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RISK IN AGRI-BUSINESS

RISK IN AGRI-BUSINESS. AGRICULTURAL RISKS: (A) PRODUCTION RISK: WEATHER FACTORS/PEST AND DISEASES (B) PRICE RISK: SUBSTANTIAL PRODUCTION LAGS DIFFERENCE BETWEEN REALIZED PRICES AND EXPECTED PRICES. PRICE RISK. PRICE RISK:

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RISK IN AGRI-BUSINESS

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  1. RISK IN AGRI-BUSINESS • AGRICULTURAL RISKS: (A) PRODUCTION RISK: WEATHER FACTORS/PEST AND DISEASES (B) PRICE RISK: SUBSTANTIAL PRODUCTION LAGS DIFFERENCE BETWEEN REALIZED PRICES AND EXPECTED PRICES

  2. PRICE RISK • PRICE RISK: DIFFICULT TO ANTICIPATE AT THE TIME OF PLANTING, THE PRICE THAT WILL PREVAIL AT THE TIME OF SALE • VARIABILITY IN DEMAND AND SUPPLY DEMAND FOR MOST OF AG. COMMODITIES USUALLY CHANGES IN PREDICTABLE MANNER – GOVERNED BY INCOME AND POPULATION

  3. PRICE RISK • VARIABILITY IN SUPPLY: DUE TO PRODUCTION RISKS INELASTIC DEMAND OF AGRICULTURE COMMODITIES MAGNIFY THE IMPACT OF SUPPLY SHOCKS ON PRICES.

  4. PRICE RISK • FLUCTUATION IN PLANNED SUPPLY: VARIABILITY IN AREA COBWEB CYCLE OF PRICES AND PLANNED SUPPLY AREA VARIABILITY GENERATES PRICE VARIABILITY THAT IN TURN INDUCES FURTHER VARIABILITY IN AREA

  5. PRICE RISK • PRICE RISKS – SEASONALITY SUPPLY AT ONE SHOT BUT CONSUMPTION IS CONTINUOUS ANNUAL AND SEASONAL PRICE VARIABILITY

  6. AGRICULTURE PRICE POLICY • MINIMUM SUPPORT PRICE/PROCUREMENT PRICE TO PROVIDE INCENTIVES TO THE PRODUCERS FOR ADOPTING TECHNOLOGY FOR MAXIMISING PRODUCTION AGRICULTURAL PRICE COMMISSION – 1965 • COMMISSION FOR AGRICULTURAL COSTS AND PRICES (CACP) – 1985

  7. AGRICULTURE PRICE POLICY • MINIMUM SUPPORT PRICE COST OF PRODUCTION (cost C) INPUT/OUTPUT PRICE PARITY INTER CROP PRICE PARITY EFFECT ON COST OF LIVING PARITY BETWEEN PRICE PAID AND PRICE RECEIVED BY FARMERS (TERMS OF TRADE)

  8. AGRICULTURE PRICE POLICY • CROPS COVERED UNDER MSP: 23 WHEAT, BARLEY, GRAM, SAFFLOWER RAPESEED/MUSTARD, PADDY, JOWAR, BAZRA, MAIZE, RAGI, PULSES, GROUNDNUT, SOYABEAN, SUNFLOWER, SESAMUM, NIGERSEED, COTTON, TOBACCO, JUTE, SUGARCANE

  9. AGRICULTURE PRICE POLICY • MARKET INTERVENTION SCHEME FOR THOSE CROPS NOT COVERED UNDER MSP – ONION, POTATO, TURMERIC, CHILLIES THESE CROPS ARE IMPORTANT AT REGIONAL LEVEL NEED FOR PRICE SUPPORT DOES NOT ARISE EVERY YEAR

  10. AGRICULTURE PRICE POLICY PARTICULARS MSP MIS COMMODITIES FIXED NOT FIXED REGULARITY EVERY YEAR AD HOC SUPPORT PRICE DECIDED BY UNION UNION & STATE GOVERNMENT GOVERNMENT PURCHASES ALL OFFERED BY PRE-DECIDED FARMERS LIMITED QUANT APPLICABILITY COUNTRY SPECIFIED LOSS UNION GOVT. EQUALLY SHARED BY STATE AND UNION GOVT.

  11. AGRICULTURE PRICE POLICY • MSP IS UNIFORM ACROSS COUNTRY • FCI – RICE AND WHEAT • COST OF PRODUCTION IS THE ONLY CRITERION FOR DECIDING MSP • ROLE OF CONTRACT FARMING AND FUTURE TRADING VIS-À-VIS MSP

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