(i). To determine, regulate and control agricultural prices;
(ii). To prevent violent fluctuations in agricultural prices;
(iii) To provide fair prices for agricultural products to the farmers;
(iv) To provide quality goods to households at reasonable prices;
(v) To maintain an appropriate relationship and balance between the prices of foodgrains and non-foodgrains;
(vi) To integrate prices between various states.
A minimum support prices is declared by government, normally at the beginning of sowing season for every important agricultural commodity. These prices are a long term guarantee to farmers that the prices of these products will not be allowed to fall below a certain level. These prices assure the farmers and encourage them to carry on and to expand their production. They put their best efforts to get maximum production. If the prices fall below minimum support prices, government will buy the entire marketable surplus at procurement prices.
These are the prices which are declared by government, generally at the time of harvest of crops. These are the prices at which the government buys agricultural products from farmers. These prices serve two important objectives:
To provide guarantee to the farmers that the prices of these products will not be allowed to fall below a certain level. If market prices fall below this level, the farmers can sell their products to government.
It enables government to procure these products for maintaining public distribution system and buffer stocks. These prices are announced by government on the recommendations of Commission for Agricultural Costs and Prices (CACP). These prices are widely used by government for the procurement of wheat and rice. Procurement prices are generally higher than minimum support prices.
Issue prices are the prices at which food grains are allocated and supplied by Food Corporation of India (FCI) to the states and union
territories. These prices meet the requirements of public distribution system. Prices of goods to be supplied through fair price shops directly depend upon issue prices. Issue prices are normally less than market prices and higher than procurement prices.
Public distribution system is carried on through the network of fair price shops (ration shops). These shops supply essential consumer goods to households at the prices fixed by government. These prices are known as retail prices. Retail prices are higher than issue prices so that the expenses of public distribution system may be recovered and the licensees may get a certain margin.
Buffer stock operations refer to buying and selling of food stocks by government. These operations serve two important purposes:
To regulate and control price fluctuations within a reasonable limit.
To enable government to procure food stocks so that regular supply of these stocks may be ensured throughout the year as well as throughout the country. These operations are carried on by Food Corporation of India (FCI). Whenever there is a fall in the prices of food stocks, FCI starts buying them at procurement prices and whenever there is a rise in these prices, FCI starts selling. Thus, buffer stock operations play an important role in stabilizing agricultural prices.