Most agricultural commodity prices well below minimum support price

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Most agricultural commodities are trading below the central government-set minimum support price (MSP), and for quite a while.

The average price of maize, for example, was Rs 887 a quintal during August at the Santhesargur (Karnataka) wholesale centre (mandi), around 38 per cent lower than its MSP of Rs 1,425 a quintal. Black gram (urad) at the Alirajpur (Madhya Pradesh) mandi was quoted at Rs 2,827 a quintal in August, on average; the MSP is Rs 5,400 a quintal.

This situation is set to continue, with a bumper harvest estimated for the ongoing kharif season; harvesting is to commence in a month. With record inventory also with government procurement agencies, early relief seems unlikely for farmers.

“As long as the country witnesses a normal harvest, there will be a case of prices falling below the MSP, until the government makes a proper system of procurement. While the current kharif season harvest is expected to be slightly lower than last year, it will be above normal. This means supply is going to improve further,” said Madan Sabnavis, chief economist at CARE Ratings.

The central government is believed to be in an advanced stage of announcing a ‘Bhavantar’ (price differential) scheme, to directly pay growers the difference between the current price and MSP. It is based on a scheme pioneered by the MAdhya Pradesh government but the latter had some loopholes and other issues.

“It will be interesting to see, how the government tightens these loopholes before announcing the ‘Bhavantar’ scheme. With government agencies’ limited reach and financial strength, involvement of private agencies would be needed. But, private purchasers’ bills would have to be met. With prices below the MSP, private procurers (now) always purchase at the market price,” said Sanjay Kaul, managing director, National Collateral Management Services Ltd.

The Union ministry of agriculture had announced the sown area under kharif crops at 104.2 million hectares as of last Thursday, a marginal rise from 104 million hectares reported by the same time last year.

D K Joshi, chief economist at ratings agency CRISIL, says price movement would be decided by success on MSP procurement. “While there is a bit of question mark on the reach of the government’s procurement, we will have to wait for the final kharif output to assess price movement,” he said.



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