The Hindu Business Line : Limited objective

The dramatic transformation of the country's foodgrains economy in three short years — from a 60-million-tonne inventory in 2003 to a 6-million-tonne importer in 2006 — should provide an abject lesson for policymakers and others concerned. The farm economy, still vulnerable to weather uncertainties and production risks, must be treated with care and caution. Carried away by huge surpluses in State warehouses in 2002-2003, many in the government and outside began to talk of crop diversification — from surplus foodgrains to deficit oilseeds and pulses — little realising that the so-called surplus was artificial and transient.

Though rising, the total foodgrains output has fluctuated sharply the last six years and been trapped between 174.8 m.t. and 213.2 m.t., with wheat output, in particular, stagnating around 70 m.t. The mismatch between output and demand growth has meant tightening supplies and rising prices. The sentiment has been further aggravated with policymakers allowing speculative funds to chase limited stocks. Consumers have been the worst sufferers, while there is no evidence that farmers have benefited. A long-term foodgrains policy has remained on paper, and the recent developments are the result of a lack of policy initiative, and failure to identify and remedy the structural problems of foodgrains production and distribution.

Pressured by market conditions — falling output, declining procurement and rising imports — the Government is now forced to announce a minimum support price — which in effect is an incentive price — of Rs 750 a quintal for the 2006-07 wheat crop (up Rs 100 from last season). The support price is no more the back-stop or safety net for farmers; instead it represents a premium that the government believes would encourage farmers to offer the harvested crop for official procurement. It is a candid admission by the government that it wants to pay farmers more, for meeting the limited objective of procuring more.

The plan is not likely to succeed for two reasons. One, the ability of an average grower to respond to higher prices is rather limited. Against the target of 75.5 m.t. for the ensuing season, there is nothing to suggest that wheat harvest in April 2007 would see a dramatic increase from the previous season's 69.5 m.t. Second, open market prices would continue to rule high with unrestricted private sector intervention which may impact government procurement, as happened last season. Higher international market is likely to further impart a bullish tendency to domestic prices. As an unchanged support price for rapeseed/mustard at Rs 1,715 a quintal would mean that wheat, pulses and oilseeds could compete for acreage, consumers are unlikely to get a reprieve.