Market cues: Link between MSPs, mandi rates tenuous

Published: May 20, 2019 5:35:10 AM

Clearly, seasonal demand-supply fluctuations influence market prices of foodgrain much more than the government’s market interventions.

MSP of food  grains, mandi rates, foodgrain, NDA government, rabi crops, Food Corporation of India, Nafed, agriculture growthCare Ratings chief economist Madan Sabnavis said: “I do not see a short-term solution to boost prices for farmers as there is no procurement possibility in these crops, except wheat.”

A comparison of the increase in mandi rates of key foodgrain and the hikes in their minimum support prices (MSPs) over the years shows that higher MSPs don’t always translate into better realisations for farmers. While the link between the two — mandi rates and MSPs — are somewhat erratic, in most cases the mandi prices have remained significantly lower than MSPs (see chart).

Clearly, seasonal demand-supply fluctuations influence market prices of foodgrain much more than the government’s market interventions. Higher MSPs without considerable quantities of procurement/assurance of procurement don’t result in elevated mandi prices. In recent years under the NDA government, procurement of pulses and oilseeds, which has been conventionally very low, has seen a spike. While this trend was evident in the last three years, the launch of the much-touted PM-Aasha scheme hasn’t led to any further material change in the level of procurement.

Also read: Monsoon in India: Pre-season rainfall deficit drops to 22%

In the case of five crops FE analysed, rabi MSPs in 2019 (April 1-May 10) were 25-46% higher than prevailed five years ago, but only in case of three of these crops (wheat, barley and gram), mandi rates were higher than five years ago (15-57%) whereas in the case of the other two (masur and mustard), the market rates in the current season remained below the corresponding levels five years ago.

Though the Modi government came out with the policy of MSPs at 150% of production cost, the cumulative increases in MSPs over its five-year period were in most cases lower than during the UPA II period, and in some cases, lower than during the UPA I’s tenure. During the UPA I period, the MSP increases of rabi crops over the initial and last years were in the range of 8-69% while UPA II witnessed a 27-76% hike.

Care Ratings chief economist Madan Sabnavis said: “I do not see a short-term solution to boost prices for farmers as there is no procurement possibility in these crops, except wheat.”  In 2018-19, the production was record 281.37 MT against the target of 290.25 MT. The target for last year was sharply higher than the previous year’s 274.55 MT.
“I don’t think prices will flare up now, given the excessive stocks of grains with the government. Crop prices this season are a bit higher than last season, partly because of likely drought in some states,” economist Ashok Gulati said.

The foodgrain stock in the Central pool maintained by the Food Corporation of India (FCI) was 56.82 million tonne as of April 1, against the buffer norm of 21.04 million tonne. The reserves include 16.99 million tonne of wheat and 39.83 million tonne of rice (including some paddy stock converted in terms of rice). Agriculture cooperative Nafed, which procures oilseeds and pulses on behalf of the government, has over 3.5 million tonne in its store houses as of

May 10. In addition to this, the government has about 2 million tonne of tur under buffer stock.The government has set a target of record 291.1 million tonne of foodgrain production for the next crop year of 2019-20, starting July. Last year’s ambitious target could not be achieved as certain crop-producing areas witnessed deficient rainfall, even though the India Meteorological Department (IMD) had predicted ‘normal’ monsoon.

The actual rainfall was 91% of the benchmark long-period average (LPA) of 89 cm. A bumper harvest usually helps the country to increase the overall agriculture growth and boost rural economy, but in recent years, robust production hasn’t really translated into gains for farmers as prices remained subdued.

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