NEW DELHI: The government on Thursday increased the floor or minimum support price (MSP) of wheat by Rs 80 to Rs 1,080 a quintal for the 2009-10
marketing season. Despite this, wheat is likely to come relatively cheap for the doemstic consumer, on the back of record stocks and fresh production this year.
The decision was taken a full four months after it is usually done each year, in October, just prior to the sowing season in order that the farmer may make an informed decision on how much acreage to bring under wheat.For Rabi 2008-09, though, wheat acreage, despite the delay in MSP announcement, was higher than last Rabi.India’s wheat planting area during the October 1 to January 22 period rose to 27.5 million hectares from 27.4 million hectares last year earlier due to favorable weather conditions, for the sowing season starting early November.
On its part, the government expects wheat production in 2008-09 to top last year's record of 78.40 million tonnes and, according to a recent USDA report, government stocks have swelled sharply following a record procurement by the government at 22.7 million tonnes in the marketing season 2008-09, starting April, due to a steep increase inthe minimum support price of wheat and curbs on purchases by traders. Stocks with the governmetn, it is estimated, could be around 30 million tonnes by June 1 this year.
The estimated output in 2008-09 is around 79 m tonnes. Together, the stocks from 07-08 and the projections for 2008-09 leave the governmetn sitting pretty on wheat reserves for PDS, welfare programmes, OMSS (open market sales scheme) and exports. The governmetn has remained non commital on opening up wheat exports upto now, despite the USDA report maintaining that India will export wheat by May 2009, but with an export subsidy since the price will be non competitive globally.
Today's hike in MSP for wheat is lower than the level recommended by the CACP (Commission for Agricultural Costs and Prices) but, at Rs 80/qtl over 2007-08, in sync with the expectations of the farm community by and large. However, wheat prices globally are at a marked low and, compared to that, domestic wheat support prices are higher, albeit in tune with high domestic input costs. Most analysts have forecast that by May 2009, wheat global (read CBoT) prices will shoot up and May, after the general elections, would be an ideal time for the goverment to open up exports.
Record breaking wheat output and procuremnt for the second year running would rate extremely well on the election report card, despite boosting the overall economic sentiment. The only worrisome issue could be that, the hike global wheat prices will not keep pace with the hike in domestic prices adn that domestic wheat would be rendered uncompetitive for exports without and export subsidy which will impose a sizeable burden on the exchequer.
Source : The Economic Times