Price Stabilisation Fund Scheme - Advantages and Disadvantages

Price Stabilisation Fund Scheme – Advantages and Disadvantages

Question - Prices of agri-horticultural commodities have undergone massive amounts of fluctuation in recent times. Discuss the advantages and disadvantages of Price Stabilisation Fund in this context as well as the differences between the scheme and its modified version.

Advantages of Price Stabilisation Fund

• Prices of agri-horticultural commodities have experienced a massive fluctuation in recent times making vegetables such as onions and potatoes unaffordable for consumers; Price Stabilisation Fund scheme is a comprehensive scheme aimed at enhancing affordability of such commodities.

• Experts have identified three types of agricultural policies for influencing the price of vegetables namely:
- Production policies
- Trade policies
- Direct price stabilisation policies

Of these, direct price stabilisation policies such as Price Stabilisation Fund scheme are the most effective

• Price Stabilisation Fund scheme also ensures farmers do not end up dumping products on highways due to low prices stemming from the inability to sell their produce in the mandi

• Government also provides a boost to agri-horticultural production and market stabilisation through this fund

• Price Stabilisation Fund Scheme also prevents price volatility by preventing farmers from growing crops which fetch high prices in the market at the time of sowing leading to oversupply in the market and volatile prices

• The fund also focuses on supporting farmers at hard times when there is an excessive fall in domestic prices

• It is more comprehensive than other schemes such as Karnataka’s Revolving Fund scheme or NAFED’s Market Intervention Scheme

• Minimum support price type policies are not as effective as Price Stabilisation Fund scheme because agri-horticultural commodities are highly perishable; through this fund, government can influence the market of perishable commodities through development of linkages(backward as well as forward) and provide proper infrastructure for procurement as well as distribution

Disadvantages of Price Stabilisation Fund Scheme

• The Price Stabilisation Fund scheme requires growers/farmers to possess operational landholding of a minimum of 10 hectares; other farmers are not covered under this scheme

• If planters somehow receive a good price for the produce, they may not have the incentive to contribute even meagre amount of INR 500 as required by the scheme towards the fund

• When the price range is at historically high levels, this scheme is of little/no value

• The aim of the Price Stabilisation Fund scheme is to provide relief to farmers only during a distress crop year

Difference between Price Stabilisation Fund scheme and Modified Price Stabilisation Fund Scheme

Price Stabilisation Fund scheme is an older scheme launched in the year 2003 while the Modified Price Stabilisation Fund scheme is the newer one. While the latter ended on march 31, 2013, the Modified Price Stabilisation Fund scheme will be in force from April 1, 2013

• Farmers had to give fixed enrolment fee/INR 500 to obtain the benefit of the scheme but in the Modified version, farmers can join the scheme for free

• In the earlier scheme, debit cards were not provided to growers resulting in obstacles for banking. In the latest scheme, debit cards are provided for easy access to financial aid for the grower

• More effective implementation, creation of awareness and popularisation of the scheme are some of the ways the modified version of this scheme is an improvement on the earlier one

• For the older scheme, Price Spectrum band was assessed on the basis of global prices of a certain commodity over a period of 7 years while the new scheme considers prices over a 5 year period

• In the earlier scheme, money is provided to growers in all three cases: distress, boom and normal year, while in the new scheme, money is only provided when the year is a distress one

• The modified scheme is also an improvement through the evaluation of performance of the scheme through an independent agency based on which further extensions of the scheme are to be considered

Facts and Stats

• The Price Stabilisation Fund scheme is based on the principle of participation

• Depending upon whether it is normal/boom/distress year, the grower and the government make a contribution

• Small growers can enrol in this scheme through a fee of INR 500

• Each grower/farmer has to open a special PSF SB account with a designated bank to avail this scheme

• Price spectrum band: For this, a uniform band of 40% for all 4 commodities have to be considered and it would be constructed based on 7 years moving average of global prices

• Lower band is -20% and Upper Band is +20% of the 7 years moving average of international prices

• Based on where the domestic price is higher, lower as against the spectrum band, the year is designated as a boom/normal/distress year.