AGRICULTURAL PRICE POLICY

CHAPTER - 5

AGRICULTURAL PRICE POLICY

Price Policy in India :

The slow pace of growth of agricultural produc­

tion in India is attributed to agricultural price policy.

Professor T.W. Schullz commenting on the a0ricultural

price policy in India as "wrien countries sucii as Ni0eria,

Chili or Inaia went to keep their farm products price

low, the investment incentives for increasing the capa­

city of agriculture is thereby reduced.

Agricultural prices, on the one hand, determine

the income of the farmers and an the other affect the

levels of living of the people enga0ed in the other

sectors of the economy, as agricultural commodities form

part of wage goods. Changes in agricultural prices thus

effect a transfer of income between the agricultural anu2the non-agricultural sectors of the economy. The views

of economists differ as to whether the transfer of income

takes place between the rural and the urban sectors or

between the low income urban consumer anu the high3agriculture producers. However, it is recognised by

(1) Dantwal, M.L (1968), "incentives and disincentives in Indian Agriculture", Foundation of Indian Agriculture. Edited by Vadilal Dagli, Vora & Co. Bombay P. 5.

(2) Kahlon A.5. and Tyagi, D.5. (1983), "Agricultural price policy in India." Allied Publishers Pvt. Ltd., P. 3.

(3) Tyagi, D.5. (1979) and Lipton (1980) agree that low farm prices transfer income from rural to urban areas. Mellor (1968) on the other hand believes that ransfer takes place between the rural rich and the urban poor.

all that agricultural prices do affect income distribu­

tion between the different sectors of the economy.

The first five year plan was concerned with

ensuring that the prices of foodgrains were held stable

at levels within the reach of the poor section of the

community. But the plan documents hastens to emphasise

that "This does not, of course, mean that the producer

of foodgrains should not get a reasonable return."

The Third Five Year Plan States that "the producer

of foodgrains must get reasonable return. The farmer,

in other words, should be assured that the prices of

foodgrains and other commodities that he produces will

not b<_ allowed to fall below a reasonable minimum price'.'

The Fourth Plan documents for the first time,

besides accepting the support price for main agricul­

tural commodities like foodgrains, Sugarcane, Jute and

Cotton, also aimed at strengthening the machinery of

procurement to realize the purpose of support price

programme. Further, the plan states, "Efforts will be

made to strengthen public and co-operative agencies, so

as to ensure that the purhcase operations do infact

benefit the primary producer."

Seventh Five Year Plan document emphasise that

"Agricultural price policy needs to be increasingly

concerned with the maintenance of a scale of appropriate

relative prices of crops so that the supplies of diffe­

rent commodities are brought in line with the respective

demands. Also, procurement operations have to be stren­

gthened for crop like rice, oilseeds and pulses in areas

inadequately served with marketing infrastructure, to

ensure that the producers are in fact, able to sell at

the prices fixed by the Government.

The Agricultural Price Commission was set up in

January, 1965 to advise the Government to Price Policy

for agricultural commodities, with a view to evolving a

balanced and integrated price structure in the perspe­

ctive of the overall needs of the economy and with due

regard to the interests of the producer and the consumer,

The objectives of Price Policy may be stated as -

(a) to allocate resources;

(b) to distribute income; and

(c) to induce capital formation.

The objectives set for the farm price policies in

different countries naturally have their ori-in in these

threed functions. Apart from moderating price fluctua­

tions, the objectives of Price Policy in a way are, in

most cases, only variants of (a) to raise or stablise

farm incomes, (b) to increase production, or (c) a

(1) 7th Five Year Plan, 1985-90, Vol. II, Govt, of India,Planning Commission, P. 4.

combination of (a) and (b). In most of the developed

countries the objectives set for price policy are a

combination of (a) and (b) with slightly more stress on

(a). In developing countries, on the other hand, the

objectives set for price policy lay wore emphasis on

(b), that is, to increase production.

Definition : It is very difficult to put any clear cut

definition about the support price policy. However, an

attempt has been made to suinmerize the definition of

price support policy within the frame of its objective.

"Support price may be defined as the price at which

Government would be under obligation to buy all stocks

that may be offered to it for sa1e .^

Minimum price is defined as a reserve price

announced in advance of the production and more or less

corresponding to a forward price, which, in conjunction

with other measures, will ensured desired quantities of

production and desired relationship between each other.^

Support price assures the farmer that in case, market

prices tend to go below, Government will step in and buv

all quantities offered for sale at the guaranted prices.^

(1) Patel H.M., (1960), of resume of the seminar on fixation of support price for foodgrains. "Artha Vikas", Journal of Economic Development, Deptt. of Economics, Sardar Vallabh Bhai Vidyapeeth, Vallabh Vidyanagar Vol. II, No. 1, January, pp. 181.

(2) Parthasarthy, G. - The concept of Minimum support pricc in the context of Growth Ibid P. 37.

(3) Dutiya, B.P., Gluideline for determining support prices for agricultural Products, Ibid. P. 99.

Production of most of the agricultural commodities

are seasonal; that is, the out put arrives in a partic­

ular period which over swamps the market. In other

words, the seasonal nature of agricultural production

results in uneven distribution of supplies in any year

while the consumption of most of the agricultural commo­

dities is evenly spread over the entire period. In such

a situation , the prices of agricultural commodities

would naturally be depressed during the post-harvest

period and would tend to rise during the period of lean

supply when the farmers have sold out most of their

produce.

(1) Functions of Agricultural Prices

Agricultural prices have three functions viz.,

(1) to allocate resources, (2) to- distribute income, and

(3) to induce capital formation.

As allocator of resources, agricultural prices

give signals to both producers and consumers regarding

the level of Production and consumption. Changes in the

relative prices of the various agricultural commodities

affect the allocation of resources amon0 agricultural

commodities by the consumers. If the price of a given

commodity increases relatively to all other agricultural

commodities, then the producers would be allocating more

resources, i.e., land and other inputs, for the produ­

ction of that commodity. To the extent substitution is

possible, the consumer would try to substitute high-

priced commodities by cheaper commodities.

Agricultural prices, on the one hand, determine

the income of the farmers and, on the other, affect the

levels of living of the people engaged in the other

sectors of the economy, as agricultural commodities from

part of wage goods. Changes in agricultural prices thus

effect a transfer of income between the agricultural and

the non-agricultura 1 sectors of the economy."^"

Agricultural Price Policies

A - Support Price : In India, the choice has naturally

fallen on guaranted minimum price. Two sets of admini­

stered prices are fixed by the Government, viz.,

(1) minimum support prices for major field crops

in the country, which are annually fixed and

are meant to be the floor levels below which

the market prices would not be allowed to

fall and,

(2) producrement prices in respect of Kharif and

Rabi cereals at which the grain is to be

domestically procured by public agencies for

release through the public distribution

system.

The minimum ^support prices fixed by the

(1) Kahlon, A.5. and Tyagi, D.5., Ibid. P. 3.

Government are in the nature of a long term guarantee to

enable the producer to pursue his efforts with the assu­

rance that the prices of his produce would not be allowed

to fall below the level fixed by the government. The

minimum support price should not discourage a progressive

farmer from augmenting his production through aeloption

of improved technology and should relieve him of the

fear that expanded production will result in a slump in

the prices of the produce.

® ~~ Procurement Price : Procurement price is the price

at which the government procures grain from producers.

Normally, the procurement price is lower than the minimum

price. The procurement prices should be decided close

to the time of harvest.

C - Incentive Prices : It is a price that is well above

the risk of production and at this price the farmer is

expected not to spare any effort at increasing his prod­

uction within the constraints of his own and national

resources. Thus, an incentive price is one that induces

the farmer to make capital investment for the improve­

ment of farm organisation, and expand the use of inputs

so as to move up to a higher point on his production

possibility frontier and optimise his farm income.

(2) Efficient Market Structure and Price Policy :

The price that the farmer gets for his agricul­

tural produce depends upon the organisational and opera­

tional efficiency of the market structure. It is there­

fore, not enough to have a Price support/procurement

policy for agricultural commodities. In fact, it is

even more important to develop a market structure which

enables the farmer to realise at least the minimum

support price.

The marketing problems have assumed critical

importance since the market technology has not kept pace

with the production technology.

"Marketing efficiency define" as the movement of

goods from producers to consumers at the lowest cost

consistent with the provision of services consumers

desire.^

It is well known that the establishment and effe­

ctive functioning of regulated markets not only keep in

regulating and standardising the marketing margins but

also assist the farmer in realising a better price for

his produce.

Regulated Market : Any place or locality in which

persons congregate with the object of buying and selling

any kind of article, agricultural or otherwise, may be

termed a market. For solving many of the marketing

problems and therefore making marketing of agricultural

Vyas, V.5., (1961), "Norms and Efficiency in Agricultural Marketing." The Indian Journal of Agricultural Economics, Vol. XVI. No.l. Jan.-March, P. 138.

produce more orderly and efficient, particularly at the

assembling point, one of the institutions that has been

developed in India is that of regulated markets. Their

main object is to regulate sale and purchase of agricu­

ltural commodities and create conditions for a fair

competition and thus ensure a fair deal to the farmer.

The Markets Acts in existence in M.P., Bombay and

Hyderabad were the direct outcome of recommendations

made by the Royal Commission on Agriculture (1928) to

the effect that regulated markets for all produce were

essential and that, in all states Governments should

take the initiative in establishing regulated markets by

State Legislation.

Before independence markets were being regulated

both under the Cotton Market Act, 1932 and under the

Agricultural Produce Markets Act, 1939. There were in

all 86 important markets in the State-45 for cotton, 38

for foodgrains, etc., and 3 for Oranges. The Market

Committees function under the control of the Deputy

Commissioners. The state marketing staff had been

authorised to inspect the markets and examine and test

scales and weights used in the regulated markets.

. D T (1Q£1) "Reoulated Markets - Their

The Indian Journal of Agricultural Economics. Vol. XVI,

No. 1, Jan.-March, P. 74.(?) Uenort on the Marketing of Rice in India, (1931),

-Srector.te of Marketing and Inspection, «/0. Food andAgriculture, Govt, of India, New Delhi, April, P. 188.

In the pre-Independence Period (Particularly upto

1931) most of the transactions were carried on the grain

in Bilaspur district, which shows that the economics

system had emerged only from the state of barter. Though

efforts were made to regulate the business transacted at

important mandis or markets, result were not very effe­

ctive. The district had only one regulated market at

Bilaspur till 1967.

The important wholesale and retail market centres

of the district are Sakti, Baradwar, Champa, Belha,

Naila, Akaltara, Bilaspur, Kota, Janjgir, Jairamnagar,

Ganiyari, Mungeli, Takhatpur, Katghora, Korba and Pendra

R o a d .

TABLE - 35Regulated Markets in Bilaspur District 1981

S. No. Market Year of regulation

Arrival Paddy (in tonnes)

(1) Bilaspur 1965 24190 (29.73)

(2) J airamnagar 1976 “

(3) Akaltara 197 2 6300 (07.74)

(4) Nail a 1973 10710 (13.16)

(5) Champa 1972 238 (00.29)

(6) Sakti 1973 18587 (22.84)

(7) Mungeli 1971 3682 (04.52)

(8) Pandariya 1973 692 (00.85)

(9) Takhatpur 1974 5493 (06.75)

(10) Lormi 1975 8460 (10.39)

(11) Kota 1971 1948 (02.39)

(12) Pendra Road 1972 1046 (01.28)

All 81,355 (100.00)

Figures in perenthesis denotes percenta0e.

In 1980-81 kharif season in the district the total

arrivals of paddy in various markets were reported at

81,355 tonnes. Highest arrivals of paddy being 29.73

percent to total arrivals in the district was reported

at Bilaspupr regulated market. Whereas, lowest being

0.29 percent and 0.85 percent of arrivals of paddy were

reported at Champa and Pandariya regulared markets

respectively.

Agriculture in India is carried on mostly for

subsistence. The small cultivators grows food primarily

for his own consumption and part with much enough to pay

off his rent and interest charges and to buy his minimum

requirement of consumer or other goods. On the larger

farms a much greater percentage of output goes to the

market. A reduction in the size of farms would immedi­

ately reduced the marketed surplus.

Marketable Surplus :

The concept of the marketable surplus of agricu­

lture is of significance not only in the context of

economic development, but also in the context of the

relationship between the rural and urban sectors. The

marketed quantity of foodgrains may be defined as that

part of the agricultural produce out of a year's produc­

tion which the farmers dispose of in exchange of money

directly or through intermediaries. Large proportion

of the marketable surpluses tend to be disposed of in

the villages of Production or nearby and it is almost

impossible to estimate lthese quantities.

In the state of Madhya Pradesh, the arrivals in

the quarter i.e. October to December (1978-79) the

percentage distribution of market arrivals of rice was

3 3.3 . At the all - India level, the share of market

arrivals of rice in the first quarter (October to

December) was 29 percent in 1961-62 which increased to2

36 percent in 1970-71.

Regulated Markets of Bilaspur District :

Town market known as Mandi which play the most

important role in the marketing channel. They are major

assembling centre where a major part of the arrivals of

Paddy, Wheat, Tivera, Linseed, Gram etc. are brought by

the farmers of the rural areas.

The size of market depends on its annual turn

over. A small market is one where the annual turn over

is less than 50,000 quintals, the medium one represents

those markets where the annual turn over is between

50,000 to 2,00,000 and bigger one are those where the

(1) Seth G R . (1961), Estimation of Marketed Produce m India." The Indian Journal of Agricultural Economics. Vol. XVI, No. 1, Jan. - March, P ■ 79.

(2) Kahlon, A.S. and Tyagi, D.S. (1983), "Agricultural Price Policy in India." P. 423.

turn over is more than 2,00,000 quintals.

In Bilaspur district, all the 12 regulated markets

are regulated under the "Madhya Pradesh Agricultural

Produce Market Act 1960, (19 of 1960) now under the

"M.P. Krishi Adhiniyam (24 of 1970). Linder this Act,

the area from which the regulated markets receive arriv­

als of agricultural produce is declared the market area.

Bilaspur, Jairamnagar, Naila, Akaltara, Champa,

Sakti, Kota and Pendra Road are connected with rail

lines. Mungeli, Takhatpur, Pandari a and Lormi are

located on state hi-hway. Yearwise receipt of agricultural

produce in District Krishi Upaj Mandi including sub-

mandi is shown in the following table.

TABLE - 36

Arrivals of Agricultural Produce in District Krishi Upaj Mandi 1986-87 to 1990-91 (in QtlsJ_

S.No. Year Asricultural Produce

Paddy Wheat Tiver a Gr a:.'.

(1) 1986-87 453522 130 1818 5143

(2) 1987-88 377872 2012 1991 749

(3) 1988-89 382466 271 12694 983

(4) 1989-90 198938 142 7334 444

(5) 1990-91 523372 2983 2805 59

It is clear from the table that paddy is the

single and most important crop of the district. Arrivals

of paddy in the markets are depen' upon the Production.

Highest arrivals of paddy being 5,23,372 quintals was

reported in 1990-91 year. Whereas the lowest being

1,98,938 quintals was recorded in the ear 1989-90.

The other agricultural commodities are Wheat,

Tivera, Gram etc. Arrivals of wheat in the district was

less than 3000 quintals per year. Tivera (Pulse) is the

second most popular crop in Bilaspur district. The

arrivals of Tivera in various regulated markets are

higher than the wheat crop. In 1988-89, the hi6hest

arrivals of Tivera 12,694 quintals was registered. Gram

is also brought by the farmers of the district. But the

quantities are very poor.

Since paddy cultivation is the major agricultu­

ral activit of the district, Processing and marketing

of rice are the important adjuncts. In fact, paddy

cultivation in the district has contributed to the

growth of the rice milling industry.

In general, rice mills tended to be specially

associated with the sources of paddy. The majority of

the mills are locate' in tehsil headquarters so that a

speedly supply of paddy is assured.

Table-37 shows the receipt of various agricult­

ural Produces in rice mills of Bilaspur district. It is

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seen in the table that the farmers of the district

prefers to sell their agricultural commodities viz.,

Wheat, Tivera, Arhar, Linseed, Ur ad, Gram, Mustard in

large uantities to these rice mills. It was due to

immediate payments to the Producers.

In the case of arrivals of paddy in n e e mills,

the quantity of paddy in 1986-87 was 1,12,004 quintals

which increased in the years 1988-89, 1989-90 and 1990-91

to 1,34,789.66 , 1,53,320.27 and 1,30,531.61 quintals

respectively.

Marketable Surplus of Sample Farmers :

Not all that is produced on the farms is sent to

the market. A certain proportion of production is

naturally retained by the producers for various purposes.

The more important of which are

(A) P a y m e n t of wages in kind,

(B) Domestic or household consumption by the family of the grower.

(C) Seed and stock feeding.

On the basis of a past stuay by the Directorate

of Marketing and Inspection, 25 percent .ay be taken as

the average marketing margin for all surplus foods in

India. The In'ian Council of Agricultural Research

Memorandum has estimated that 3 0 percent of the foodgrains

produced within the country is marketed.1

For the district of Raipur, marketaole surnius

was estimated as 35.08 percent of the total production

of paddy.2 The total marketable surplus represen: *ess

than 25 percent of the total foodgrain production in an

average year. Cerealwise, it is 32 percent for R i 353percent for wheat and 25 percent for millets.

Paddy being th e main stapl e food of the . i 5 1 r - c t ,

the farmers put their produce for their sa ie aiter

makin,g provision for consumpt ion requirements ;:irtf other

kind of payments.

Average marketable surplus a n ’ consumption p;i::orn

of sample farmers are presented in the followm,g tao:e.

TABLE - 38

Average Marketable Surplus and Consumption-Sarapl;(In Quin

e Farrarst:-:ls i

S.No. Size group Qty.Produced

Consumption Qty .So: -

(1) Marginal Farmer 27.12(100.0)

20.04(73.90)

7.0:(26.:: )

(2) Small Farmer 55.86(100.0)

33.92(60.72)

21. c-(39.-: )

(3) Medium Farmer 80.60(100.0)

45.90 (56.94)

34."<43.0\ '

(4) Large Farmer 228.04(100.0)

104.40(45.78)

123. t- 1 ..

Fi gures in perenthesis denotes perc-in

(1) Kahlon, A. S. (1961), " P m b l o r s of Marketable Surplus :~ ±n

tire". The Indian Journal of Agricultural Economics, ■-

Jan.-March, P. 46-(2) Naidu, Prakash Rao (1976), "Rice Marketing in Raipur Diszriz

ished Ph.D. Thesis, Ravishankar University, Raipur, P.

(3) Kahlon, A.S., Ibid. P- 46*

IT.'.

It is revealed from the above table that the

marketable surpluses increased with the increase m the

size of holdings, and it varied from 26.10 percent to

54.22 percent. This phenomenon is a natural corollary

and needs no explanation. On an average marginal farmer

had sold 7.08 quintals of paddy. Tn the case of small

farmer 21.04 quintals of paddy was sold. Further, 34.70

quintals and 123.64 quintals of paddy were sold by the

medium and large farmers respectively. Tn Raipur dist­

rict, the supply market of paddy was 15.97 quintals in

the case of small farmers and its proportions increased

with the increase in the size of holdings and accounts

for 29.75 percent of the total production of big

f armers .

An attempt has also been made to finaout the

retention pattern of all the size groups in Bilaspur

District. By far, consumption was the main important

item .

Marginal farmer of Bilaspur district had largest

retention of padd and registered at 73.90 percent of

the total produce. Whereas in the case of large sized

farner lowest consumption being 45.78 percent was

observed.

The cropping pattern, bv and large, is uniform

Bilaspur district. The Principal crop being paddy

(1) Naidu, M. Prakash Rao, Ibid. P. 93.

which accounts for 66.47 percent (6,82,574 hect­

ares in 1989-90) of the total gross cropped area of

10,26,736 hectares. Other crops sown are wheat (15,233

hectares or 1.48 percent), Kodo-kutki (29,412 or 2.86

percent), Linseed, Pulses, Teora etc. For cash crops of

pulses, two blocks - Mungeli and Pandariya account for

38.47 percent of the total area in which pulses are

sown. Wheat is sown in Mungeli block followed by Bilha

block.

In the Command Area of study (Masturi block)

wheat is also sown by big farmers.

It is clear from Table-39 that the marginal

farmers did not come forward to sown wheat crop, despite

irrigation facilities has been exten ed in the block.

TABLE - 39Marketable Surplus of Wheat of Sample Farmers

(In Quintals)

S.No. Size group QuantityProduced

Consumption Qty . Sold

(1) Marginal - - -

(2) Small 8.50(100.0)

5.16(60.70)

3.34(39.30)

(3) Medium 18.66(100.0)

15.33(82.15)

3.33(17.85)

(4) Large 64.50(100.0)

15.87(24.60)

48.63(75.40)

All Farmers 91.66 (100.0)

36.36(39.66)

55.30(60.33)

Figures in parenthesis denotes percentage.

Wc

mi

The total Production of wheat was 91.66 quintals

of all the sample farmers of Masturi block. On the

whole, market supply was registered at 55.30 quintals or

60.33 percent of the total wheat Production. On an

average, small farmer had 3.34 quintals of wheat which

as sold (39.30 percent). Medium and large farmers had

arketed supply of 3.33 quintals and 55.30 quintals

respectively.

The surplus also depends on whether the crops in

the question are food crops or industrial crops. The

greatest single factor in the determination of marketed

surplus is the retention for personal and family consum­

ption. Thus, in the case of paddy, the retention for

home consumption is 44.4 percent, wheat 43.3 percent,

jowar 53 percent, bajra 50.6 percent, maize 59. 3 percent,

ragi 61 percent and small millets 62.1 percent .

In Bilaspur district, the farmers used to sell

their agricultural crops to private rice mills also.

Arhar, Linseed, Urad, Gram, Mustard a n ’ Soyabean were

purchased by various rice mills. In the case of Gram

the arrivals was 12,897.83 quintals in 1986-87 which

increased to 14063.05 quintals in 1990-91. Simuitneousiy:

the cultivation of soyabean was also increasing m the

district. In 1987-88, the arrivals of soyabean to n e e

. m (1961) "Problems of Marketable Surplus in

m “ & Agri Economics, Vol. XVI. No . 1 , J a n . -March, P. 107.

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Pea

1.80

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mills was 1003.04 quintals which also increased to

29,922.43 quintals in 1990-91. The arrivals of urad

decreased from 8428 quintals to 1131 quintals in 1990-91.

The cultivation of Linseed is poor in the district. Due

to technological developments for these crops, were very

remarkable and succeeded in raising the productivity

substantially. Various agricultural commodities which

were sold at various agencies have been presented in

Table-40.

Place of Sale : The sample farmers had sold their agri­

cultural produce to four categories of marketing agen­

cies viz., (1) Village trader, (2) Regulated market,

(3) Krishi Upaj Hanoi and (4) Co-operative marketing

society.

Large number of sample farmers being 73 percent

in all the sized groups had sold paddy, wheat etc. to

village traders followed by Krishi Upaj Mandi Samiti 18

percent. Barely 4 percent and 5 percent farmers had

sold their crops to Regulated markets and Co-operative

marketing societies. Details has been presented in

Table-41.

On the whole; a very insignificant portion of

total produce reaches the regulated markets ano still

most of the produce passes through village or town

traders and private agencies.

Sale

of Produce

in Different

Market

Agen

cies

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It is increasingly recognis'ed that the co­

operative farm of organisation can play a significant

and predominant role in improving the system of agricu­

ltural marketing. The importance of co-operative agency

has assumed significance in view of the decision of the

Government to undertake large programme of procurement

of foodgrains and putting emergency levy on producers

suitably graded to the size of holding.

Co-operative marketing is of recent origin in

Bilaspur District. Till the end of the First Five Year

Plan it did not exist in the true sense of the term. It

was only during the second plan period that the organi

sation of marketing societies was taken in hand and

since then remarketable progress has taken place in the

sphere of co-operative marketing. The society was

established in the district as a result of the Report of

Rural Credit Survey Committee in 1957 . By the end of

1990, there were 25 co-operative marketing societies in

the District.