• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

DECEMBER 2003 COULD well go down as a watershed month in the country's agriculture history. It is no ordinary coincidence that two significant events are taking place this month. The launch of futures trading in wheat and rice earlier this week is expected to combine with the widely anticipated announcement retaining the minimum support price (MSP) for the two fine cereals for 2003-04 at the same level as in the previous year — a record of sorts, should it happen.

By sending strong price signals to growers and helping them plan their crop mix, the two seemingly disparate but logically well-connected events can transform foodgrains production into a market-driven activity rather than a policy-supported one as now. It would also encourage much-needed diversification from surplus fine cereals to deficit commercial crops, especially in the irrigated tracts of Punjab, Haryana and Uttar Pradesh where the soil — alarmingly degraded already — is crying for crop rotation. A break in the rice-wheat-rice cycle is a dire necessity in these areas. The case for freezing the procurement price for wheat and rice has never been in any doubt. Over the last three years, several expert committees have found that the MSP regime for food and non-foodgrain crops, as practised till now — more of political accommodation and less of economic prudence — has greatly distorted cropping patterns by unduly favouring fine cereals over commercial crops such as cotton and oilseeds as also coarse cereals and pulses. Most of the latter are in short supply, and the country is forced to import, even as unconscionable volumes of wheat and rice accumulate in government warehouses resulting in massive drain on the exchequer.

The Centre — despite being a coalition of two-dozen parties — must gather the political will to do what it had perhaps been wanting to for last three years. With the coalition leader, the Bharatiya Janata Party, riding high on the recent electoral successes, it should be considerably less difficult to push through reforms in farm pricing. Indeed, it is time, major political parties evolved a broad political consensus on agriculture reforms so that farmers are not subjected to vagaries of policy, in addition to that of weather. That said, no one should be under any delusion that launch of futures trading in wheat and rice will by itself end all the problems of the foodgrains sector. There is still a long way to go in strengthening production and marketing infrastructure.

The policy of open-ended procurement, levy system in rice, non-transparent government decision-making in open market sale of rice and wheat through the Food Corporation of India, and restrictions on direct purchase of wheat from growers can cause distortions and lead to manipulation in futures trading. These have to be straightened out. What kind of checks and balances the regulator will put in place to prevent manipulation remains to be seen. Importantly, under the challenging conditions the farm sector operates, supply response to prices is rather limited. Therefore, price discovery through futures trading should not be assumed to be a magic wand that will solve all the problems of the physical <243>market.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Breaking new ground

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line