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Managing food abundance

The Central government’s decision last week to hike the minimum support price for wheat by Rs.80 a quintal and the prices of various pulses by between Rs.130 and Rs.170 can be faulted on at least two grounds. The announcement has come three months too late. The MSP not only sets the floor price in the post-harvest period but can give valuable information to the farmer before the start of sowing. The farmer can decide whether or not to grow a particular crop depending on the return he can expect. However, this time the government has claimed that the delayed announcement of the MSP has not stood in the way of an increased acreage for wheat cultivation in the Rabi season. The second point of criticism has to do with the quantum of increase in the MSP. On the face of it, the hikes of 8 per cent in the case of wheat — from Rs.1,000 to Rs.1,080 — and of 10-12 per cent for pulses do not appear to be unreasonable especially because until recently inflation was running high. The government has resisted the temptation in an election year to hike the MSPs beyond those recommended by the Commission for Agricultural Costs and Prices. In fact, the price increase for wheat this time is low in comparison with the rise of Rs.150 a quintal (including bonus) effected in the past two years.

The minimum support price in effect becomes the procurement price. The high MSP for wheat was one of the main reasons for a record procurement of nearly 22.7 million tonnes last year. That private trade was actively discouraged was another contributory factor. The high procurement prices are one reason why food prices still remain high in the retail market. The food subsidy bill is bound to go up further from its present level of around Rs.50,000 crore. Since wheat harvest is expected to be at a record level for the second consecutive year — it is likely to be more than 75 million tonnes — the government might face the embarrassment of huge stocks of grains, far above what is required for feeding the public distribution system. Export of wheat as an option is ruled out until after the elections. In any case domestic prices of wheat will most probably be above international prices. At the beginning of this decade the policy responses to a “mountain” of food grains involved a moderation in the MSP increases and subsidised exports. Unfortunately in the subsequent years wheat had to be imported, that too at a time when international prices had zoomed. The crisis has once again turned into a problem of abundance, posing a different kind of challenge in food management.

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