Agri Business

Why crop prices are falling despite higher MSP, stiffer import tariffs

Rajalakshmi Nirmal BL Research Bureau | Updated on March 11, 2018 Published on March 11, 2018   -  piotr_malczyk

Surge in production of most crops; demand-supply equation driving prices

The Centre’s moves to stop domestic market prices of agri commodities from falling, be it by increasing the minimum support price (MSP), hiking import duty or levying a minimum import price (as in the case of pepper), have not been effective. While market prices do go up in a knee-jerk reaction following the news, they soon revert to earlier levels.

Sample this: The Centre imposed a 10 per cent import duty on wheat in March 2017 and doubled it to 20 per cent in November. But wheat prices have only fallen — from ₹20.5/kg in February 2017 in Delhi, to ₹18/kg now.

Similarly, the government has fiddled with the duty structure of gram (chickpea) twice in the last four months. In December last year, it slapped a 30 per cent import duty on chickpeas and recently doubled it to 60 per cent. But prices have only moved down. In Latur, Maharashtra, the prices have moved from ₹60/kg in January last year to ₹35.50/kg now.

The same is the case with pepper; while traders and re-exporters in the domestic market are fighting over the recently levied MIP (minimum import price) of ₹500/kg, pepper prices have not been impacted.

The spot market price in Kochi was ₹420/kg at the time of the MIP levy. It moved to ₹470/kg in two weeks, but then dropped to ₹430-420/kg by February. The price is around ₹380-390/kg now; down from ₹500/kg in July last year.

The reasons

Large carry-over stocks in many crops is one of the reasons for the price decline. In the last two years, production of some agri commodities both in the domestic and in the international market has increased significantly. For instance, wheat production in Russia has risen from 61 million tonnes in 2015-16 to 85 million tonnes in 2017-18 — a compound annual growth rate of 18 per cent. In Argentina, it rose from 11.3 million tonnes to 18 million tonnes in the same period.

And, in India, wheat production hit a record high — from 92.29 million tonnes to 97.11 million tonnes (according to the second estimate for 2017-18 from the Ministry of Agriculture). To top it all, the period also witnessed record wheat imports — 51.7 lakh tonnes in 2015-16 and 57 lakh tonnes in 2016-17.

Asked why the import duty hike didn’t push up prices, Satya Dev, a large wheat trader in Kota, said: “Import duty levy came in very late last year… a lot of imported stock had already come and since domestic production was also high, the dealers accumulated a lot of stock. How will import duty levy impact market price when no one is importing?”

No let up

Also, import restrictions do not stop cheaper-priced commodities from coming into the country. Take the case of pepper, where the Centre imposed an MIP to stop imports. Gulshan John, MD, Nedspice Processing India, a spice exporting company, explains why the move didn’t help: “MIP was a cosmetic support that offered relief for a short while. Now pepper is coming in illegally from Vietnam through Nepal.

“The global price of pepper is around ₹215/kg, and I hear that pepper imported into India is priced around ₹340-360/kg; which is still below the local market price. Artificial ways of keeping the price high when there is a huge surplus in the market cannot work…”

MSP increases, too, don’t matter. The import duty hikes aside, there has been an increase in MSP for pulses, too. But, given the large surplus last year and a record crop expected this year, too, the prices are only looking at the supply-demand equation, say market experts.

And, given that MSP procurement is too small compared to the harvest, it can’t sway the market price, adds a pulses farmer from Latur.

Published on March 11, 2018
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