Price discovery
Topic: Agricultural Marketing, MSP, Buffer Stocks and PDS · NCERT: Beyond NCERT
Meaning
Price discovery is how buyers and sellers reach a price through demand and supply. The price is not fixed by any one person. It comes out of many bids and offers meeting, for example at an open auction, on an e-trading platform or through futures contracts. Good price discovery gives farmers a price that shows real market conditions. Poor price discovery, such as a few traders colluding at a mandi, keeps the farmer's price low.
Example
On e-NAM (launched 14 April 2016), traders from different mandis bid online for a farmer's lot. The highest bid becomes the price. Commodity futures exchanges such as NCDEX and MCX also help discover prices. However, futures in seven agri commodities have been suspended since December 2021: paddy, wheat, chana, mustard, soybean, crude palm oil and moong.
Don't confuse with
- Minimum support price (MSP): MSP is announced by the government before sowing. It is not discovered by the market. It acts as a floor below the market price.
Related concepts
- Cooperative marketing
- Farmer producer organisation
- Alternative marketing channels
- Contract farming
- Commodity futures