The Hindu Business Line : Price support lessons

DESPITE THE CONTINUING support of the designated agency — the National Agricultural Cooperative Marketing Federation of India (NAFED) — open market prices of the country's largest summer oilseed crop — rapeseed/mustard — have stubbornly remained below the minimum support price (MSP) of Rs 1,700 a quintal. So far, NAFED has purchased over 8 lakh tonnes, mainly in Rajasthan. At this rate of buying, the purchases may well reach 20 lakh tonnes, claims the agency. Six weeks into the harvest season, there is no sign as yet of rapeseed/mustard rates reaching anywhere close to the MSP. Indeed, prices are lower, Rs 1,600 a quintal; reports of private traders buying from farmers at below the MSP and supplying to NAFED at the MSP, making a windfall gain for little effort, are not entirely untrue.

There indeed are lessons to be learnt from the ongoing price support operations. First, the agency charged with the price support responsibility should have the skills and the manpower to undertake large-scale purchases. Logistics, including warehousing and transportation, arrangements must be in place. Warehouse space is woefully inadequate even in a major producing State such as Rajasthan. The number of purchase points has to be sufficiently large to ensure that farmers desperately in need of cash are not turned away and forced into the clutches of traders. To be fair, NAFED is not Food Corporation of India, which has long experience of procuring over 30 million tonnes of rice and wheat year after year. The maximum quantity of oilseeds NAFED has ever handled is around 5 lakh tonnes; but one is not sure if the agency is bringing its experience to bear upon its current operations. It is equally important that realistic crop production estimates are available. In the case of rapeseed/mustard this season, the trade estimate is 64 lakh tonnes while the government puts it significantly higher at 76 lakh tonnes. While a small variation is understandable, such a large difference in output estimate is a cause for concern. It is not the farmer or the consumer, but the speculator who ends up making money with so much uncertainty in crop size.

Perhaps the most important lesson is for policy-makers — that it is unsustainable and economically imprudent to raise the MSP year after year with little concern for crop production economics or productivity increases or consumer prices of edible oil. Over the last four years, the MSP for rapeseed/mustard has been raised annually by Rs 100 a quintal, but yields have remained largely the same. In the name of farmer protection and higher income generation, the Government is consigning mustard growers to an artificial world of price security, as international prices are much lower. This situation cannot continue for long. Under Indian farming conditions, supply response to prices is rather limited; in other words, the ability of farmers to raise output based on higher support price is suspect. Instead, adequate funds should be applied to reducing costs of growing: strengthening the input delivery system, improving agronomic practices and expanding irrigation facilities and rural infrastructure.

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