Administered Prices

<<–2/”>a >p class=”csD4DC7984″>ADMINISTERED PRICES INCLUDING MSP AND PROCUREMENT PRICES

Historical context

The emergence of agricultural Price Policy in India was in the backdrop of Food scarcity and price fluctuations provoked by drought, floods and international prices for exports and imports. This policy in general was directed towards ensuring reasonable food prices for consumers by providing food grains through Public Distribution System (PDS) and inducing adoption of the new technology for increasing yield by providing a price support mechanism through Minimum Support Price (MSP) system.
In recognition of the importance of assuring reasonable produce prices to the farmers, motivating them to adopt improved technology and to promote Investment by them in farm enterprises, the Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in 1985) was established in 1965 for advising the Government on agricultural prices policy on a continuing basis.
The thrust of the policy in 1965 was to evolve a balanced and integrated structure to meet the overall needs of the economy and with due regard to the interests of the producers and the consumers. The first Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.

Minimum Support Price (MSP):- is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices.

The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
MSP is price fixed by Government of India to protect the producer – farmers – against excessive fall in price during bumper production years.
The minimum support prices are a guarantee price for their produce from the Government that this will be the minimum price at which their product will fetch.
If the Market Price is above, MSP, the farmer can obviously sell it at the market prices. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. As of 2015-16, Minimum support prices are currently announced for 24
commodities, which includes food grains like Wheat, paddy etc and non-Food Crops like raw Cotton, raw jute etc.
A pilot project under the Direct Payment Deficiency System (DPDS) for paying MSP guarantee for the cotton farmers has been initiated at Hinganghat taluka of Maharashtra in 2015. Under this system, the farmers will directly get the amount which is the difference between the Minimum Support Price (MSP) and the market price, should the market price fall below the MSP. For availing of the benefit, farmers would have to present proof of cotton sold at agriculture Produce Market Committee yards, plus other papers such as ownership document, yield estimation and other details. If the pilot is successful, the DPDS would be rolled out in all cotton growing regions, as per the present decision. DPDS is essentially a mode of direct benefit transfer to cotton farmers.Then there is this concept of
PROCUREMENT PRICE, which is the price at which government procures food grains for buffer stocking and PDS purposes through FCI.
Consider the situation where, in the wake of an imminent food shortage that may occur, the traders are willing to procure food grains in advance, driving up the market price.

When the market prices are much higher than the MSP, the farmer will obviously be willing to sell it in the market.
But the government, still, needs to procure food grains on its own to meet its distribution commitments in PDS at subsidised rates (issue price) and to create the buffer stock, necessary to intervene from supply side in case there is food deficiency and high food Inflation.
Therefore the government so as to fulfil these commitments, declares a Procurement price which is > or = to the MSP.
The major difference between MSP and PP is that while PP is for food grains only, MSP is for 24 crops which includes both food grains and non-food grains.

Method of Calculation

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
Other Factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.
The Commission makes use of both micro-level data and aggregates at the level of district, state and the country.

Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or Industry, cost of processing of agricultural products, cost of Marketing – storage, transportation, processing, marketing Services, taxes/fees and margins retained by market functionaries; etc. are also factored in.

Report of National Commission for Farmers (NCF) had recommended that MSP should be at least 50% more than the weighted Average cost of production. However, this had not been accepted by the Government.

Procurement at MSP

Farmers are made aware of the procurement operations by way of advertisements like displaying banners, pamphlets, announcement for procurement and specification in print and electronic media.

Some States have taken steps to pre-register farmers for ensuring procurement from them through a Software system.
Keeping in view the procurement potential areas, procurement centres for MSP operations are opened by Government agencies, both Food Corporation of India (FCI) and State Government, after mutual consultations.

Procurement centres are opened by respective State Govt. Agencies/ FCI taking into account the production, marketable surplus, convenience of farmers and availability of other Logistics / Infrastructure-2/”>INFRASTRUCTURE such as storage and transportation etc. Large number of temporary purchase centres in addition to the existing mandis and depots/godowns are also established at key points for the convenience of the farmers.
The Govt. agencies also engage Co-operative Societies and Self Help Group which work as aggregators of produce from farmers and bring the produce to purchase centres being operated in particular locations/areas and increase outreach of MSP operations to small and marginal farmers. These Co-operative Societies are in addition to the direct purchases from farmers.
Co-operative societies/Self Help Groups are engaged in many States like Bihar, Chhattisgarh, Odisha, Maharashtra, Karnataka, Jharkhand and Rajasthan. Whereas, in some states like Punjab and Haryana, the Government of India has permitted the State Governments to engage locals for procurement of food grains from the farmers on payment of commission. These steps have been taken by Government of India so that Govt. agencies can procure maximum food grains directly from farmers by expanding out- reach of MSP benefit to farmers.
Food Corporation of India (FCI) is the designated central nodal agency for price support operations for Cereals, pulses and oilseeds.

Administered prices are prices that are set by a government or other authority, rather than by the free market. This can be done for a variety of reasons, such as to control inflation, to protect consumers, or to promote competition.

Administered pricing can be used to set prices for a variety of goods and services, including:

Utilities: Utilities such as electricity, gas, and water are often subject to administered pricing. This is because these goods are essential to everyday life and it is important to ensure that they are affordable for everyone.
Transportation: Transportation costs, such as airfare and train fares, are also often subject to administered pricing. This is because these costs can have a significant impact on the economy.
Pharmaceuticals: The prices of pharmaceuticals are often subject to administered pricing. This is because these drugs can be very expensive and it is important to ensure that they are affordable for everyone.
Education: The prices of education, such as tuition and fees, are also often subject to administered pricing. This is because education is an essential service and it is important to ensure that it is affordable for everyone.

Administered pricing can have a number of advantages and disadvantages. Some of the advantages include:

It can help to control inflation. By setting prices, the government can prevent prices from rising too quickly. This can help to protect consumers from the effects of inflation.
It can protect consumers. Administered pricing can help to ensure that consumers are not taken advantage of by businesses. For example, the government can set price controls on essential goods and services to prevent businesses from charging excessive prices.
It can promote competition. Administered pricing can help to promote competition by preventing businesses from colluding to fix prices.

However, there are also some disadvantages to administered pricing. Some of the disadvantages include:

It can lead to inefficiency. When prices are set by the government, there is less incentive for businesses to be efficient. This can lead to higher prices and lower quality goods and services.
It can stifle innovation. When prices are set by the government, businesses are less likely to invest in research and development. This can lead to slower innovation and fewer new products and services.
It can be difficult to administer. Administered pricing can be difficult to administer, especially in a large economy. This is because it requires the government to constantly monitor prices and make adjustments as needed.

Overall, administered pricing can be a useful tool for the government to use to control prices and protect consumers. However, it is important to be aware of the potential disadvantages of administered pricing before using it.

In addition to administered prices, there are a number of other economic concepts that are related to pricing. These include:

Cost-plus pricing: Cost-plus pricing is a method of setting prices that involves adding a profit margin to the cost of production. This is a common method of pricing for businesses, as it allows them to cover their costs and make a profit.
Economic regulation: Economic regulation is the use of government power to control the prices of goods and services. This is done to protect consumers from unfair prices and to promote competition.
Fair trade: Fair trade is a system of trade that aims to promote social and economic Justice for farmers and workers in developing countries. This is done by ensuring that they receive a fair price for their goods and that they are working in safe and healthy conditions.
Price controls: Price controls are government regulations that set the maximum or minimum prices that can be charged for goods and services. This is done to control inflation or to protect consumers from unfair prices.
Price discrimination: Price discrimination is the practice of charging different prices to different customers for the same good or service. This is often done to increase profits or to target different market segments.
Price fixing: Price fixing is an agreement between two or more businesses to set prices at a certain level. This is illegal in most countries, as it is considered to be anti-competitive.
Price gouging: Price gouging is the practice of charging excessive prices for goods and services during a time of emergency. This is often done by businesses that take advantage of the fact that consumers have limited Options.
Price regulation: Price regulation is the use of government power to control the prices of goods and services. This is done to protect consumers from unfair prices and to promote competition.
Price transparency: Price transparency is the practice of making prices available to consumers before they make a purchase. This is often done by businesses that want to be seen as fair and transparent.
Rate-making: Rate-making is the process of setting prices for regulated industries, such as utilities and transportation. This is done by a government agency, such as a public utility commission, to ensure that prices are fair and reasonable.

What is a price ceiling?

A price ceiling is a government-imposed limit on the price that can be charged for a good or service. Price ceilings are often used to protect consumers from high prices, but they can also lead to shortages.

What is a price floor?

A price floor is a government-imposed minimum on the price that can be charged for a good or service. Price floors are often used to protect farmers and other producers from low prices, but they can also lead to surpluses.

What is a black market?

A black market is a market in which goods or services are bought and sold illegally. Black markets often arise when there is a government-imposed price ceiling or price floor.

What is a cartel?

A cartel is a group of firms that agree to collude on prices and output. Cartels are illegal in most countries, but they can be very profitable for the firms involved.

What is a monopoly?

A monopoly is a market structure in which there is only one seller of a good or service. Monopolies can arise naturally, or they can be created by government regulation.

What is an oligopoly?

An oligopoly is a market structure in which there are a small number of sellers of a good or service. Oligopolies can be very profitable for the firms involved, but they can also lead to higher prices and lower quality goods and services.

What is perfect competition?

Perfect competition is a market structure in which there are a large number of buyers and sellers of a good or service, and the goods or services sold are identical. Perfect competition is a theoretical concept, but it can be a useful benchmark for analyzing other market structures.

What is a natural monopoly?

A natural monopoly is a market structure in which there are economies of scale that are so large that only one firm can efficiently produce the good or service. Natural monopolies are often regulated by the government to ensure that they do not abuse their market power.

What is a public good?

A public good is a good or service that is non-rivalrous and non-excludable. Non-rivalrous means that one person’s consumption of the good does not reduce the amount available for others to consume. Non-excludable means that it is difficult or impossible to prevent people from consuming the good, even if they do not pay for it.

What is a common good?

A common good is a good or service that is rivalrous but non-excludable. Rivalrous means that one person’s consumption of the good reduces the amount available for others to consume. Non-excludable means that it is difficult or impossible to prevent people from consuming the good, even if they do not pay for it.

What is a private good?

A private good is a good or service that is both rivalrous and excludable. Rivalrous means that one person’s consumption of the good reduces the amount available for others to consume. Excludable means that it is easy or possible to prevent people from consuming the good, even if they do not pay for it.

What is a free rider?

A free rider is a person who consumes a good or service without paying for it. Free riders can be a problem in markets for public goods and common goods.

What is a tragedy of the commons?

The tragedy of the commons is a situation in which individuals acting in their own self-interest deplete a shared resource, even though it is not in their collective best interest to do so. The tragedy of the commons is a problem in markets for common goods.

What is a market failure?

A market failure is a situation in which the market does not allocate Resources efficiently. Market failures can occur due to externalities, public goods, common goods, and asymmetric information.

What is a government failure?

A government failure is a situation in which the government does not allocate resources efficiently. Government failures can occur due to Bureaucracy, Corruption, and rent-seeking.

What is the optimal level of pollution?

The optimal level of pollution is the level at which the marginal cost of pollution abatement equals the marginal benefit of pollution abatement. The optimal level of pollution is not zero, because the cost of reducing pollution to zero is often greater than the benefit.

What is the Coase theorem?

The Coase theorem states that if property rights are well-defined and transaction costs are zero, then the parties involved in an externality will bargain until they reach an efficient outcome. The Coase theorem is often used to argue that government intervention is not necessary to correct externalities.

What is the Pigouvian tax?

A Pigouvian tax

Which of the following is not a type of price control?
(A) Price ceiling
(B) Price floor
(C) Administered price
(D) Market price
A price ceiling is a legal maximum price that can be charged for a good or service.
(A) True
(B) False
A price floor is a legal minimum price that must be charged for a good or service.
(A) True
(B) False
Administered prices are set by the government or a private company.
(A) True
(B) False
Price controls can lead to shortages or surpluses.
(A) True
(B) False
Price controls can also lead to black markets.
(A) True
(B) False
The purpose of price controls is to protect consumers from high prices.
(A) True
(B) False
The purpose of price controls is to protect producers from low prices.
(A) True
(B) False
Price controls are often used in times of economic crisis.
(A) True
(B) False
Price controls are often unpopular with both consumers and producers.
(A) True
(B) False