Centre raises wheat MSP by 5.46%; biggest hike kept for mustard, lentils

Just ahead of a pick up in the pace of rabi planting, the Centre raised the minimum support prices (MSP) for all crops, with the biggest increases reserved for mustard and lentils. Whole wheat got a hike of nearly 5.46 per cent for the 2023-24 marketing season, which is the best since 2020-21.

With the hike, the new MSP of wheat will be Rs 2,125 per quintal as against RS 2,025 per quintal earlier.

But with wheat prices currently trading much higher than even this increased MSP that kicks in next year, it remains to be seen whether and to what extent farmers will be inclined to sell their produce to official procurement agencies.

This year, due to market prices being much higher than the state-mandated MSP, farmers opted to sell their produce to private parties leading to almost 57 per cent drop in official procurement at around 19 million tonnes against 43.3 million tonnes last year.

“The MSPs have been raised keeping in mind the need to provide farmers fair remuneration. This year however, the government would have interest in ensuring that wheat procurement is on target as stocks have come down as of September due to deployment in the PM-food scheme for the poor,” Madan Sabnabvis, chief economist at Bank of Baroda said.

He said that it seems inflation concern is still there as higher prices offered for wheat could lead to market prices rise by a higher rate.

Among other crops, MSP for mustard has been raised by almost 8 per cent to Rs 5,450 a quintal while that of lentil (Masur) has been raised by over 9 per cent to Rs 6,000 a quintal by the Cabinet Committee on Economic Affairs (CCEA).

The hike in mustard MSP is in line with the stated government policy to encourage farmers to shift from growing cereals and grains to high value oilseeds and pulses in which the country is hugely import dependent.

Meanwhile, in the case of wheat, the government said that MSP fixed is higher than the cost of production which is also the case with mustard by almost 100 per cent. This is despite the fact that as per the changed rules MSPs are fixed mandatorily at 50 per cent over the A2+FL cost.

“Wheat/atta inflation for September was at 17.4 per cent while masur was at 6.6 per cent.

In the case of gram it was less than 1 per cent hence a low increase in MSP. The 7.9 per cent increase in MSP for mustard is to enable farmers to increase their production which will help to lower import dependency of edible oils,” Sabnavis said.

With the advent of Navratri festivities last month, wheat prices in North Indian markets had started to firm again as flour makers scrambled to replenish their waning inventories.

Demand for atta (wheat flour) and other wheat related products such as maida and sooji usually goes up during the festival months because of their extensive use in various home-made delicacies.

Trade and market sources said wheat prices in wholesale markets of Delhi have risen by around Rs 100 per quintal since September 1 with almost 75 per cent of the increase happening from September 24 onwards.

Yesterday, Food Secretary Sudhanshu Pandey said that the increase in wheat prices seen in the last few weeks is ‘normal’ as rates were ‘artificially depressed’ last year and it has ample stocks to intervene in the market as and when required.

“The rates fell last year as FCI pumped in seven million tonnes of wheat in the open market that artificially depressed them. Therefore, it is not advisable to compare the current year’s increase in wheat with last year’s. It should be compared with prices that prevailed in 2020” Pandey told reporters.

He said that when compared with 2020 rates, there is an 11.42 per cent increase in wholesale wheat prices at Rs 27.57 per kg and 12.01 per cent in retail wheat prices at Rs 31.06 per kg as on October 14 this year.

Asserting that this price increase in wheat is not “astronomical, the Secretary said it is in tune with the increase in the minimum support price, fuel and transportation and other expenses.

Meanwhile, market players are hopeful that due to good prices, farmers will plant at least 10 per cent more area than previous years under the crop due to remunerative prices and favorable weather.

Wheat is usually sown in around 31 million hectares of land every year mostly concentrated in the northern belt.

“There is every possibility that there could be at least 10 per increase in wheat acreage in main growing states of Rajasthan, Madhya Pradesh and UP as the sentiment is extremely bullish,” Rahul Chauhan, a commodity analyst with iGrain India had told Business Standard a few days back.

So also is an expected increase in acreage under mustard. The crop is usually sown in around 6.4 million hectares of land.

All this area increase could come at the expense of chana (gram), because traders feel that the crop hasn’t fetched as high a price as mustard and wheat for farmers this year.

The recent rains in North India though harmful for the standing kharif is seen as vastly benefitting the forthcoming rabi harvest as it will leave adequate residual soil moisture.

Wheat prices in the open market have largely stayed above the MSP of Rs 2015 per quintal this year due to favourable demand and drop in production because of rise in terminal heat during the critical harvest months of March and April 2022.

The Russia-Ukraine war also pushed up global wheat demand which led to spike in Indian markets as both the nations are major exporters of wheat to the world markets.

Seeing a sharp spike in prices and a massive almost 57 per cent drop in its own procurement, the central government imposed a ban on exports in May 2022.

However, the move did little to cool down prices drastically and the markets have been trading above the MSP as there is virtually no pipeline stocks with the flour millers.

A drop in procurement also means that Centre’s ability to intervene in the domestic wheat markets to cool down prices through open sales is limited as it has to first meet the needs of the public c distribution system and the free food grains programme started during COVID and carried on thereafter.

As on October 1, wheat stocks in the central pool was estimated at 22.76 million tonnes, which is precariously close to its buffer norms of 20.52 million tonnes.