Government Defers Decision on Support Price of Wheat

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Posted on: 28 Nov 2012

The government raised the minimum support price (MSP) for selected upcoming rabi (winter harvested) crops for the Indian crop year (July-June) 2012/13.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary Public - Date: 11/2/2012 GAIN Report Number: IN2144 India Post: New Delhi Government Defers Decision on Support Price of Wheat Report Categories: Grain and Feed Oilseeds and Products Policy and Program Announcements Trade Policy Monitoring Agriculture in the Economy Approved By: Allan Mustard Prepared By: Santosh Singh Report Highlights: The government raised the minimum support price (MSP) for selected upcoming rabi (winter harvested) crops for the Indian crop year (July-June) 2012/13. However, a decision on the MSP for wheat was deferred as the relevant ministries disagreed on the Commission of Agriculture Cost and Prices recommendation to freeze MSP at last year’s level. General Information: Government Raise Support Price for Rabi Crops, Defers Decision on Wheat On November 1, 2012, the Cabinet Committee on Economic Affairs (CCEA) approved the minimum support price (MSP) for certain upcoming rabi (winter harvested) crops for the Indian crop year (July- June) 2012/13 (MY 2013/14) based on the recommendations of the Commission on Agriculture Cost and Price (CACP). However, a decision on MSP for wheat was deferred despite CACP’s recommendation of no increase in the MSP for wheat over MY 2012/13 level (Rs. 12,850 or $238 per ton) to encourage farmers to plant more oilseed and pulse crops instead of wheat. Reports suggest that a fresh note on wheat MSP will be prepared to address the concerns of all stakeholders and discussed in the next CCEA meeting. Consequently, the decision on MSP on wheat for MY 2013/14 is likely to be delayed compared to last year (October 25, 2011). Table 1. India: Government of India Minimum Support Price (MSP) for Rabi Crops (Indian Rupees per Metric Ton) Crop\Crop Year 2012/13 2011/12 2010/11 Wheat Decision Deferred1 12,850 11,2002 Barley 9,800 9,800 7,800 Chick Pea 30,000 28,000 21,000 Lentils 29,000 28,000 22,500 Rapeseed & Mustard 30,000 25,000 18,500 Safflower 28,000 25,000 18,000 Note 1: - No Change from 2011/12 recommended by the CACP. 2 - An additional bonus of Rs. 500 per ton paid over the MSP. Source: Ministry of Agriculture, GOI. Ministry of Agriculture vs. Other Ministries Media reports suggest that the decision on MSP for wheat could not be taken by the CCEA due to differences between the relevant ministries. Officials of the Ministry of Agriculture pushed for raising the MSP by calling for a bonus of 10 percent over the CACP recommendation to compensate farmers for rising input costs, particularly of diesel and fertilizers. However, officials of the Food Ministry and Ministry of Finance are in favor of freezing the MSP for wheat due to rising government wheat procurement, “burdensome” stocks, and escalating food subsides in recent years. Concerns were also expressed about the impact of a higher MSP for wheat on food inflation and the government’s fiscal deficit. Table 2. India: Wheat Production and Government of India Procurement Operations Marketing Production GOI MSP GOI Cost Off take from GOI Food Year Procuremen 1t Stocks Subsidy (Apr–Mar) (Million (Million Tons) Rs. per Rs. Per (Million Tons) Rs. Billion Tons) ton ton 2005/06 68.64 14.79 (21.6) 6,400 10,419 16.71 230.80 2006/07 69.35 9.23 (13.3) 7,000 11,778 11.88 240.10 2007/08 75.81 11.13 (14.6) 8,500 13,118 12.25 312.60 2008/09 78.57 22.69 (28.9) 10,000 13,806 14.89 437.50 2009/10 80.68 25.38 (31.5) 10,800 14,246 22.38 582.42 2010/11 80.80 22.51 (27.8) 11,000 14,944 23.03 629.30 2011/12 86.87 28.33 (32.6) 11,700 16,519 24.27 723.71 2012/13 93.90 38.15 (40.6) 12,850 18,225 Not available 745.522 Not 1e: - Figures in parentheses are government procurement as percent of total production. 2 - GOI 2012 Budget Estimate. Market sources estimate that the actual subsidy bill for MY 2012/13 would surpass Rs. 1000 billion on higher than expected procurement and large stocks. Source: Ministry of Agriculture, Food Corporation of India, and GOI budget documents. India had two consecutive record wheat crops and government wheat procurement in MY 2010/11 and 2011/12, and is holding wheat stocks of 43.2 million tons as of October 1, 2012, more than three times the desired stock levels. Media reports quote a senior CACP official, “There is absolutely no need to further encourage planting and production of wheat to let it rot… The focus should be more on improving production of oilseeds and pulses.” Given that India is the leading importer of vegetable oils and pulses in the world, at least some government officials would like to encourage production of these crops to reduce dependence on imports. Post Comments: The decision on MSP for wheat is likely to be taken based on political factors despite the government’s concerns about “unmanageable” food grain procurement and the escalating food subsidy. However, the quantum of increase in MSP for wheat is unlikely to cause any significant shift away from area under wheat to competing rabi pulse and oilseed crops. Unlike last year, current market prices of wheat (Rs. 13,500-17,000 or $250-315 per ton) are well above the MY 2012/13 MSP, and with prices expected to increase further on expected strong international prices, farmers will be encouraged to plant wheat in the upcoming season. In addition, farmers will continue to prefer wheat over competing pulse and oilseed crops as the latter are relatively low yielding, susceptible to pests, diseases and weather extremities, and do not have an established government procurement system in place.
Posted: 28 November 2012

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