The Hindu Business Line : Rapeseed/mustard liquidation: Millstone around Govt's neck

THE policy makers in New Delhi are sure to find themselves on a slippery terrain with the price support agency — National Agricultural Cooperative Marketing Federation of India (NAFED), under the administrative control of the Ministry of Agriculture — accumulating a massive quantity of 20 lakh tonnes of rapeseed/mustard from the recently concluded rabi harvest.

As it is, for the Government, it appears there will be no escape from incurring huge losses in the price support operation and liquidation of massive stocks. This will further load the already heavy subsidy burden.

Ironically, such a development would be despite the Prime Minister and the Finance Minister repeatedly talking about paring subsidies down.The question now is how to dispose of the accumulated goods in a cost-effective manner.

The southwest monsoon is about to break and the farmers are readying to sow oilseeds. International market for Indian rapeseed/mustard, particularly with quality problems, quite apart from unworkable high prices, is another factor to be reckoned with.

NAFED's global tender for export of the oilseed has already drawn protests from domestic oilseed processors who have petitioned the Government to stop overseas sales and auction the stocks locally so that processing units, starved of raw material, can access the produce. Given the international market conditions in terms of prices and quality, it is unlikely that the agency's efforts to export will succeed.

Possibly, some small lots may be sold to neighbouring destinations such as Bangladesh, that too at a subsidised price. Europe may be a potential market because the oil crushed out of Indian rapeseed/mustard can be used for non-food purpose, mainly for production of biodiesel.

But even here, price will be an important consideration. Locally, crushers are unlikely to touch the material unless the price is attractively low. They did not find it feasible to buy at the minimum support price (MSP) of Rs 17,000 a tonne at the time of harvest.

This realistically means NAFED's local sales will have to be considerably below its purchase price for crushers to evince interest. This precisely is the reason for the trade to demand an auction.

However, sale of rapeseed/mustard, especially at subsidised prices in the domestic market can exert further downward pressure on the vegetable oil market and create a disincentive for oilseed growers to plant more. Whichever way, huge losses seem to be inevitable.

NAFED is also reportedly getting the seeds crushed from local crushing units. Reports of corruption in granting job work to mills are already doing the rounds of the market. Not much is known about the agency's accountability and transparency in the liquidation of stocks.

The benefit of high prices in the form of MSP at Rs 17,000 a tonne has already flowed to growers. Now, it is time to support the consumers. The benefit of subsidies, if any — indeed, subsidy seems to be inevitable — in the production of mustard oil should be passed on to the consumers.

It would, after all, not be a bad idea to get the oilseed with NAFED crushed and have the oil sold through the public distribution system.

The entire issue once again brings to fore thoughtless hikes in MSP for rapeseed/mustard. The MSP of Rs 17,000 is unrelated to market conditions and is clearly unsustainable. No wonder, it is bound to eventually lead to huge financial burden. How the Government rids itself of the millstone around its neck remains to be seen.

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