Price support

Price support is a policy mechanism used by governments to stabilize or increase the market price of a commodity. This is typically achieved through various forms of government intervention in the market, such as subsidies, price floors, and buffer stocks. Price support is commonly applied in the agricultural sector to ensure that farmers receive a minimum price for their produce, thereby protecting their income and encouraging production.

Mechanisms of Price Support

Price support can be implemented through several mechanisms:

Price Floors

A price floor is a minimum price set by the government for a particular commodity. If the market price falls below this level, the government intervenes to purchase the commodity at the floor price, ensuring that producers receive a minimum income.

Subsidies

Subsidies are financial aids provided by the government to producers to help them cover their costs and maintain profitability. These can take the form of direct payments, tax breaks, or reduced input costs.

Buffer Stocks

Buffer stocks involve the government buying and storing surplus produce during periods of high production and releasing it during periods of low production. This helps to stabilize prices by balancing supply and demand.

Objectives of Price Support

The primary objectives of price support policies include:

• Ensuring a stable income for producers, particularly in the agricultural sector.
• Preventing market prices from falling below the cost of production.
• Encouraging production of essential commodities.
• Stabilizing market prices to avoid extreme fluctuations.

Criticisms of Price Support

While price support policies can provide significant benefits, they are also subject to criticism:

• They can lead to market distortions by encouraging overproduction.
• They may result in significant government expenditure and budget deficits.
• They can create trade tensions if they are perceived as unfair competition by other countries.

Examples of Price Support

Price support policies are widely used in various countries. For example:

• The United States implements price support for crops like corn, wheat, and soybeans through the Farm Bill.
• The European Union has the Common Agricultural Policy (CAP), which includes price support mechanisms for various agricultural products.

See Also

• Agricultural policy
• Subsidy
• Price floor
• Buffer stock scheme
• Market intervention