Agricultural Price Policy in India

By : Neha Dhyani

Updated : Apr 5, 2022, 11:59

The government has developed an Agricultural Price Policy in India for agricultural products to ensure that farmers receive fair prices to encourage them to spend more on agriculture. The government establishes minimum support prices for important agricultural products based on the Commission on Agricultural Costs and Prices (CACP) recommendations.

Agricultural Price Policy in India - Overview

At the time of independence, the Agricultural Price Policy in India 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.

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, which 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 in India. 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.

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Factors Affecting the Agricultural Pricing Policy in India

When recommending pricing per the Agricultural Price Policy in India, the Commission on Agricultural Costs and Prices (CACP) considers crucial criteria such as:

  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)

Advantages of Agricultural Price Policy in India

As part of the Agricultural Price Policy in India to protect farmers' interests as well as the need for self-sufficiency, the government has announced minimum support prices for 24 important crops.

The MSP's key goals are as follows:

  • To avoid a price drop in the event of excess production.
  • To protect farmers' interests by guaranteeing them a minimum price for their products in the event of a market price drop.
  • To address the need for domestic consumption
  • To maintain agricultural product price stability
  • To eliminate price disparities between two regions or across the entire country.
  • Increase agricultural product output and exports.

Disadvantages of Agricultural Price Policy in India

  • 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 gotten 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.

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 neither farmers nor customers suffer.

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FAQs on Agricultural Price Policy in India

Q.1. What is the necessity for an Agricultural Price Policy in India?

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.

Q.2. What are the drawbacks of the Agricultural Price Policy in India?

Drawbacks of the Agricultural Price Policy in India include:

  • 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.

Q.3. What are the goals of the Agricultural Price Policy in India?

The primary goal 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.4. What does the term "agricultural price" mean in the context of the Agricultural Price Policy in India?

Agricultural price is the average cost or unit value paid by producers in the domestic market for a certain agricultural item produced over the course of a year.