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Farouk Gumel – The minimum support price in agriculture – what is it important

Farouk Gumel u2013 Most governments intervene in their agricultural markets although the extent of these interventions depend in large part on the wealth of the country. In the last century or so, the most common of these interventions is the Minimum Support Price (MSP) mechanism.

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Farouk Gumel – The minimum support price in agriculture – what is it important

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  1. THEMINIMUM SUPPORTPRICEIN AGRICULTURE – WHATISIT IMPORTANT? FaroukGumel,Nigeria

  2. Farouk Gumel - Mostgovernmentsintervenein theiragriculturalmarketsalthoughtheextentof theseinterventionsdependinlargepartonthe wealthofthecountry.Inthelastcenturyorso,the mostcommonoftheseinterventionsistheMinimum SupportPrice (MSP) mechanism.Inthispaper,I hopetoexplaininsimpleterms,whattheMSPisand howitworks. Minimum Support Price (MSP)

  3. MSPisthepriceatwhichthegovernmentcommitstopurchasecropsfromthefarmers.ThisactsasMSPisthepriceatwhichthegovernmentcommitstopurchasecropsfromthefarmers.Thisactsas a ‘minimumfloorprice’ farmerswillgetfortheirproducetherebyshieldingthemfromadverse marketconditionsbecauseofpricedrop. Furthermore,intheeventofabumperharvestwherethereisexcessstock,farmersstillhavea guaranteedbuyerasthegovernment,throughitsagencies,willbuytheentirestockofferedbythe farmersattheMSP.

  4. Thepricesofagriculturalcommoditiesoften varyduetovariousfactors. Ifacrophasseenagoodharvestseasonduring aparticularyear,itmayseeasharpfallinits prices.Thiswillleadtofarmerswithdrawing fromsowingthecropinthenextyearwhichwill affectthesupply. Tocounterthis,MSPisfixedbythegovernment whichissupposedtoencouragehigher investments and production of crops. Furthermore,bybuyingtheexcesscrops, governmentsbuildstrategicreservesthatcan beusedtoaugmentanyfoodshortagesin futureyears.

  5. ThesuccessfulimplementationofMSPshowever dependsonhowwealthythecountryisasthe governmentrequireshugebudgetaryallocationsfor procurement and strong value chains for managementoftheinventoryacquired. Inmanypoorcountries,theseprogramsfaildueto lackoffundingandpoortechnicalcapacityto managethegrainsprocuredfromthefarmers. Thisleadstolackofconfidenceingovernmentsand destructionofgrains.Thissubjectscountriestovery volatileswingsintheirfoodsecuritystatus – from surplustofaminewithinafewyears.

  6. Africaisonecontinentwherecountrieshaveseensuch volatileswings.Althoughthepoliciesexistinmany nations,theimplementationhasnotbeenveryimpactful duetolowfundingandtechnicalknowledge. DespiteAfrica’shugearablelandandhighpopulationof farmers,foodshortagesandhighfoodpricesstilloccur. Typically,manyAfricannationscreateandgrantstate marketingboardsalegalmonopolytobuyagricultural productsfromfarmersandtoresellthemtodomestic consumersorexportmarkets. Therehavebeencaseswheresuchboardspayfarmers onlyathirdtohalfofthedomesticconsumerpriceorthe exportprice.Theresult,accordingtotheWorldBank,is thataftergrowing0.2% perannuminthe1960s,per capitafoodproductioninsub-SaharanAfricafellto0.9% perannumfromthe1970sintotheearly1980s.

  7. Astheglobal “freetrade” movementcontinuestogain momentum,manyagriculturaljobsinAfricawillbelostas foodimportsfromstrongerandmoreprosperousnations creepin.AfricanfarmersneedtheMSPprotectiontocontinue productionforourstrategicreservestobefilled.

  8. FaroukGumelisanExecutiveDirectoratTGIGroup,apan- African conglomerate with investments across key agriculturalvaluechains. FaroukGumelarguesthattheMSPisnotaluxurybutan absolutenecessityforAfrica’sagriculturalrevolution.Farouk Gumel,whosecompanyownsandmanagesfood productionfacilities,explainsTGI’sfactoriesareconstantly exposedtopriceandvolumetricvolatilitiesintheirraw materialsupplies. Inthelast3yearsoftheexistenceofTGI’sricemill,Farouk Gumelsaystheyhaveseenhugeswingsinpaddyprices andavailabilitywhichisraisingconcernswhenitcomesto planningforfutureinvestments.Suchswings,accordingto FaroukGumel, “canonlybeeliminatedwithastrong, reliableandconsistentMSPprogram”.

  9. Farouk Gumel GroupExecutiveDirectorandHeadofAgri- BusinessesforTropicalGeneralInvestment (TGI) Group.

  10. THANK YOU!!

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