Question

Maximum support price in agriculture influence the terms of trade between agriculture and non-agriculture sector ?

Answer 1

 Class Room provides simple illustration of concepts and ideas related with Indian economy.

Today's Classroom 11 Jul 2015 by Tojo JoseWhat is Minimum Support Price?

Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops. Minimum Support Price is an important part of India’s agricultural price policy.

 The MSP helps to incentivize the framers and thus ensures adequate food grains production in the country. I gives sufficient remuneration to the farmers, provides food grains supply to buffer stocks and supports the food security programme through PDS and other programmes. 

Procurement Price 

 Sometimes, the government procures at a higher price than the MSP. Here, the price will be referred as procurement price. The procurement price will be announced soon after the harvest. Normally, the procurement price will be higher than the MSP, but lower than the market price. The price at which the procured and buffer stocke food grains are provided through the PDS is called as issue price. 

When the MSP is announced?

 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). Support prices generally affect farmers’ decisions indirectly, regarding land allocation to crops, quantity of the crops to be produced etc. It is in this angle that the MSP beceomes a big incentive for the farmers to produce more quanity. 

Answer 2

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Price supports are subsidies or price controls used by the government to artificially increase or decrease prices in the agriculture market.