Wednesday December 31, 09:17 AM

Source: Indian Express Finance

FE Editorial : Market sense prevails

By The Financial Express
It s well into December and the government is yet to announce the minimum support price (MSP) for rabi crops. This raises a very important question -is the whole policy of announcing MSPs actually needed to prop up farming? Or will the free flow of market forces be better for farmers? Take the case of wheat. The price trend and sowing reports show that, acreage under wheat is almost 6.5 lakh hectares more than last year till now, and if officials are to be believed, the targeted 28 million tonnes should be achieved well ahead of time. The major reason for this rise is the stable market price of the commodity. This year, in retail markets, wheat prices have remained around Rs 1,300 per quintal, almost Rs 300 more than the government s fixed MSP of Rs 1,000 per quintal. Admittedly, the difference in MSP of wheat, (the de-facto purchase price in case of foodgrains) and their actual retail sale price is not always a fair comparison, because lot of additions are made from farm to shelves, but it is a reasonable indicator of the market price for the farmer. But MSP is at times faulty and usually not timed well enough to help farmers make an informed decision. In case of chana (gram), which is the other main crop grown during the rabi season, the MSP fixed last year was around Rs 1,600 per quintal, but the retail sale price in the last six months has been around Rs 3,500 per quintal, way above the MSP. Consequently, as per latest data, chana acreage till December 26 is 7.84 million hectares, up from around 7.15 million hectares during the same period last year. The signal coming from the farmers is clear they have not waited for price direction from the government to determine their sowing priorities. Instead, they have taken market cues to plan their sowing. If the market price is the main driver of a farmer s sowing decision, the government should consider abandoning MSPs and let farmers decide their sowing options based on market price of that commodity. Of course, at times, a steep fall in prices does compel government to intervene, but such instances are getting fewer with each passing year. To use the tool of MSP to increase government s stocks may make opportunistic political sense, but it is definitely not sound economics.