FLOOR PRICES AND THE FREE MARKET: AN ALTERNATIVE APPROACH

If floor price is to play a role in a future South African agricultural marketing policy it should be aimed at providing a safety net to producers. Developments in international agricultural policy adds the prerequisite that such a floor price policy should be relatively resource and trade neutral. As an alternative it is proposed that floor prices should rather be coupled with deficiency payments at times when the market price falls below the floor price. This floor price should be set according to a set formula based on historical trends in real price fluctuations, adjusted by the standard deviation. This scheme has the advantage that it gives the farmer risk insurance and that it will not distort market prices as market boards will not have to intervene in the market