Price support for crops: Mandi prices suggest government tab may be high

Prabhudatta Misra, February 26,2018

If market prices of chana, a rabi pulse, remain at the current levels through the season, the Centre and states will have to fork out a whopping Rs 6,400 crore to ensure farmers get the minimum support price (MSP) for the crop by way of deficiency payments. And that is just about one crop in one season. The cost to the exchequer will multiply and could easily be in the vicinity of an annual Rs 80,000 crore estimated by FE earlier if all volumes of farm produce — except fruits and vegetables — that are not procured by the government at the respective MSPs are to be given prompt and
complete deficiency price support, as promised in the recent Union Budget. Indeed, these are estimates based on current MSPs; if the MSP is 1.5 times the A2+FL cost as proposed in the Budget, then the cost to the exchequer to keep the Budget promise of price support to farmers would be even higher. While fresh arrivals of chana are fetching 20% below the MSP, wheat prices too have remained depressed — at 5-8% below the MSP — since the new crop hit the market in Gujarat and Madhya Pradesh. Traders expect this rabi season’s chana production to be around 10 million tonnes (mt) up from 9.33 mt last year, considering that sown area has gone up by 8% over last year. About 5% of the production has already been sold in the market without any price support. Given that farmers could keep 15% of the produce as seeds and for own/local consumption, the chana output that will be eligible for deficiency payments could be 8 mt.

Since the gap between the prevailing market price and MSP is Rs 8,000 a tonne, price support by the government will entail Rs 6,400 crore. And it is possible that market prices could depress further, requiring the government to spend more to keep its promise. “Normally prices fall when mandi arrivals pick up. For chana, it is just the beginning. The price (that the farmer gets) will depend on the policy decisions of the government,” said Pawan Jindal, a trader from Indore. After the recent increase in import duty, the market price went up by Rs 300 per quintal (Rs 30,000 a tonne),” he added. The Centre on February 6 had raised the import duty on chana (chickpeas) to 40% from 30% earlier, as good local harvest has dragged down prices to below MSP in many areas. Farmers had planted chana in 10.76 million hectares as of February 9, as against 9.95 million hectares in the year-ago period.
According to mandi-wise data maintained by the agriculture ministry, the average price of chana at many places are now hovering around Rs 36,00 per quintal as against the MSP of Rs 4,400 per quintal (including Rs 150 a quintal bonus). A fortnight ago, chana in Bina, Madhya Pradesh, was available at Rs 3,300 a quintal, but now the price has jumped to Rs 3,600 a quintal, Jindal said. Similar price levels are maintained for transactions on the government’s eNAM (electronic national agriculture market) portal. According to the agmarknet, a government portal, 3,029 tonnes of chana crops arrived in the past week in different mandis of Karnataka and were sold between Rs 2,720-3,750 per quintal. Similarly, Kurnool district of Andhra Pradesh saw sales at Rs 3,700 per quintal. In Chhattisgarh, the mandi prices were between Rs 3,400-3,776 per quintal. Farmers in Gujarat are selling chana at Rs 3,550-3,625 a quintal. In Rajasthan, where the crop is yet to be harvested in many areas, the initial supplies fetched Rs 3,750 per quintal at Bikaner.
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