Why crop prices are falling despite higher MSP, stiffer import tariffs

Source: The Hindu Business Line
Author: Rajalakshmi Nirmal

The Center’s moves to stop domestic market prices of agricultural commodities from falling, be it by increasing the minimum support price (MSP), hiking import duty or levying a minimum import price (as in the case of pepper), have not been effective. While market prices do go up in a knee-jerk reaction following the news, they soon revert to earlier levels.

Sample this: The Center imposed a 10 per cent import duty on wheat in March 2017 and doubled it to 20 per cent in November. But wheat prices have only fallen — from Rs.20.5/kg in February 2017 in Delhi, to Rs.18/kg now.

Similar trends have been seen in the prices of gram (chickpea) and pepper.

The reasons

  • Large carry-over stocks in many crops is one of the reasons for the price decline. In the last two years, production of some agri commodities both in the domestic and in the international market (e.g. Russia and Argentina) has increased significantly leading to less demand in the international market. Also, in India, wheat production hit a record high — from 92.29 million tonnes to 97.11 million tonnes along with record wheat imports — 51.7 lakh tonnes in 2015-16 and 57 lakh tonnes in 2016-17.
  • Import restrictions do not stop cheaper-priced commodities from coming into the country through illegal means. For instance, Minimum Import Price was imposed on Pepper, however, illegal pepper flooded the Indian markets from Vietnam via Nepal.
  • MSP increases, too, don’t matter. The import duty hikes aside, there has been an increase in MSP for pulses, too. But, given the large surplus last year and a record crop expected this year, too, the prices are only looking at the supply-demand equation, say market experts. And, given that MSP procurement is too small compared to the harvest, it can’t sway the market price.
Read the full article here.

Categories: POINT IAS

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