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Fine-tune food pricing policy

The Government's announcement of a hike in the minimum support price (MSP) of wheat by Rs.50 to Rs.750 per quintal cannot be faulted for its timing, coming as it does at the start of the rabi season. Previously, the price announcement tended to come well after sowing was completed, thereby defeating one of the important objectives of the MSP mechanism — being able to influence cropping patterns through appropriate incentives. On the face of it, the new support price appears to be generous. Since 2001, the Government had been increasing the support price only marginally in sharp contrast to the practice in the past when support prices were raised well above domestic and global market prices leading to huge accumulation of cereal stocks. Those stocks have dwindled dramatically since, but the lessons from almost a decade and a half of tinkering with the support prices of cereals without a coherent agricultural pricing policy have yet to be learnt. Last year too, the Government had initially increased the support price by a modest Rs.10 to Rs.650, but had to offer a bonus of Rs.50 to help overcome farmers' reluctance to sell at harvest time to government agencies. The support price, which has virtually become the procurement price, was below that offered by private trade. As a result, the Government's procurement has suffered, with its deleterious consequences on the public distribution system. Ominously, during the next harvest season too, it is unlikely that even the increased support price now announced for wheat will persuade farmers to sell to the public agencies.

Domestic wheat output has stagnated at around 70 million tonnes. At the global level too the outlook is not encouraging. Two important wheat producers, Argentina and Australia are likely to have a poor harvest. On the newly introduced commodities exchanges, wheat futures are ruling high. Under the circumstances, it is difficult to see how far even a well-considered MSP and possibly higher procurement prices could go in bringing in enough foodgrains to the government godowns. With high food prices fuelling inflation, there is obviously a need to link key agricultural pricing issues with the broader macroeconomic goals. The National Commission on Farmers headed by Dr. M.S. Swaminathan in its final report has suggested a few common sense measures that the Government will do well to adopt. These include announcing MSPs for a wide range of crops of importance to the PDS well before the start of the sowing season; fixing the procurement price at harvest time taking into account cost escalation in key inputs; and giving special incentives to those farmers who sell their produce for the PDS.

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