The Hindu Business Line : Ready to support

Now that the 2008 kharif season agricultural crops are under harvest and arrivals are gathering pace, there is a sense of heightened suspense as to the direction farm prices may take over the next two-three months. Global agricultural markets have faced substantial price decline over the last three-four months. A fall varying between 20 and 50 per cent in palm oil, wheat and cotton, for instance, should provide an indication of the magnitude of price correction. Prices, a cross the board, have returned to realistic levels; still they are way above the lows seen, say in 2002-03. Should prices fall much further, they could become unremunerative for growers, and that could be the worry for the government.

Of course, the limited integration of the domestic agricultural market with the world’s means that domestic prices will revolve in an independent orbit, except in case of commodities such as edible oils and pulses where we have substantial import dependence. The estimate of kharif 2008 agricultural output released recently by the Agriculture Ministry clearly shows that in most cases the crop size is not only below the target for the season but also lower than in kharif 2007. Coarse cereals, pulses, oilseeds, cotton and sugarcane are all facing reduced harvest, albeit of varying sizes. It is therefore reasonable to believe that supplies would be tight over the coming months. Normally, this by itself should ensure a level of farm-gate prices that primary producers would not be unhappy about. In addition, a considerably weaker rupee would make imported foods (cooking oils, pulses) expensive with concomitant effect on domestic produce. Tight money supply and high cost of funds are sure to discourage speculative activities. There is a caveat, though. A steep hike in the minimum support price for many kharif season crops announced last month would act as a cushion for growers; but there may also be occasions when farmers may be desperate to sell below the MSP. It has happened in the past and it cannot be ruled out now.

Over the next six weeks, there would be arrival pressure caused by the ongoing harvest. In the unlikely event that prices fall below the specified MSP, the government should quickly step in with price support operation. Funds and logistics (mainly warehouses and purchase centres) must be in place to quickly arrest price fall. Trade restrictions currently in place such as ban on export and storage control may be loosened in the event. New Delhi must get into a state of readiness to act decisively. More important, efforts to maximise rabi season planting and production must get under way right away.

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