Chapters :

Agriculture – 10


The government plays the primary role in fixing the minimum price for farm produce and being the primary buyers also. The vastness of agricultural sector enables respective states to regulate the agriculture markets. In this section we will discuss the agricultural pricing policy, the market mechanism for agro-products and exports and the latest legislations to expand and infuse technology into agro marketing.


Price policy plays a pioneer role in the economic development of a country. It is an important instrument for providing incentives to farmers for motivating them to go in for production oriented investment and technology. In a developing country like India where majority of the population devotes 2/3 of its expenditure on food alone and where majority of the population is engaged in agricultural sector, prices affect both income and consumption of the cultivators. The Govt. of India announces each year procurement/support prices for major agricultural commodities and organizes purchase operations through public agencies.

Agricultural pricing policy’s objective is to evolve a balanced and stable price structure to meet the overall needs of the economy while protecting the interests of the producers and consumers.

India’s agricultural price policy includes three main types of administered prices: Support price, Procurement price and Issue price.

Procurement Prices: It is meant essentially for the purchase of quantities needed by the Government to maintain its PDS and for building up the buffer stock. Procurement prices are higher than MSP.

Issue Prices: Prices at which the Government supplies food grains through fair price shops and ration depots to consumers.


MSP is the minimum price set by the Government at which farmers sell their produce when MSP fall below the announced MSP. Then the procurement agency is to procure the crop and support the prices.

The Cabinet committee of Economic Affairs announced MSP for various crops at the beginning of sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

As of now, CACP recommends MSPs for 23 commodities

  1. i) 7 cereals (Paddy, what, maize, sorghum, pearl millet, barley and ragi)
  2. ii) 5 pulses (gram, toor, moong, urad, lentil)

iii)     7 oil seeds (groundnut, rapeseed –               mustard,   soyabean, seasame, sunflower, safflower, niger seed).

  1. iv) 4 commercial crops (sugarcane, cotton, copra and raw jute).

For sugarcane – the pricing of sugarcane is governed by the statutory provision of the sugarcane (control) order, 1966 issued under Essential Commodities Act, 1955.

Prior to 2009-10, the central government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis. As this sharing of profits remained unimplemented and the concept of SMP was replaced by Fair and Remunerative Price of Sugarcane. State also announces a price called the State Advisory Price which is usually higher than the SMP.

CACP submits its recommendations to the Government every year, separately for five groups of crops namely kharif crops, Rabi crops, sugarcane, raw jute and Copra.

 MSP calculation:

  1. i) Cost A2 – the actual costs paid by farmers for purchase of various inputs like seeds, fertilizers, pesticides, hired labour rent of land & machinery, if hired.
  2. ii) Cost A2 + FL à refers to family labour cost is accounted and added to cost A2.

iii)     Cost C2 – stands for comprehensive cost. It includes cost of family labour, rent of owned land and interest on owned capital.

M.S. Swaminathan headed National Commission on Farmers (2006) recommend a 50 percent margin over C2.

The government currently fixed the price of MSP at 1.5 times of the All India weighted Average cost of production.

 MSP: Benefits

  1. i) It prevents distress – sale of produce when production surplus is there.
  2. ii) Farmers can make informed decisions because MSP is announced before the sowing season.

iii)     MSP sends a price-signal to market and it ensures the mps will not be drastically lower than MSP.

MSP: Limitations

1)      Procurement is usually confined to big towns and districts. Farmers in remote and tribal area unable to bring their produce due to high transportation cost.

2)      Procurement is usually confined to rice and wheat (Cereal grains) comparatively to other crops.

3)      MSP not even announced for vegetables and fruits.


Agricultural marketing system is an efficient way by which the farmers can dispose their surplus produce at a fair and reasonable price. The term agricultural marketing include all those activities which are mostly related to the procurement, grading, storing, transporting and selling of the agricultural produce. Currently mandi, cooperatives, local sales etc are followed in India.

India’s agrimarket is regulated by APMC (Agricultural Produce Marketing Committee) enacted by the respective state governments. The government notifies commodities that can be sold and bought in these markets. Presently there are 2477 regulated markets in the country. These centres have auction halls. Weights, godowns, warehouses etc. the farmers sell the produce to wholsalebuyers in this market.

Limitations in Indian Agricultural markets:

  1. Lack of proper storage facilities
  2. Lower technologies leads to huge wastage
  3. Distress sales
  4. Lack of transportation facilities
  5. Intermediaries not giving the fair share of prices
  6. Seasonal price fluctuations
  7. Unregulated markets
  8. Lack of grading
  9. The sellers often get very less price for their produce and incur huge loss because of the middle men.


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