ADMINISTERED PRICES INCLUDING MSP AND PROCUREMENT PRICES

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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 Indiato insure agricultural producers against any sharp fall in farm prices.

The minimum support prices are announced by the Government of Indiaat 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 theproducer – farmers – against excessive fall in price during bumperproduction 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 marketIn 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 ofPROCUREMENT 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 inPDS 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 forfood 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.

An administered price is a price that is set by the government or another authority, rather than by the forces of supply and demand in the market. Administered Prices are often used to protect consumers from high prices or to ensure that farmers receive a fair price for their produce.

Minimum Support Price (MSP) is a price set by the government to protect farmers from low prices. The MSP is usually set above the market price, and the government buys any surplus produce at the MSP. This ensures that farmers receive a fair price for their produce, even if the market price is low.

Procurement Price is the price at which the government buys agricultural produce from farmers. The procurement price is usually set at a level that is higher than the MSP, and the government often offers incentives to farmers to sell their produce to the government. This helps to ensure that the government has a buffer stock of food grains, which can be released into the market in times of shortage.

Administered prices can be used to achieve a variety of objectives, such as:

Protecting consumers from high prices
Ensuring that farmers receive a fair price for their produce
Stabilizing prices
Promoting Economic Development
Reducing POVERTY

However, administered prices can also have a number of negative effects, such as:

Creating inefficiencies in the market
Leading to shortages or surpluses
Discouraging innovation
Reducing competition

The use of administered prices is a controversial issue. Some people argue that they are necessary to protect consumers and farmers, while others argue that they are harmful to the economy. The decision of whether or not to use administered prices is a complex one that should be made on a case-by-case basis.

In India, the government sets administered prices for a variety of agricultural commodities, including rice, wheat, pulses, and sugar. The MSP is set by the Ministry of Agriculture and Farmers Welfare, and the procurement price is set by the Food Corporation of India (FCI). The FCI is a government-owned corporation that is responsible for buying and storing food grains.

The MSP and procurement price are important tools for the government to ensure Food Security in India. The MSP helps to protect farmers from low prices, and the procurement price helps to ensure that the government has a buffer stock of food grains. This buffer stock can be released into the market in times of shortage, which helps to stabilize prices and ensure that everyone has access to food.

However, the MSP and procurement price can also have some negative effects. For example, they can lead to overproduction of certain crops, which can depress prices. They can also lead to inefficiencies in the market, as farmers may be more focused on producing crops that are eligible for the MSP and procurement price, rather than crops that are more profitable.

Overall, the MSP and procurement price are important tools for the government to ensure food security in India. However, they also have some negative effects, and the government needs to carefully manage these tools to minimize the negative effects and maximize the positive effects.

What are administered prices?

Administered prices are prices that are set by the government or other regulatory body, rather than by the market. They are often used to control inflation or to protect certain industries.

What are MSPs?

MSPs, or minimum support prices, are the prices that the government guarantees to pay farmers for their crops. They are designed to protect farmers from falling prices and to ensure that they have a fair return on their investment.

What are procurement prices?

Procurement prices are the prices that the government pays for goods or services that it purchases. They are often set below market prices in order to save Money.

What are the benefits of administered prices?

Administered prices can help to control inflation, protect certain industries, and ensure that farmers have a fair return on their investment.

What are the drawbacks of administered prices?

Administered prices can lead to shortages, inefficiencies, and Corruption.

What are some examples of administered prices?

Some examples of administered prices include the prices of gasoline, electricity, and telecommunications services.

What are some examples of MSPs?

Some examples of MSPs include the prices of wheat, rice, and cotton.

What are some examples of procurement prices?

Some examples of procurement prices include the prices that the government pays for food, fuel, and weapons.

What are some of the arguments for and against administered prices?

Some of the arguments for administered prices include the following:

They can help to control inflation.
They can protect certain industries.
They can ensure that farmers have a fair return on their investment.

Some of the arguments against administered prices include the following:

They can lead to shortages.
They can lead to inefficiencies.
They can lead to corruption.

What is the future of administered prices?

The future of administered prices is uncertain. Some people believe that they will continue to be used, while others believe that they will be phased out in favor of market-based prices.

Which of the following is not a type of administered price?
(A) Minimum Support Price (MSP)
(B) Procurement Price
(C) Maximum Retail Price (MRP)
(D) Regulated Price
The MSP is a price set by the government to protect farmers from falling prices.
(A) True
(B) False
The procurement price is the price at which the government buys crops from farmers.
(A) True
(B) False
The MRP is the maximum price that can be charged for a product.
(A) True
(B) False
Regulated prices are prices that are set by the government for essential goods and services.
(A) True
(B) False
Which of the following is not an example of an administered price?
(A) The price of petrol
(B) The price of diesel
(C) The price of electricity
(D) The price of food grains
The government sets administered prices to achieve a number of objectives. Which of the following is not one of those objectives?
(A) To protect consumers from high prices
(B) To protect farmers from low prices
(C) To ensure that essential goods and services are available to all
(D) To raise revenue for the government
Administered prices can have a number of effects on the economy. Which of the following is not one of those effects?
(A) They can lead to shortages of goods and services
(B) They can lead to black markets
(C) They can lead to inflation
(D) They can lead to efficiency gains
The government has a number of tools at its disposal to control administered prices. Which of the following is not one of those tools?
(A) Price controls
(B) Subsidy
(C) Taxation
(D) Import quotas
The government’s use of administered prices has been controversial. Which of the following is not one of the criticisms of administered prices?
(A) They can lead to inefficiency
(B) They can lead to corruption
(C) They can be used to protect special interests
(D) They can be used to control the economy