RISK IN AGRI-BUSINESS

AGRICULTURAL RISKS:
(A) PRODUCTION RISK:
WEATHER FACTORS/PEST AND DISEASES
(B) PRICE RISK:
SUBSTANTIAL PRODUCTION LAGS
DIFFERENCE BETWEEN REALIZED PRICES AND EXPECTED
PRICES
PRICE RISK

PRICE RISK:
DIFFICULT TO ANTICIPATE AT THE TIME OF
PLANTING, THE PRICE THAT WILL PREVAIL
AT THE TIME OF SALE
VARIABILITY IN DEMAND AND SUPPLY
DEMAND FOR MOST OF AG. COMMODITIES
USUALLY CHANGES IN PREDICTABLE
MANNER
– GOVERNED BY INCOME AND POPULATION

PRICE RISK

VARIABILITY IN SUPPLY:
DUE TO PRODUCTION RISKS
INELASTIC DEMAND OF AGRICULTURE
COMMODITIES MAGNIFY THE IMPACT
OF SUPPLY SHOCKS ON PRICES.
PRICE RISK

FLUCTUATION IN PLANNED SUPPLY:
VARIABILITY IN AREA
COBWEB CYCLE OF PRICES AND
PLANNED SUPPLY
AREA VARIABILITY GENERATES PRICE
VARIABILITY THAT IN TURN INDUCES
FURTHER VARIABILITY IN AREA
PRICE RISK

PRICE RISKS – SEASONALITY
SUPPLY AT ONE SHOT BUT
CONSUMPTION IS CONTINUOUS
ANNUAL AND SEASONAL PRICE
VARIABILITY
AGRICULTURE PRICE POLICY


MINIMUM SUPPORT PRICE/PROCUREMENT
PRICE
TO PROVIDE INCENTIVES TO THE
PRODUCERS FOR ADOPTING TECHNOLOGY
FOR MAXIMISING PRODUCTION
AGRICULTURAL PRICE COMMISSION – 1965
COMMISSION FOR AGRICULTURAL COSTS
AND PRICES (CACP) – 1985
AGRICULTURE PRICE POLICY

MINIMUM SUPPORT PRICE
COST OF PRODUCTION (cost C)
INPUT/OUTPUT PRICE PARITY
INTER CROP PRICE PARITY
EFFECT ON COST OF LIVING
PARITY BETWEEN PRICE PAID AND PRICE
RECEIVED BY FARMERS (TERMS OF TRADE)
AGRICULTURE PRICE POLICY

CROPS COVERED UNDER MSP: 23
WHEAT, BARLEY, GRAM, SAFFLOWER
RAPESEED/MUSTARD, PADDY, JOWAR,
BAZRA, MAIZE, RAGI, PULSES,
GROUNDNUT, SOYABEAN, SUNFLOWER,
SESAMUM, NIGERSEED, COTTON,
TOBACCO, JUTE, SUGARCANE
AGRICULTURE PRICE POLICY

MARKET INTERVENTION SCHEME
FOR THOSE CROPS NOT COVERED UNDER
MSP – ONION, POTATO, TURMERIC,
CHILLIES
THESE CROPS ARE IMPORTANT AT
REGIONAL LEVEL
NEED FOR PRICE SUPPORT DOES NOT ARISE
EVERY YEAR
AGRICULTURE PRICE POLICY
PARTICULARS
COMMODITIES
REGULARITY
SUPPORT PRICE
PURCHASES
APPLICABILITY
LOSS
MSP
FIXED
EVERY YEAR
DECIDED BY UNION
GOVERNMENT
ALL OFFERED BY
FARMERS
COUNTRY
UNION GOVT.
MIS
NOT FIXED
AD HOC
UNION & STATE
GOVERNMENT
PRE-DECIDED
LIMITED QUANT
SPECIFIED
EQUALLY SHARED
BY STATE AND
UNION GOVT.
AGRICULTURE PRICE POLICY




MSP IS UNIFORM ACROSS COUNTRY
FCI – RICE AND WHEAT
COST OF PRODUCTION IS THE ONLY
CRITERION FOR DECIDING MSP
ROLE OF CONTRACT FARMING AND
FUTURE TRADING VIS-À-VIS MSP