Commodities

Crop estimate not in sync with market behaviour

G Chandrashekhar | Updated on May 30, 2021

File photo   -  SRINATH M

Present consumption demand may be an improvement over 2020 that saw demand destruction

The Government’s third advance estimate of 2020-21 crops production issued on May 25 has not just surprised market participants but flummoxed them. The growing suspicion that some numbers are overstated draws support from the fact that crop estimates are hardly in sync with the reality of market behaviour. Is there pressure to show ‘good performance’ of the farm sector?

Without doubt, agriculture has been a beacon of hope over the last 15 months amid the mayhem of Covid-19 pandemic. At a time when manufacturing and services sectors have slowed markedly, the farm sector has demonstrated resilience. But that does nothing to clear the air about the correctness of the latest crop production data.

Specifically, the official estimate overstates the production number for pulses and oilseeds; and the proof, if needed, is provided by the recent behaviour of market prices that has necessitated Government intervention.

In case of oilseeds, the production estimate of 134 lakh tons (previous year 112 l t) and 100 lakh tons (91 l t) respectively for soybean and rapeseed-mustard ought to have placed a firm lid on a strident price escalation because of augmented availability. But the market reality is different. At around Rs 7200 a quintal, soybean rates are some 70 percent higher than the minimum support price of Rs 3880 a quintal.

The trade does not subscribe to the Government estimate and places production some 30 percent lower at 100 lakh tons. Clearly, the market is the final arbiter, and knows exactly the quantum available. Rapeseed-mustard too is not much different. Harvest of 100 l t is massive; yet at about Rs 7250 a quintal, market rate is over 50 percent above the MSP of Rs 4650/- a quintal.

Without doubt, global factors have contributed to the domestic oilseed price behaviour. La Nina induced dry weather mainly in South America combined with ultra-loose monetary policy by central bankers (especially the US Federal Reserve) has boosted the global oilseeds and vegetable oil market.

In some cases, like palm oil, prices have actually doubled from a year ago levels. Rising crude oil (Brent at $ 67 a barrel) too has driven veg oil rates higher because of greater diversion for bio-diesel. Integration of the Indian market with the global market through the liberal trade route surely exerts impact on domestic prices.

The case of pulses is even more curious. The Government’s production estimate is a record 256 l t for 2020-21 (230 l t). Yet, prices are ruling well above the minimum support unlike in the previous three years. At 126 l t chana harvest is far above what the trade believes to be 100 l t maximum. Official tur/arhar output at 41.4 l t too is well above what trade estimates to be 35 l t.

No wonder, in order to arrest rising prices and augment availability, the Government permitted free import of tur/arhar, urad and moong on May 15 for shipment till October 31. If the Government’s crop estimates were anywhere near reality, there would be no case for a price rally. If anything, consumption demand is not normal. It may be an improvement over 2020 that saw demand destruction, but regional and localised lockdowns this year still exert a negative impact on demand.

It is critical the government revisits the crop production estimate and makes the process of data collection and compilation more transparent for sake of market integrity.

(The author is a policy commentator and agribusiness specialist. Views are personal)

Published on May 30, 2021

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