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Commission for Agricultural Costs and Prices (CACP)

The Commission for Agricultural Costs and Prices (CACP),

set up in 1965, is a decentralized agency of the
Government of India (GoI).

It is an expert body that recommends the Minimum

Support Prices (MSPs) by taking into consideration various
factors.

Commission for Agricultural Costs and Prices – Introduction

 The Commission for Agricultural Costs and Prices (CACP) was initially known as the
Agricultural Prices Commission. It was renamed the Commission for Agricultural
Costs and Prices in 1985.

 It is a statutory panel under the Ministry of Agriculture & Farmers’ Welfare,

Government of India.

 The CACP is an expert body that recommends the MSPs of the notified Kharif and
Rabi crops to the Cabinet Committee on Economic Affairs (CCEA).

 The objective of the Commission: The Commission was established to recommend

Minimum Support Prices (MSPs), to motivate cultivators and farmers to adopt the
latest technology in order to optimize the use of resources and increase productivity.

However, its suggestions are not binding on the Government.

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Roles and Responsibilities of CACP

 The CACP plays a key role in handling market inefficiencies.

 It provides an assurance of a remunerative and stable price environment. This is

important for enhancing agricultural production and productivity since the
marketplace for agricultural produce tends to be inherently volatile.

 It helps the farmers obtain a fair price for their crops, even if the market situation
is unstable, thereby preventing the farmers from falling into the vicious cycle of
debt.

 The Government sets the MSPs on the basis of the recommendations given by the
committee. The CACP currently recommends the MSPs for 23 commodities,
which include seven grains, five pulses, seven oilseeds, and four commercial
crops.

 CACP submits its recommendations to the Government in the form of Price

Policy Reports each year. The reports consist of five categories of commodities
namely Kharif crops, Rabi crops, Sugarcane, Raw Jute, and Copra.

 The CACP, while recommending support prices for a commodity takes a

comprehensive overview of the entire structure of the economy of a particular
commodity, and likely effects of price policy on the rest of the economy.

 The Commission also makes surprise visits to States for on-the-spot assessment
of the various constraints that farmers face in marketing their products or in
raising the yield of their crops.
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How is the MSP determined?

The Minimum Support Price was first introduced by the Government in 1966-67 for
Wheat in the wake of the Green Revolution. It was introduced with the aim to save
the farmers from depleting profits.
 The Government buys the crops at the MSP if the prices go down after harvest. This
helps the farmers indirectly.

 The Government decides the MSP after taking into consideration the
recommendations of the CACP, the opinions of the State Governments and all the
other relevant Ministries.

 The Price Support Scheme (PSS) for oilseeds and pulses is implemented by the
Department of Agriculture and Cooperation through the National Agricultural
Cooperative Marketing Federation of India (NAFED).

 NAFED is the nodal procurement agency for oilseeds and pulses. Thus, when
the prices of oilseeds, cotton, and pulses fall below the MSP, NAFED purchases
it from the farmers at MSP.

 The procurement prices are usually announced at the beginning of the sowing
season.

This way, the CACP tends to have a very wide area of responsibility in the
economic affairs of the country.
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Dual Pricing- Role of FCI

Food Corporation of India (FCI) is a Public Sector Undertaking, under the
Department of Food & Public Distribution, Ministry of Consumer Affairs, Food and
Public Distribution.

FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was
established against the backdrop of major shortage of grains, especially wheat.
Simultaneously, Commission for Agricultural Costs and Prices (CACP) was created in
1965 to recommend remunerative prices to farmers.

It has primary duty to undertake purchase, store, move/transport, distribute and sell
food grains and other foodstuffs.

FCI coordinates its functions through a country-wide network of offices with

Headquarters at New Delhi with five Zonal Offices, twenty-five Regional Offices
and 170 District Offices under its control.
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What are the Objectives of FCI?

 To provide remunerative prices to farmers.

 To help in transforming the crisis management oriented food security into a

stable security system to ensure availability, accessibility and affordability of
food grains to all people at all times so that no one, nowhere and at no time
should go hungry.

 Ensuring food security of the nation by maintaining satisfactory level of

operational buffer stocks of food grains.

 Distribution of food grains throughout the country for Public Distribution

System.

 Effective Price Support Operations for safeguarding the interest of farmers.

What is Food Security?

According to Food and Agriculture Organization ( FAO), food security has basically four
pillars:

 Availability: food should be available in sufficient quantity at all times and at all
places;

 Affordability: food should be affordable, i.e., people should have economic access
(ample income) to buy food;

 Absorption: food should be safe and nutritious that body can absorb for a healthy life;
and finally.

 Stability: food system should be reasonably stable, as high volatility in food systems
impacts adversely not only the poor but also endangers the stability of political and
social systems.
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Agricultural Credit
India’s evolution of a formal agriculture credit system began during 1870s under the
British colonial government, when institutional credit was extended to farmers
especially during the drought years.

In 1904, however, the government of India passed the Cooperative Societies Act to serve
the credit needs of the country, especially of the rural sector. The Maclagan Committee
(1915) advocated for the establishment of provincial cooperative banks in all major
provinces by 1930.

The Royal Commission on Agriculture further examined the program of rural credit in
1926-27. In the wake of inadequacy of agriculture credit, the Reserve Bank of India
(RBI) Act was passed in 1934 and special provisions were made to expand access of
institutional credit to agriculture.

Under section 54 and 17 of the RBI Act, the Agriculture Credit Department was created
to coordinate agriculture credit functions of RBI and provide credit through state
cooperative banks or any other banks engaged in the business of agriculture credit
respectively.

Lack of adequate credit to finance the rural sector continued to grab RBI’s and the
government’s attention throughout the 1950s and 1960s.

Besides revitalizing cooperatives as an exclusive agency for providing credit to

agriculture, RBI focused to extend credit for agriculture through commercial banks for
activities such as marketing, processing, storage and warehousing.

To extend commercial banking services to rural and semi-urban areas, the Imperial
Bank of India was nationalised in 1955 and the new State Bank of India (SBI) was
created in July 1955.
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