Home Insights Boost Price Stabilization Fund for Pulses & Oilseeds

Boost Price Stabilization Fund for Pulses & Oilseeds


A Amarender Reddy

Pulses and edible oils have been a constant source of food inflation over the past two decades. The anomaly can be corrected if we are able to increase domestic production by incentivizing technological adoption, expanding the area under irrigation and the adoption of improved varieties. Recent inflation data released by the government indicates that pulses’ inflation is 10% and that of oils & fats is 35%. This high food inflation is in spite of surplus grain stocks.

India’s food grain production is estimated to achieve a new record of 305.43 million tones in the crop year 2020-21 on the basis of better output of rice and wheat. The export of agricultural and allied products grew 17.34 per cent to $41.25 billion. The procurement of paddy and wheat touched an all-time high of 129.8 million tones.

However, in spite of this rosy picture, farmers’ incomes are not increasing as expected and there is widespread distress. Although MSP is announced for 23 commodities, procurement is negligible for most crops, except paddy and wheat. Pulses’ procurement was just 9.8 lakh tones in 2020-21, which is neither sufficient to support prices above MSP for farmers nor adequate to distribute through the Public Distribution System (PDS) for the poorest of the poor. The procurement of oilseeds such as groundnut and sunflower is negligible. A free market alone does not lead to a higher farm income. Many a time, it will expose small and marginal farmers to high volatility in prices.

Many farmers of pulses, oilseeds and millets, exposed to market vagaries, have sold their produce at 20-30% below MSP year after year. Since the past 20 years, India imports nearly 70% of domestic consumption of edible oils by spending about Rs 70,000 crore per year. The retail prices of some edible oils are hovering above Rs 200/kg, hurting consumers. Farmers of fruits and vegetables are more vulnerable to price fluctuations; some vegetable farmers did not harvest their tomatoes and onions as market prices didn’t even cover picking and transport costs, but at the same time prices in urban centers are higher, mostly captured by market intermediaries rather than farmers.

In addition to the marketing and post-harvest bottlenecks, farmers’ distress is aggravated by labour shortage, increasing cost of production, low investments in land development and low productivity.

‘Ad hocism’ in the trade policy, such as frequent on-off of export bans and the imposition of stock limits, restricts farmers from taking advantage of higher global prices. This results in farmers being exposed to price falls, but not able to sell in international markets when the prices are higher. This has happened time and again in the cases of onions, pulses and edible oils. These decisions are mostly categorized as ‘consumer-friendly’ rather than ‘farmer-friendly’ so as to supply essential food items to consumers at cheaper rates with consequent low income to farmers.

Open-ended procurement of paddy and wheat is hurting food economy, with the government spending a huge amount of money on maintaining excessive buffer stocks of 2-3 times the stipulated norm, with the subsequent shortage of funds to procure crops like pulses and oilseeds. The government is allocating about Rs 2.5 lakh crore for paddy and wheat procurement operations of the Food Corporation of India (FCI), whereas the allocation for the price stabilization fund (used to procure onion and pulses) is just Rs 2,700 crore in 2021-22. This imbalance needs to be corrected.

Enhance crop yield

The need of the hour is to enhance yield in pulses and oilseeds through MSP procurement, especially in aspirational districts, not only to increase the production of these crops but also to increase farmers’ incomes. Hence, there should be rationalization of the budget allocation to balance the procurement of paddy, wheat, pulses and oilseeds.

Farmers are generally risk-averse. Although Punjab is endowed with highly fertile land suitable for high-returns crops like plantation crops, fruits and vegetables with some private investment, it is trapped in medium returns from no-risk crops like paddy and wheat. Meanwhile, states such as Kerala, Andhra Pradesh and Karnataka have diversified their cropping pattern towards high-value plantation crops and are reaping 2-3 times returns per hectare compared to Punjab’s monocropping. This is the reason why Punjab’s farm growth has plummeted to 1.9 per cent per year since 2005-06, while that of the rest of the country is 3.5 per cent.

Instead of allocating larger budgets under MSP operations of paddy and wheat, strengthening the price stabilization fund, especially for pulses, oilseeds and onions, is needed for rapid growth of farmers’ incomes. Currently, growers of pulses, oilseeds and other commercial crops are exposed to more risks, both in terms of yield and prices, although these are high-returns crops. If the government reduces the price risk, they can expand the area and invest in fertilizers, irrigation and seeds, which will result in increased yield and incomes.

In the case of pulses, market prices were higher than the MSP in most of the years up to 2006; later, pulses’ production picked up, especially in the case of chickpeas with the adoption of high-yielding varieties, supported by increased MSP. A similar experience was observed in the case of oilseeds, when the government introduced the Technology Mission on Oilseeds in 1986; coupled with price support, oilseed production steeply increased and India became self-sufficient. But with the withdrawal of price support after the 1990s due to WTO agreements, India became a major importer.

MSP without procurement is not effective for any crop. In recent years, Telangana’s fine paddy varieties were sold below MSP compared to common paddy varieties as the latter is procured at MSP. Millets are procured in very few states: bajra in Haryana and ragi in Odisha. Whenever the government procures in sufficient quantities, say 20-30% of the production, consistently, it will impact technology adoption, yields and open market prices of that crop.

Pulses and edible oils have been a source of food inflation over the past two decades. The anomaly can be corrected if we are able to increase domestic production by incentivizing technological adoption, expanding the area under irrigation and the adoption of improved varieties. Recent inflation data released by the government indicates that pulses’ inflation is 10% and that of oils & fats is 35%. This high food inflation is in spite of surplus food grain stocks.

Cost factor

Government data shows that the estimated economic cost (including logistic & storage costs) of wheat was Rs 29.93/kg, while MSP was 19.25 per kg in 2021-22, which indicates that about one-third of the cost incurred is spent on handling charges and not going to farmers or consumers. This expenditure needs to be brought down by reducing excess procurement of food grains and diverting funds for the procurement of other high-value crops.

India’s grain stocks with the FCI are rising. Offloading excess food grains is beyond the capacity of the government. The increase in wheat and rice production is attributed to assured procurement at MSP. The increased production of cotton is attributed to both Bt cotton technology and procurement by the Cotton Corporation of India. The success stories of maize, bajra and chickpeas are due to technological breakthroughs, although increased market prices played a role. Crops like basmati benefited from improved varieties like PB 1121, which helped in fetching higher prices in export markets.

Overall, price incentives have played a key role in increasing the production of paddy and wheat, but now they are in excess supply. It’s time to support crops like pulses and oilseeds through procurement at MSP.

This article first appeared in The Tribune Boost price stabilisation fund for pulses, oilseeds on 20th July’2021.

About the Author

A Amarender Reddy - Author Biography | Down To Earth

The author is Principal Scientist (Agri Economics), ICAR-Central Research Institute for Dryland Agriculture, Hyderabad

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