The Union Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi on Tuesday approved increases in minimum support prices (MSPs) for crops to be planted in the upcoming (2023-24) rabi, or winter-sown, season, which accounts for nearly half of India’s annual food supplies, said a statement by the government.

The government has set the rates at a minimum of 50% over costs of cultivation, with higher increases for lentils and oilseeds, which are scarce essential items, compared to the main winter staple wheat.

MSPs are federally-determined floor prices for crops aimed to avoid distress sale by signalling a minimum rate to private traders and ensure farmers don’t sell at a loss.

The MSP system tends to benefit mainly cereal growers because the government, through the state-run Food Corporation of India (FCI), buys sufficiently large quantities of cereals at MSP rates and distributes them to beneficiaries via the public distribution system.

The Cabinet hiked wheat MSP from 2,015 to 2,125 a quintal (100 kg), a modest increase of 5.4%. The highest increase in MSP was for lentils (masur), grown mostly during winters. Its MSP was set at 6,000 over the previous year’s 5,500 a quintal, a rise of nearly 9%.

The second-highest raise was for mustard, whose floor rates were increased to 5,450 a quintal, up 7.9% from the previous year’s 5,050.

The MSP for safflower, another key oilseed, was increased by 209 to 5,650 a quintal from 5,441 a quintal earlier, up 3.8%. The floor rate for gram (channa) was increased from 5,230 to 5,335, an increase of 105 a quintal.

The government uses a measure of cost of cultivation known as A2+FL, which includes all paid-out costs, plus the value of family labour. Farm unions protesting the government’s agricultural policies want authorities to adopt a wider measure that included the notional value of owned capital and rent on land.

“Input costs are increasing faster than MSP rates. So, these MSP increases are not sufficient,” said Rakesh Tikait, a Bharatiya Kisan Union leader, over phone from Meerut.

Prices of wheat last winter sold above MSPs, as farmers preferred to sell to private traders than to the government due to an export-market boom driven by dwindling supplies from war-torn Ukraine and Russia.

The government could not procure half of its targeted quantity of wheat in the 2022-23 season due to strong exports. In May, India banned overseas wheat shipments, as domestic prices rose and a heatwave cut output by 3 million tonne to 106 million tonne.

If current price trends hold and wheat remains in short supply globally, there will be high demand for the Indian staple in international markets. In such a scenario, farmers would find it lucrative to sell to export-oriented traders than to the government.

Analysts said much depends on the final total output and how long restrictions on exports are enforced. Wheat plunged exports from 7.2 million tonne earlier to 4.2 million between May and September 2022, post the ban, food secretary Sudhanshu Pandey said at a briefing on Monday.

“If the export ban stays until next year, then wheat prices will come down to nominal levels. This will help the government meet its procurement target,” said Rahul Chauhan of IGrain Pvt Ltd.

By Shadab

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