Research Minimum Price On Agriculture Products

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Minimum Price on Agriculture Products
In contemporary society, the markets for agricultural products tend to be versatile. Volatility in price in agricultural commodities has been especially high in the last decade. Particularly, abrupt increases in national food prices, especially in the years of 2007 to 2008 as well as 2010 to 2011, were succeeded by continuing periods of severe price depression (FAO 6). Price volatility had various adverse effects in all parts of the world as the changes in prices were unpredictable. The reason behind this is a certain level of ambiguity follows huge alterations in prices among consumers as well as producers. Producers are concerned about the effects of low prices because low incomes pose a threat to their viability. On the other hand, poor households may need to compromise on basic needs such as health care and education (FAO 6). As such, the agriculture industry would be better if the government set a minimum price on agriculture products.
Government price controls refer to situations where the government sets prices for certain services and goods. This can take various forms such as minimum prices, maximum prices, buffer stocks, limiting price increases, and direct price setting. For numerous reasons, governments may see it best to intervene in a market and establish prices. Typically, prices are established by market forces (where demand and supply differ), however, in various markets, governments may prefer to establish the prices artificially. When it comes to minimum price, the involvement of the government ensures that prices do not go below a particular level. When minimum price is set above the equilibrium, it causes a rise in prices. For example, the European Union uses minimum price for agriculture. It has been argued that farmers’ incomes are shockingly low; thus, minimum prices have been employed in Europe to increase prices above the equilibrium.
Minimum price is the central instrument in the nature of long-term guarantee to producers. Generally, these prices are announced before the sowing season. By setting a minimum price on agricultural products, the government would show that it is committed to purchase at the announced level of support price (Aditya 1). By altering the relative rate of return on various crops, support prices may also aid in boosting some crops. The theoretical basis of the minimum price policy has various elements such as the provision of insurance to the agricultural producer, price stabilization, and improvement of agriculture in terms of trade (Aditya 1).
If the government set a minimum price on agricultural products, it would act as an instrument for the government to control sharp rises and falls in the prices of crops. This is advantageous as it helps maintain a floor price which does not allow the prices to drop beyond a particular point. Minimum price can also be useful as an instrument that controls inflation by way of increasing prices. The concept of minimum price also functions as a surety to farmers as it ensures that their crops receive the fair amount for their yield. Minimum price helps farmers sustain their losses by not allowing their losses to affect them significantly.
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