Legal Definitions - support price

A support price is a minimum price set by a government for a particular good or commodity, most commonly agricultural products. The primary goal of a support price is to protect producers from significant drops in market prices, ensuring they receive a stable income and encouraging the continued production of essential goods. If the market price falls below this set minimum, the government typically intervenes, often by purchasing the surplus product, providing subsidies to producers, or implementing other measures to maintain the price floor.

• Example 1: Wheat Farmers

  Imagine a country's agricultural department establishes a support price for wheat at $5 per bushel. If, due to an exceptionally good harvest, the market is flooded with wheat and the natural selling price drops to $3.50 per bushel, the government would step in. It might purchase wheat from farmers at the $5 support price, or provide payments to farmers to make up the difference, ensuring that wheat farmers do not suffer financial losses despite the market oversupply. This action stabilizes the income for farmers and encourages them to continue planting wheat in future seasons.

• Example 2: Dairy Industry

  Consider a scenario where a national dairy board implements a support price for milk at $18 per hundredweight (a common unit of measure for milk). If consumer demand for milk temporarily decreases, or if there's a surge in milk production, the market price for milk might naturally fall to $16 per hundredweight. The support price ensures that dairy farmers still receive at least $18 per hundredweight for their milk, preventing widespread financial hardship within the dairy industry and helping to maintain a consistent national milk supply.

• Example 3: Coffee Growers

  In a nation heavily reliant on coffee exports, the government might set a support price for green coffee beans to protect its numerous small-scale coffee growers. If a global oversupply of coffee causes international market prices to plummet below the production cost for local farmers, the government could buy the coffee beans from its growers at the predetermined support price. This intervention prevents farmers from abandoning their coffee crops due to unprofitability, safeguarding their livelihoods and the country's export economy.