Price support for pulses: Traders eye 40% windfall as govt sells in the depressed market

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New Delhi | Updated: September 20, 2018 6:23:57 AM

Nafed offloads old stocks of lentils at 15-20% losses, to purchase kharif 2018 crop shortly at much higher MSPs.

Out of 48.74 lakh tonne of pulses procured by Nafed since 2016 under the augmented PSS, only about 5 lakh tonnes have been disposed of.

Even as arrivals of the kharif 2018 crop have started in key markets and prices of fresh pulses seem depressed by 30-35%, the government is offloading its old lentil stocks in the market at 15-20% losses as it prepares itself for purchasing the new crop at the higher minimum support prices (MSPs).

For Nafed, the designated procurement agency for pulses and oil-seeds, the current sales are inevitable as it has to make room for storage of new crop, but in the process, it could end up offering a windfall for profit-hungry traders, leaving both the farmers and consumers in the lurch.

It is only to be expected that traders who buy the old stocks from Nafed now will sell these to the same agency when it undertakes MSP operations for new crop shortly, raking in big moolah. (Pulses MSPs for kharif 2018 are 4-25% higher than in the year-ago season).

According to the data reviewed by FE, Nafed’s average price realisation from sale of moong from last kharif season is Rs 4,762.67/quintal, down 15% from an MSP of Rs 5,575/quintal at which the stocks were purchased by it. So a trader who now buys last year’s moong stocks from Nafed will have the option of selling the same to Nafed in a few weeks at Rs 6,975/quintal, the MSP for the new season, and make a huge profit of over 40%.

Clearly, a vicious cycle has been created where neither the farmer nor the consumer benefits but only the large traders do. The odd situation exposes not only bad economics of the government’s open-end procurement policy but also its lack of efficacy when it comes to achieving the objective of ensuring remunerative prices to farmers. With limited storage infrastructure, Nafed is unwittingly driving down the market prices as it offloads stocks and inflating its own procurement costs.

Farmers in Gulbarga, Karnataka, are now selling their fresh harvest of moong crop at 33-35% below the MSP while in Maharashtra too, mandi prices of moong are ruling at 32% below the MSP. The moong MSP for kharif 2018 was increased 25% from the last year level as part of a government promise to set the benchmark prices at 150% over their production costs (A2+FL).

Nafed has 43.7 lakh tonne of unsold stocks of pulses now, 60% which is channa; some of the crops are as old as 16 months and need to be sold at the earliest to avoid damages.

“All the pulses purchased by Nafed under the price support scheme (PSS) are being sold at discounts since market rates are lower. Except in case of soybean, where Nafed has made a profit by selling above the procurement costs, it has made losses in oilseeds such as mustard, sunflower and groundnut as well,” a government official said.

Out of 48.74 lakh tonne of pulses procured by Nafed since 2016 under the augmented PSS, only about 5 lakh tonnes have been disposed of. Over 7.61 lakh tonne of oilseeds have been sold from total purchase of 22.17 lakh tonne during this period.

Sales at lower prices are necessitated by the space crunch in warehouses; the government has to vacate the godowns to store the fresh crops, said noted agriculture economist Ashok Gulati. He said the way pulses prices are moving, in the next few years the government’s peak stocks might increase to 10 million tonnes from around 7 million tonnes (2 million buffer plus 5 million tonnes under PSS) now.

India’s pulses production increased to a record 25.23 million tonnes in 2017-18 crop year (July-June). The government targets to increase the output to 28 million tonnes by 2022.

Rolling out a package — PM-AASHA — of price deficiency support schemes for agriculture crops, the government recently announced an extra Budget outlay of Rs 15,000 crore for procurement of non-National Food Security Act (NFSA) crops during the June 2018-July 2019 crop year. It also enhanced the government guarantee for Nafed to undertake procurement of pulses and oilseeds by Rs 16,550 crore to Rs 45,450 crore this fiscal.

-Prabhudatta Mishra

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