs.

Q3. What are the disadvantages of Agricultural Price Policy in India?

Although the Agricultural Price Policy was devised by the government to benefit the farmers, it still has certain disadvantages, some of which are listed below -

• Only agricultural goods are subject to government price controls.
• The policy has failed to supply agro-products with remunerative prices.
• Only rice had a remunerative price set under MSP.

Q4. What are the objectives of Agricultural Price Policy?

The primary objective of the Agricultural Price Policy in India is to maintain a reasonable link between the prices of agricultural grains and nonfood grains, as well as between agricultural commodities so that the trade terms between these two areas of the economy do not deteriorate dramatically.

Q.5. What are the factors that influence Agricultural Price Policy?

The factors that influence Agricultural Price Policy include production costs, input price changes, price parity between inputs and outputs, market price trends, price parity between crops, general price level effects, cost of living effects, etc.