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market intervention schemes and overview


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1 Market Intervention Schemes in Karnataka -An overview By Dr. Vijayachandra Reddy.S.

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2 Meaning & objectives Difference between MSP and MIS History of MIS Forms of intervention Determination of administered prices MIS for different commodities Price support policy in Karnataka Market intervention scheme for arecanut Conclusion. Scheme of presentation

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3 The Market Intervention Scheme (MIS) is an ad-hoc scheme under which are included agricultural commodities and horticultural Commodities. This include measures such as such Minimum support price, import regulation and crop insurance.

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4 Objectives of market intervention scheme: 1.    To provide stability to the prices of farm products. 2.    To minimize uncertainty about the income of the farmers. 3.    To maintain the flow of productive resources and desired growth in agricultural production. 4.    To provide food grains and other farm goods to the consumers at reasonable rates. 5.   To provide a regular flow of raw material to agro based industries.

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AGRICULTURE AND AGRICULTURAL POLICY Why governments intervene in agriculture to reduce price fluctuations to raise farm incomes to protect rural communities to encourage greater self-sufficiency in food Causes of short-term price fluctuations fluctuations in the harvest low price elasticity of demand Causes of declining farm incomes low income elasticity of demand increases in supply 6

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7 HISTORY Before independence it revolved around controlling rise in food grain prices. 1941 ; a ceiling on wheat price was imposed in erstwhile,Punjab. 1942 ; Food grain control order interstate movement of food grain was banned and licensing of food grain traders introduced. 1943; Food Grain policy committee- Sir Theodore Gregori To suggest measures for minimizations of fluctuation in the prices of Agricultural commodities

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8 1944; Price Sub Committee On Agriculture–Mr.T.T.Krishnamachari To suggest the ways to stabilize Agriculture prices Recommendations: Fixation of minimum prices of food grain at which the Government should release stocks to the consumers whenever needed. Fixation of minimum prices on the basis of FAQ Constitution of a national level organization for the implementation of policy from time to time.

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9 In spite of all these recommendations nothing tangible was Done prior to independence to evolve a sound price policy For Agricultural commodities.

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10 1959:Ford Foundations Experts suggestions to combat food problem and set up Agricultural production Announcement of minimum prices for food grains before the start of the sowing season to facilitate farmers in planning their acreage Establishment of a permanent organization at the national level for the implementation of different aspects of price policy 1964:Food Grain Price Committee- Mr. L.K. Jha Recommended for the establishment of Agril. Price commission to provide advice on a continuous basis on Agril. Price policy.

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11 1965; Agricultural Price Commission (APC) Terms of reference of CACP  To advice on the price policy for Agricultural Commodities like Paddy, Wheat, Rice etc.  To examine, where necessary, prevailing methods and cost of marketing of Agricultural commodities in different regions. To keep under review the developing price situation and to make appropriate recommendation. To advise on any problem relating to agricultural prices and production.

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12 Foodgrain policy committee, 1966: Fixation of minimum support and procurement prices for foodgrains every year. B. Maintenance of a sizable buffer stock of foodgrains to minimize seasonable price fluctuations. C. Foodgrains procurement by food corporation of India instead of private trade. It made several suggestions, they are

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13 Need to provide incentives to the producers for adopting improved technology and for developing a production pattern broadly in the light of national requirement. Need to ensure rational utilization of land,water and other productive resources. The likely effect of the price policy on the cost of living,level of wages & industrial cost structure. Consideration for the basis of the Price Policy for agricultural commodities

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14 Along with the setting up of the APC, the FCI was also established to undertake purchase and sales of food grains on the behalf of Govt.

Forms of intervention : 

15 Forms of intervention Administered prices Influencing supply & demand Influencing behaviour of market functionaries Creation of market infrastructure facilities

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16 Administered Prices -Used as potent tool for accelerating growth in argil. Output & to sustain farmers enthusiasm to expand production. Support Price Statutory minimum Price Procurement Price Issue Prices

Influencing demand & supply : 

17 Influencing demand & supply Domestic Procurement -by levy method -monopoly procurement Import & Export Maintenance of buffer stock Public distribution system

Influencing behaviour of market middlemen : 

18 Influencing behaviour of market middlemen Licensing of traders & mandatory declaration of stocks Regulation of markets, to curb unhealthy practices Viz., -delayed payments -levy of unauthorized charges -non std wt & measures Restriction of forward trading

Creation of infrastructural facilities : 

19 Creation of infrastructural facilities Construction of roads & provision of transport facilities Creation of warehousing & storage facilities Prescription of grade stds & uniform grading of agril. Products Market intelligence & dissemination of price information The mix of these intervention measures is usually called as “AGRICULTURAL PRICE POLICY”

Determination of administered prices : 

20 Determination of administered prices Market price method Cost plus method Parity method Comprehensive method

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21 Market price method support price for a commodity is related to the market prices in the preceding season Cost plus method MSP is linked to the cost of production,but it is not the only basis for arriving at the level of MSP Drawbacks WHOSE Cost of production WHICH cost of production

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22 Comprehensive method Parity method Based on the consideration that a unit of the commodity retains the same purchasing power in terms of other commodities as prevailing in the market. In this method, rather than relying on a single factor, a large number of factors are considered simultaneously for determining farm product prices

In India : 

23 In India Cost of production Changes in input prices Input output price parity Trend in Mkt prices Demand & supply Inter crop price parity Effect on cost of living Effect on general price level Effect on industrial cost str. Industrial Mkt price situation Parity between Price spread & received While determining the level of these prices

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24 Acreage response to MSP for Paddy -R.P.Singh & N.K. Singh(2006) Acreage under paddy crop increased - 12 per cent - annual growth rate of 0.61 per cent during 1971-72 to 2005-06 in the country. The growth rate in yield per hectare - quite more during 80’s & 90’s as compared to 70’s Productivity significant influence on acreage allocation of paddy crop MSP announced by Govt. did not emerge significant in making decision for allocation of acreage under paddy Farmers response for allocation of acreage under paddy was influenced by productivity & not by MSP.

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25 MIS for agril.commodities

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Minimum support price (Rs. per quintal)

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Procurement of rice for Central pool (marketing year-wise)

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Procurement of wheat (marketing year wise)

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Procurement made by NAFED during 2008-09 (on the request of State Governments) Under Market Intervention Scheme. Source: website:

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Cntd.. Proposals received from various States during 2001-02 to 2003-04.

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Cntd….. Source: ( )

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32 Price support poilicy in karnataka

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33 State has evolved a scheme called FPS through which a revolving fund has been mobilized by equal contribution from the state govt. & mkt committees. In the recent past commodities like onion & potato which are highly perishable in nature have been procured in the state under FPS, which is probably the only such expt. in the country. Under FPS commodities worth Rs.280 crores have been procured in the year 2006-2007 by the state Govt.Commodities like maize,copra,paddy,rice,cotton etc. The state Govt.has enhanced the revolving fund to about Rs.400 crores .

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34 Floor Price(FP) : price declared by the SLC constituted for this purpose as a minimum price for a commodity having a prescribed FAQ be purchased under the scheme. Revolving Fund(RF): created for the operation of the FPS. Fixing of FP: prescribed by the SLC in consultation with Agril. & Horticultural Dept. -FP are prescribed one month before the harvest on the basis of FAQ std. -valid for one full season only. State Level Committee(SLC):Constituted at the state level for the operation of FPS. 

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35 Floor price scheme for Agricultural./Horticultural commodities Objective: To protect the farmers against distress sale of agril./horticultural commodities by assuring a minimum support price Applicability of the scheme: Applicable in the whole state of Karnataka for onion & potato & other commodities which are not covered under MSP by GOI. FPS shall be operated in co-ordination with MSP.

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36 Purchase Agencies Karnataka State Cooperative Marketing Federation.Bangalore Horticultural Producers Cooperative Marketing Society Ltd.,Bangalore. Karnataka Agro-industries Cooperation Ltd.,Bangalore. Karnataka Food & Civil Supplies Corporation Ltd.,Bangalore. TAPCMS Karnataka cooperative consumer’s Federation Ltd.,Bangalore. Karnataka cooperative oil seeds growers Federation Ltd.,Bangalore. Karnataka State Agro Corn Products Ltd,Bangalore. Karnataka Horticultural Producers Co-op Marketing and Export Society Ltd,Hubli. SLC may also request central agencies such as NAFED,FCI etc.,

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Agencies involved in procurement of maize in Karnataka Source: KSAMB,2006( )

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Procurement of onion under price support in Karnataka Source: ( )

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Market intervention scheme for Arecanut Arecanut was fetching a reasonably fair price till 2000. But after 2000 prices started to decline. GOK in 2002-03 included arecanut under the MIS. CAMPCO- state level designated agency for procurement. In 2002-03 Support price : white chali – Rs 6000/ quintal. Out of 1,00,000 tonnes of production 10,000 tonnes of FAQ std will be procured under this scheme In 2004-05 Support price : white chali – Rs 6000/ quintal Red boiled type-Rs 8500/quintal

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40 Growth and stability of prices (real and nominal) Arecanut during different periods in Mangalore market Source: Prakash (1998) Note: *, **, *** indicate significant at 1,5 and 10 percent levels, respectively

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41 Conclusion: Market intervention can be used to control the prices of the commodities. Thorough review of methodology for arriving at MSP. States should be encouraged to set up their own Agricultural price commission. MSP should be announced before sowing season. MSP at levels much above market price are not desirable.

Drawbacks of government intervention : 

Drawbacks of government intervention shortages and surpluses poor information bureaucracy and inefficiency lack of market incentives shifts in government policy voters’ ignorance unrepresentative government lack of freedom for the individual

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Case Study-I Farmers’ Coverage under Market Intervention Scheme in Karnataka By: P.K. Rajkumara, S.B. Mahajanashettia*, H. Basavaraj, H.S. Vijayakumara and Y.N. Havaldarc (2008) University of Agricultural Sciences College of Agriculture Dharwad.

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Coverage of farmers under MIS for onion crop

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Coverage of farmers under MIS for maize crop

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Constraints being faced by onion and maize growers in availing MIS benefits (n=120)

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To examine the socio-economic characteristics of the growers, discriminant analysis was carried out with all the five explanatory variables, viz. AGE,EDU, DIST, PROD and TINC for both the crops. The estimated equations for onion and maize, respectively, were:

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Mean values of socio-economic characteristics for beneficiaries and non-beneficiaries of MIS for onion crop

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Mean values of socio-economic characteristics for beneficiaries and non-beneficiaries of MIS for maize crop

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Conclusions To study has revealed that the coverage of onion and maze farmers, especially small farmers, under MIS is not satisfactory, though the scheme is primarily meant to benefit them. The procedural complexities, delayed payments and the FAQ stipulations have been identified as the major hurdles for the farmers in availing the benefits of MIS. The proximity of the procurement centres has been found as an important factor in motivating the farmers to take advantage of MIS. The study has suggested that relaxations in procedural formalities, fast payments and setting-up of procurement centres in close proximity of production centres are some of the steps that would motivate a larger proportion of the farming community, in general and small farmers, in particular towards MIS.

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Case Study-II Impact of Market Intervention Operation by The Co-operative Parastatal on Oilseeds Market Structure By Dr.S.M.Mundinamani, S.D.Dabali and S.B.Mahajanashetti

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The present study is an attempt to assess the impact of market intervention operation by the (Karnataka Co-operative Oilseeds Grover’s Federation Ltd.,(KOF) established during 1984 with a view to implement the NDDB’s project “Restructuring Edible oil and oilseeds production and marketing in Karnataka. The project was implemented in 2 phases in 7 districts of Karnataka (Gadad, Bijapur, Hubli, Raichur, Challakere, Chitradurga and Davanagere) for period of 1984-1989 and 1990.

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Methodology: For examining the impact of market intervention operation by the KOF on groundnut prices, the study period was bifurcated into two sub-periods namely, pre-market intervention operation period (1984 -90) and post- market intervention period (1990-1995).The data on monthly arrivals and prices were extracted from the records of the study markets for 11 years from 1984-85 to 1994-95. The impact of market intervention on ground nut prices was studied with help of seasonal prices indices computed by 12 monthly moving average methods.

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Conclusion: KOF’s market intervention operation, however has played a significant role in stabilizing groundnut prices in peak period in all the study markets. The wide fluctuations in lean period prices could mainly be attributed to the absence of procurement by the KOF, and the dominance of private trading forces. The results of the study highlight the importance of KOF’s existence and its market intervention operation in the state. Efforts are needed to strengthen the working capital base of the KOF so as to enable it to undertake procurement operation in all seasons. Such a step would lead a price stabilization thought the year benefiting both producers and consumers.

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