Market Intervention Scheme: The Invisible Hand of Agriculture Marketing

The Agricultural Prices Commission was set up in early 1965, to advise the government of India on a regular basis on matters related to price policy of agriculture

Minimum Support Price:

Minimum support price (MSP) is one of the instruments of Agricultural Price Policy (APP). APP basically means government intervention to influence agricultural productivity and/or farm input prices. The kind and degree of intervention (or the policy instruments and their objectives) vary with the stage of agricultural development. 

The basic intent of announcing MSP before the sowing season is to help farmers take sowing decision keeping in mind that if they are not able to get a reasonable price by selling in the market, at least they will be able to get the MSP. In that sense, MSP is an assured or guaranteed price (insured price).

The Market Intervention Scheme
A related issue is the under-use of Market Intervention Scheme (MIS). MIS has been in operation for more than three decades. The purpose is to provide price support for those commodities that are not covered in MSP policy. This is meant for those commodities where price support operations are not needed every year and support operations are required only in some areas/regions. The scheme got a little boost when special funds were provided to SFAC under the title Price Stabilization Fund. MIS is more flexible than MSP regime.

Under MIS, support can be provided in some years, for a limited but defined period, in specified critical markets and by purchasing specified quantities. The initiative has to emerge from the concerned state. The support price, markets and quantities to be purchased are decided mutually by the state and the centre. The losses, if any, are shared equally by the centre and state (75:25 for North Eastern states).

 In the past, the scheme was used very rarely mainly due to slackness on the part of states, not coming forward in time. There are several commodities where wide fluctuations in prices are very frequent. There is a lot of resentment from the consumers due to very high prices at one time and from the farmers due to very low prices only after a few months. The commodities in this group include onion, potato, chilly, tomato, apple, coriander, and cumin.

The announcement of the purchase of around one lakh tonnes of potato from farmers at a price of Rs 487 per quintal by the Uttar Pradesh state government is an example of the need for up-scaling MIS. Another case is the reported announcement of Maharashtra government sanctioning the payment of Rs 100 per quintal to onion growers who sold their produce at distressing prices during July-August 2016. Such ad-hoc measures do help but at the same time is an indication of the dismal use of a scheme like MIS that has been in place since long.  A well-articulated institutional mechanism both at the central and state level is required for the benefits of the scheme to reach the farmers and incentivize them. A very critical aspect in implementing the MIS well in time is the need for a credible outlook information generating system in the country.