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Transcript of Wonders
Market Intervention Scheme
Norms of Price Spectrum Band
Price Risk Management
Minimum Support Price
PRICE STABILIZATION FUND
PRICE RISK MANAGEMENT
1. Price Support Measures
2. Contract Farming
3. Commodity Exchange Markets
a. Minimum Support Price
b. Market Intervention Scheme
c. Price Stabilization Fund
d. Creit Risk Fund
e. Price Support Scheme
Covers 25 major agricultural crops
Announced before sowing season
Pushes up the prices in the market
Encourages adoption of changed cropping patterns and farm practices
Determninants of MSP
Cost of production
Changes in input prices
Input-output price parity
Trends in the market prices
Implemented by Department of Agriculture and Cooperation.
Covers only Horticultural commodities
Aims at protecting the horticulture grower from making distress sale
Applied only in the event of 10% increase in production or 10% decrease in the ruling market prices.
All expenses are incurred by Central and State Government on 50:50 basis
Most states do not provide for 50% of the losses.
Losses restricted to 25% of the procurement value
Stocks are disposesd off at prevailing market price
Was established by the Ministry of Commerce in 2003
Covers four plantation crops :- Tea, Coffee, Rubber and Tobacco
Price Spectrum Band takes into account a seven year moving average of international prices, for the four plantation crops.
Domestic price's deviation from the moving average of past 7 years should not be more than 20% in either direction.
If the price in domestic market is less than 20% of the moving average, than the year is a distressed year.
If the domestic price exceeds the moving average by more than 20%, than the year is a boom year.
Inherent problems in the schem design
The amount of assistance provided is very small
Scheme needs restructuring in combination with an insurance scheme
Area based slabs needed ,instead of a uniform slab of Rs.1,000 for all growers upto 4 ha
Crop specific support, to be linked to the cost of production & acreage
A minimum support of Rs.5000/ha. may be assured, for plantation crops
Grower contribution to be reduced in boom years, while government share increased in distress years.
More crops to be added like coconut, pepper, cashew nut, etc
Better incentivisation offered, to motivate farmers to deposit in the account Variable deposits may be permitted for growers
Detailed re-examination of the scheme is required including for linking it to crop
Modifications Needed :-
CREDIT RISK FUND
Helps meeting debt repayments
Designed for those who have availed credit from scheduled commercial banks.
Credit Risk Fund
When the farmer experiences crop failure and his income level plunges, then he is eligible for assistance.
Threshold Level is set at 10% fall in income.
Assistance will be an interest free payment and limited to a maximum of 50% of the loan. Maximum limit – 50,000 INR
The payback period of farmer is 5 years.
PRICE SUPPORT SCHEME
Implemented by the Government of India.
Government sgencies such as :- Food Corporation of India (FCI), NAFED, Central Warehousing Corporation (CWC), Small Farmers’ Agri-business Consortium (SFAC) ; participate to support the prices.
Procurement under PSS is continued till prices stabilize at or above the MSP.
Contractual agreement between farmers and the firm.
Contracts' Classification :-
Market specification contract
Resource providing contract
Management and income guaranteeing contract
Pricing Methods in Contract Farming :-
Contract Farming and
Supports in terms of changs in legislation.
Insurance, futures and credit options oncrease the potential of contract as a risk mitigating tool.
COMMODITY FUTURES MARKET
Protection against the price fluctuations.
Futures trading include both
Helps farmer in taking pre sowing and post-harvest decisions.
Provides price indication to the farmer in advance.
Enable farmers to undertake proper crop planning, apart from spreading out sales over a period of time.
Brings stability in seasonal price fluctuations.
Forward Market Commission is the regulator under Forward Contracts (Regulation) Act, 1952.
Functions of Forward Market to mitigate price risk :-
Smoothens out price fluctuations.
Ensures an even flow of goods from the purchaser to the consumer
facilitates large purchases and sales of the commodity at short
brings co-ordination of the current and future expectations by a continual revaluation of stocks
The Government should permit options trading
The warehousing infrastructure near the production centers must be upgraded and strengthened.
Grading and standardization norms also need to be reviewed and enforced.
The processor/procurer in the contract farming arrangement, needs to be responsible for effective backward & forward linkages
Need to create a ‘Price Risk Mitigation Fund’
Credit Risk Fund
Presented by :-
Two step process :-
Determining where risk exists in investment
Handling the risks in best suited manner
PRICE RISK MANAGEMENT
Need for Price Risk Management :-
There is high price volatility in the market.
Perishable nature of agricultural commodities
Weaknesses of agricultural marketing systems and infrastructure too
Stringent SPS and TBT norms