The Hindu Business Line : Traders gain from Nafed's price support operations

THE effectiveness of price support operations by Nafed (National Agricultural Cooperative Marketing Federation) to ensure that growers receive at least the minimum support price (MSP) of Rs 1,700 a quintal fixed by the Government is increasingly becoming suspect.

Take the case of Rajasthan. Reports from major production centers in the State — the largest producer of the crop — suggest that the spot market is ruling well below the MSP and at around Rs 1,550-1,600 a quintal. Daily market arrivals in the State are an estimated 2.5-3.0 lakh bags.

Worse, farmers desperately in need of cash are reportedly selling the harvested crop to traders at below the MSP and occasionally even below Rs 1,600 a quintal, while traders, in turn, surrender the produce thus acquired to Nafed at the support price of Rs 1,700 a quintal.

Traders make easy money of Rs 100 a quintal or Rs 1,000 a tonne on such transactions. It is unclear what control mechanism the procurement agency has to distinguish traders from genuine growers, and whether growers are even aware of the MSP.

Uncertainties over the crop size have played havoc with prices. Trade associations and influential traders had all along maintained that the current rapeseed/mustard crop size would be in excess of 70 l.t., but seem to have changed their mind of late.

No one is sure what exactly is the crop size this season, with uncomfortably large difference of over 12 lakh tonne between the estimates given by the Ministry of Agriculture and the trade.

According to the Krishi Bhawan, rapeseed/mustard output is 76.4 l.t., while the apex body of the trade associations — Central Organisation for Oil Industry and Trade — recently came up with an estimate of 64.0 l.t. including 1.5 l.t. of toria crop.

The impact of exaggerated soyabean crop numbers given out last kharif season is too fresh in the minds of players. Many have turned wary of these crop estimates, both from the Government and the trade, as the numbers and the manner of estimation do not inspire confidence.

There are also disquieting questions relating to the desirability of hiking the MSP year after year without any concern either for raising yields or improving quality or putting an effective price support mechanism in place.

Worse, policymakers create a false sense of price security among growers, which can lead to unsustainable expectations in the future.

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Traders gain from Nafed's price support operations