Causes of price fluctuation in agricultural products
Farm product prices fluctuate relatively more than those of manufactured products. In other words, instability in farm product prices is greater than that in the prices of manufactured goods. There are a large number of factors that create fluctuations in prices. Some of these cause fluctuations of temporary nature while others lead to a longer-lasting effect. All the factors which result in price fluctuations affect demand or supply directly or indirectly.
Some of the factors which affect the magnitude of short-term fluctuations in agricultural prices are:
- Unexpected changes in market receipts or arrival;
- Unexpected changes in off-take from the markets;
- Blockage in the movement of commodities like strikes by transporters and blockage of road and rail transport;
- Rumors are leading to extra purchases by traders, retailers, and consumers.
- Law and order problem in the area;
- Announcement of relevant government policy and
- Change in mark-up by traders.
Short-term fluctuations can be two types- (I) Intra-year and (II) Inter-year.
Intra-year seasonal fluctuations:
Some of the factors which affect the magnitude of intra-year seasonal fluctuations in agricultural prices are:
- Seasonal nature of production
- Perishability of products
- The bulkiness of products
- Low bargaining power of farmer-sellers
- The low staying power of farmers
- Seasonal nature of demand for certain products
- Change in government policy on procurement
- Change in quantum of storage facilities
- Change in cost of storage
- Change in the program of seed supply
- Change in credit availability against stored products and
- Change in the timing of repayment of loans.
Some of the factors which affect the magnitude of inter-year fluctuations in prices of agricultural commodities are:
- Fluctuation in production due to variation in rainfall;
- Fluctuation in production due to change in weather parameters at sowing time, crown initiation, flowering, and seed formation stage;
- Fluctuation in supply due to floods, fires, or hailstorms during the harvesting and threshing stages; iv) Any anticipated changes in prospects for production during the next year;
- Change in the import-export policy;
- Change in the public intervention policies like support or procurement prices, the quantum of procurement, storage facilities, and releases through the public distribution system.
Some of the factors that affect the long-term fluctuations in prices of agricultural commodities are:
- Change in technology like the evolution of high-yielding seeds and control measures for pests or diseases.
- Change in the money supply.
- Change in the extent of deficit financing.
- Change in credit and interest rate policy.
- Change in government spending.
- Change in pay scales, wage rates, and income taxes.
- Change in sale tax, excise, and other taxes.
- Change in policy towards hoarding, black-marketing and black money.
- Change in transportation and storage facilities.
- Change in marketing facilities for farm products affecting marketing cost and efficiency.