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Hike in MSP unlikely to benefit many growers

Six weeks into the South-West monsoon season, the kharif 2018 area coverage does not inspire any confidence.
As of July 6, we can see slippages in planted area for important crops including rice, pulses, coarse cereals, oilseeds and cotton, according to the Agriculture Ministry data.
So far, a third of normal area under pulses, coarse grains and oilseeds has already been planted; and more will be covered in the coming days. As for cotton, close to 50 per cent has been covered.
Meanwhile, the announcement of a sharp hike in minimum support price (MSP) for various kharif crops made on July 4 denies growers (who have completed planting) the opportunity to evaluate crop options. In other words, higher MSP is unlikely to serve its intended purpose for many growers.
The progress of monsoon is also less than satisfactory with a 7 per cent deficit as of July 4; and 11 out of the 36 meteorological sub-divisions face deficit rainfall. This covers Gujarat, Uttar Pradesh, Odisha and East Madhya Pradesh. The trickling news that September may witness below normal precipitation because of creeping El Nino conditions is a risk that cannot be taken lightly.
While it would be premature to jump to any conclusion about the eventual harvest size, the progress of planting so far and distribution of rainfall sends out a clear signal that production may fall short of the tentative target for each of the major crops this season. For coarse grains, pulses and oilseeds the targets are 34.3, 8.9 and 25.5 million tonnes respectively, while for cotton it is 35.5 million bales (of 170 kg).
The market must brace for a 10 per cent setback in pulses harvest and 6-8 per cent in cotton. In pulses, the situation is not an alarming one because the official agencies are said to be carrying about 3.5 million tonnes of various pulses including 2.6 mt of chickpea (chana). These stocks will at some stage — indeed sooner rather than later — have to enter the market as otherwise the cost of carrying them (warehouse rent, interest, quality deterioration) would make them uncompetitive.
Cotton exports to bloom
Cotton is likely to turn out to be a contentious commodity because of the huge export opportunity. Cotton prices, already firm, are likely to rise further. China is emerging as a big buyer of Indian cotton following the worsening trade friction and tariff war between the US and China.
India has a great opportunity, after a gap of three years, to maximise cotton export. However, it may not be smooth sailing. If experience is any guide, the domestic user industry is sure to lobby for restrictions on cotton export. If the government buckled, it would be an ill-advised move and patently anti-farmer.
Vegoil imports may rise
Among oilseeds, soyabean is sure to be a saving grace. Given that prices have been ruling well above the MSP, growers are encouraged to allot more area for soya. The crop will help advance protein availability, but its contribution to the vegetable oil pool will be limited given the low oil content. In other words, our dependence on imported edible oils may worsen further in 2018-19 season.
The emerging scenario for the upcoming kharif harvest is becoming increasingly clear and one of some concern. Farm-gate prices, especially of crops such as pulses, are likely to rule below MSP, forcing the government to continue to undertake procurement. Together with continuing high crude oil prices in the global market and sharply depreciating rupee, higher MSP for various crops may heighten inflation expectations.
The author is a policy commentator and global agri-business specialist. Views are personal.