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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
- -
2218.80
3508
.06
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.
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