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Record harvests, record procurement and yet, record prices of essential food items. This may just about sum up the country’s current agricultural situation. With production of rice, wheat and coarse cereals touching new highs (and surpassing the targets), the total food-grains output has registered yet another peak of 227 million tonnes. The Ministry of Consumer Affairs, Food and Public Distribution has put out advertisements that crow about record wheat procurement of 21 million tonnes. But, with private trade virtually pre-empted from entering the market, the growers had no choice but to sell to the Food Corporation of India. The danger is that, the Government may be making the same mistake its predecessor made: that of excessive purchase of grains through an open-ended procurement system. Against the assessed requirement of around 15-16 million tonnes of wheat for the year, the government currently holds over 25 million tonnes including opening stock of over four million tonnes.

This level of inventory may create a smug feeling among policymakers; but the element of comfort comes at a price. The cost of carry is about Rs 2,400 a tonne a year. Each month of storage pushes the cost up by Rs 200 a tonne. In other words, wheat stocks at the end of 2008-09 season would cost no less than Rs 12,400 a tonne, plus local taxes (about Rs 1,000 a tonne) paid at the time of procurement. The numbers for rice may be similar. This is sure to worsen this year’s food subsidy burden (other than sugar) that had ballooned in 2007-08 by 6.7 per cent to Rs 25,425 crore. Be that as it may, the Centre is under intense pressure to raise the minimum support price (MSP) for various kharif season crops such as paddy, coarse cereals, oilseeds and cotton.

Even as the delay in announcing the MSP is inexplicable, in this year of elections, it would be tempting to woo the farmers with sharp hikes in support prices, something that runs the risk of turning counter-productive. Higher MSP — unrelated to or far above incremental production costs — is sure to push up open-market prices and fuel food inflation, rather than douse it. Instead of posting a substantial increase in the MSP, the Centre can ensure farmers obtain remunerative market prices by removing restrictions on storage and exports. Importantly, MSP merely represents a safety net and surely not an incentive to raise crop output. Without the back-up of a strong input delivery system, scientific water management, improved agronomic practices and rural infrastructure, the MSP has been reduced to a ritual, and one not performed in time. Little relief from high food prices is likely until the next big harvest in September. Until then, consumers will have to continue to tighten their belts.

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