Crop minimum support price versus cost subsidy: Farmer and consumer welfare

2021 ◽  
Author(s):  
Prashant Chintapalli ◽  
Christopher S. Tang
Keyword(s):  
Consumer Welfare ◽  
Minimum Support ◽  
Support Price

The Value and Cost of Crop Minimum Support Price: Farmer and Consumer Welfare and Implementation Cost

2021 ◽  
Author(s):  
Prashant Chintapalli ◽  
Christopher S. Tang
Keyword(s):  
Crop Production ◽  
Market Price ◽  
Consumer Welfare ◽  
Social Value ◽  
Production Costs ◽  
The Other ◽  
Implementation Cost ◽  
Net Benefit ◽  
Minimum Support ◽  
Support Price

In many developing countries, crop minimum support price (MSP) is a subsidy scheme to (i) improve farmer welfare by safeguarding farmers’ incomes against vagaries in crop price and (ii) improve consumer surplus by ensuring sufficient crop production. Among different mechanisms to operationalize an MSP scheme, we focus on credit-based MSPs under which the government credits farmers should the prevailing market price be below the prespecified MSP. By accounting for the implementation cost of the MSP, we examine the effectiveness of the MSP in terms of net benefit (i.e., farmer’s surplus minus the implementation cost) and net social value (i.e., sum of farmer’s and consumer’s surpluses minus the implementation cost) in a market that consists of risk-averse farmers with heterogeneous production costs. Also, farmers face two types of uncertainties: (1) market and (2) production yield uncertainty. We find that a credit-based MSP can induce crop production, which is intuitive. However, we find some more interesting results: (i) offering a higher MSP may not improve farmer’s surplus, (ii) the net benefit of an MSP can be negative—the cost of offering an MSP can exceed the farmer’s surplus, and (iii) there exists an MSP that maximizes the net social value. We extend our single-crop model to the case of two crops to capture the intercrop MSP interaction. We show that when one crop is more rewarding but riskier than the other crop, then it is sufficient to offer an appropriate MSP for one of the two crops while offering no MSP to the other crop. This paper was accepted by Vishal Gaur, operations management.

Effectiveness of Auctions in Securing Price Support for Farmers: The Case of a Grain Market in India

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Neha Gupta
Keyword(s):  
Lower Cost ◽  
Secondary Data ◽  
Price Support ◽  
Minimum Support ◽  
Minimum Price ◽  
Support Price ◽  
The Government ◽  
Nonparametric Estimates ◽  
The Impact ◽  
Analyze Data

Abstract This paper reviews rice procurement operations of Government of India from the standpoints of cost of procurement as well as effectiveness in supporting farmers’ incomes. The two channels in use for procuring rice till 2015, were custom milling of rice and levy. In the first, the government bought paddy directly from farmers at the minimum support price (MSP) and got it milled from private millers; while in the second, it purchased rice from private millers at a pre-announced levy price thus providing indirect price support to farmers. Secondary data reveal that levy, despite implying lower cost of procurement was discriminated against till about a decade back and eventually abolished in 2015 in favor of custom milling, better trusted to provide minimum price support. We analyze data from auctions of paddy from a year when levy was still important to investigate its impact on farmers’ revenues. We use semi-nonparametric estimates of millers’ values to simulate farmers’ expected revenues and find these to be rather close to the MSP; a closer analysis shows that bidder competition is critical to this result. Finally, we use our estimates to quantify the impact of change in levy price on farmers’ revenues and use this to discuss ways to revive the levy channel.

scholarly journals Awareness about Minimum Support Price and Its Impact on Diversification Decision of Farmers in India

2017 ◽  
Vol 4 (3) ◽  
pp. 514-526 ◽  
Author(s):  
K.S. Aditya ◽  
S.P. Subash ◽  
K.V. Praveen ◽  
M.L. Nithyashree ◽  
N. Bhuvana ◽  
...  
Keyword(s):  
Minimum Support ◽  
Support Price

scholarly journals Study on Profitability of Wheat in Major Wheat Producing States of India

2021 ◽  
pp. 1-7
Author(s):  
Ankita Sahu ◽  
Sunil Nahatkar ◽  
Gourav Kumar Vani ◽  
Prasanna Kolar
Keyword(s):  
Uttar Pradesh ◽  
Secondary Data ◽  
Madhya Pradesh ◽  
Total Cost ◽  
Minimum Support ◽  
Wheat Production ◽  
Support Price ◽  
Margin Of Safety ◽  
The Difference ◽  
Actual Yield

The present study was undertaken with the objective to compare the minimum support price (MSP) with total Cost (C2) of wheat and also actual yield with break-even yield in major wheat producing states of India. The secondary data were collected from Directorate of Economics and Statistics for the period 2000-01 to 2016-17. The area of study comprises those states which covered >80 per cent of wheat production in India (i.e., Uttar Pradesh, Madhya Pradesh, Punjab, Rajasthan and Haryana). The result of study showed that the difference between MSP and cost C2 per quintal was found to be positive but fluctuating over the study period (except in the year 2002-03 and 2005-06 in Madhya Pradesh and 2005-06 and 2014-15 in Uttar Pradesh). It can be concluded that wheat growers of the states benefitted more from MSP by cultivation of wheat. The margin of safety was also fluctuating over the period of time in all the five wheat-producing states but gap continuously widening in Madhya Pradesh and Rajasthan revealed that the profitability from wheat was increasing in these states.

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