Agricultural Price Policy - 1 | Agriculture Optional Notes for UPSC PDF Download

Introduction

Agricultural price policy plays a significant role in promoting growth and fairness within the Indian economy, with a particular focus on the agriculture sector. The primary aim of the government's price policy is to safeguard the interests of both producers and consumers. The challenge of ensuring food security, both nationally and at the household level, is of paramount importance in India. At present, the food security system and price policy primarily encompass three key components: procurement prices/minimum support prices (MSPs), buffer stocks, and the public distribution system (PDS). Agricultural price policy is a crucial tool for enhancing food security, leading to improved agricultural production, increased employment opportunities, and higher incomes for farmers. Offering remunerative prices to farmers is essential for upholding food security and enhancing farmers' incomes.

Evolution of Agricultural Pricing Policies

In India, agricultural pricing policies and related mechanisms were developed before the country gained independence. During this time, the procurement and distribution of key food grains began, and statutory maximum prices were established, although they were not consistently enforced. In the post-independence era, the goal of achieving food security was tied to environmental sustainability. The government's price policy for agricultural products aims to establish fair prices to incentivize increased investment and production.

While the government decided to purchase food grains at fixed prices, there was no significant drop in food prices until 1954. The demand for food grains, particularly rice and wheat, continued to rise due to a growing population and increasing incomes. This led to a trend of increased consumption and the substitution of coarse grains like maize and jowar with wheat and rice. Consequently, even minor shortages persisted, and there was a consistent upward trend in price levels to balance supply and demand.

Commission for Agricultural Costs and Prices (CACP)

Until 1964, the procurement of food grains was limited to surplus states but was extended to deficit states during drought years. The unregulated purchase and movement of food grains by private traders during shortages led to price speculation, especially as surpluses were moved from producing areas to regions with high purchasing power. To address this, the government appointed a committee in 1964 under Shri L.K. Jha to determine rice and wheat prices for the 1964-65 season. Later, the committee was also tasked with suggesting prices for coarse food grains. The committee submitted its report on prices in September 1964 and on the agency to advise on price policy in December 1964.

Based on the committee's recommendations, the Agricultural Prices Commission (APC) was established on January 1, 1965, with the primary goal of ensuring fair prices for agricultural products and advising the government on the price policy of major agricultural commodities. In 1985, the commission was renamed the Commission for Agricultural Costs and Prices (CACP).

CACP's primary mandate is to recommend Minimum Support Prices (MSP) to make Indian agriculture a profitable sector, encouraging the adoption of modern technologies and improved farming practices to enhance productivity. This ensures that farmers receive stable and remunerative prices, which is vital for boosting agricultural production and productivity, especially considering the inherent instability of agricultural produce markets.

The CACP recommends MSPs for major agricultural products each year after analyzing a broad range of data, including production costs, input usage trends, crop production and productivity, domestic and global market prices, supply and demand dynamics, and the terms of trade between agriculture and non-agricultural sectors. The commission also considers the long-term consequences of the price policy, including research conducted by institutions like the Indian Council for Agricultural Research (ICAR).

Data for these analyses are typically collected from various government agencies, including the Directorate of Economics and Statistics, state governments, central ministries, and agencies responsible for implementing agricultural price policies. Additionally, the CACP conducts field visits to interact with farmers across the country and consults with senior officials, researchers, and relevant organizations to inform its recommendations.

Terms of Reference of the Commission for Agricultural Costs and Prices (CACP)

• Price Policy Recommendations: Provide advice on the price policy for a range of commodities including paddy, rice, wheat, jowar, bajra, maize, ragi, barley, gram, tur, moong, urad, sugarcane, groundnut, soyabean, sunflowerseed, rapeseed and mustard, cotton, jute, tobacco, and other commodities identified by the government. This should aim to establish a balanced and integrated price structure that aligns with the broader economic needs while considering the interests of both producers and consumers.
• Terms of Trade: Consider changes in the terms of trade between the agricultural and non-agricultural sectors.
• Marketing Methods and Costs: Examine the current marketing methods and costs associated with agricultural commodities in different regions. Propose measures to reduce marketing expenses and recommend fair price margins for different stages of marketing.
• Price Situation Monitoring: Continuously monitor the evolving price situation and make relevant recommendations, when necessary, within the context of the overall price policy.
• Crop-Specific Studies: Conduct research on various crops as specified by the government.
• Problem Resolution: Provide advice on any issues related to agricultural prices and production that are referred to the Commission by the government.

Over time, the Commission's terms of reference have been modified and expanded to align with changes in the agricultural landscape of the country. Starting from the 1994-95 period, the Minimum Support Price (MSP) Scheme of CACP began to include Niger-seed and Sesamum, in addition to the edible oilseeds already covered. In 2001-2002, the government further broadened the Commission's terms of reference by adding another commodity, lentil (masur). This expansion has led to the coverage of 254 different crops under the MSP scheme.

Minimum Support Price (MSP)

Every season, the government declares the Minimum Support Prices (MSPs) for significant agricultural commodities and manages purchase operations when necessary. These operations involve public, cooperative, and other designated agencies to ensure that prices do not drop below the set MSP. The determination of support prices for different agricultural commodities is made after considering recommendations from the Commission for Agricultural Costs and Prices (CACP), input from State Governments and Central Ministries, and other pertinent factors crucial for establishing support prices. The MSP is announced well in advance of the planting season, allowing farmers to make informed decisions regarding their crop choices.