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Price Fixation and Open Market

Price Fixation

Another method of intervention in the market mechanism has been the announcement of different administered prices viz., minimum support prices, statutory minimum prices, procurement prices and issue prices. These prices are announced for different agricultural crops by the govt. of India on the recommendations of Commission for Agricultural Costs and Prices. (CACP).

Aspects while recommending the price

- The need for incentives to farmers for the adoption of improved technology and maximization of production.

- The need for ensuring a rational utilization of land and other production resources.

- The likely effect of the price policy on the rest of the economy.

The Commission has been recommending two sets of administered prices viz., minimum support prices and procurement prices.

Minimum Support Price

This is the price fixed by the Govt. to protect the producer – farmers against excessive fall in price during bumper production years. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price. Minimum support prices for different agricultural crops viz., Foodgrains, oilseeds, fibre crops, sugarcane and tobacco are announced by the govt. of India before the start of the sowing season of the crop.

Procurement prices

Procurement price of a commodity refers to the price at which govt. procures the commodity from producers/manufactures for maintaining the buffer stock or the public distribution system. These prices are announced by the govt. of India on the recommendations of the Commission for Agricultural Costs and Prices before the harvest season of the crop. At these announced prices, govt. procures the foodgrains (wheat, paddy and coarse grains) in the needed quantity either for maintaining the buffer stock or for the distribution through fair price shops. Procurement prices are fixed generally at a level, which is somewhat higher than the level of minimum support prices but lower than the prevailing market prices. The procurement prices are lower in relation to the actual market prices and as such farmers and traders are not willing to sell their stocks voluntarily to the govt. In such circumstances, the govt. procures food grains at the announced procurement prices either by imposing a levy on the farmers, or on the traders or through other methods.

Procurement prices are announced before the sowing season. As a result, the procurement price itself become the support price at which the govt. purchased all the foodgrains offered for sale. Procurement prices also become the minimum support prices because the govt. was bound to purchase the foodgrains offered by the producers for sale.

Open Market

Under this system arhatia or broker invites bids for the produce of the highest bidder is sold the produce. It is better than any other system as sale is by an open auction. The buyers and sellers know clearly the price quoted and leaves no room for being cheated. The system ensures fair dealing to the parties and secures a premium for superior quality.

- Phar System
By this method, one bid is given for all the lots in a particular shop and all the lots are sold at that price

Random bid System
By this method, the commission agent invites a few buyers when the produce is brought to his shop for sale. All the prospective buyers are not informed. As a result, the competition is poor.

Roster Bid System
Bidding starts from a point in the market at a notified time about which the prospective buyers are given information in advance. The bidding party after the auction of the produce at one shop, moves to the next in a clock-wise or anti-clockwise direction till the auction of the produce at all shops is over, or the scheduled auction time expires. On the following day, the auction starts from the next point, and so on. The auction is supervised by the auction clerk or the person nominated by the market committee.

- The seller is able to follow the bidding easily.
- The auction serves as meetings place for the supply of and demand for goods.
- It disposes of the market supply promptly.
- A wide variety of goods are available to buyers for selection.
- Reduces the number of salesmen needed in the process.
- The buyers of small lots are not put to a disadvantage against the buyers of large lots.
- The payment of the price of the good is made immediately after the sale if an auction has been completed.

- An open auction is very time-consuming process because of the variation in the quality of the various lots.
- In big market centres, especially in the peak marketing season, the time allotted for auction is short.
- In an open auction, buyers sometimes join hands. Active participation in it is then reduced.
- The auction leads to a "buyers market", for buyers have full information about the supply of, and demand for, the product.

Agri- Knowledge
(Agricultural Marketing)