Are Indian farmers responding more to price signals than monsoons and MSP?

Urad and arhar have been yielding ground to the more remunerative soybean in Madhya Pradesh and Maharashtra, two states that have received normal to excess rainfall

The monsoon has, so far this year, been deficient in many parts of the eastern and northeastern regions of the country. As a result, kharif sowing has fallen below the previous year’s levels in many of these regions. 

Interestingly however, this time around kharif acreage has dropped even in areas that have received normal to excess rainfall. 

In fact, data from the department of agriculture shows that till July 26, sowing of almost all crops except moong, soybean, jowar and sugarcane has been less than last year.

Responding to price signals 

The total area under urad cultivation in Madhya Pradesh, for instance, was lower by around 195,000 hectares till July 26 this year, than the same period last year.

Similarly, area under arhar, another major pulse grown in Madhya Pradesh, where rainfall till July-end this year has been six per cent above normal, was around 80,000 hectares lower than last year. 

The explanation for this decline in sowing could, therefore, rest on urad and arhar prices in the state being lower last year, which could have prompted farmers to switch to more remunerative crops. 

Urad prices in Madhya Pradesh last year were almost 68-70 per cent below the Minimum Support Price (MSP) of Rs 5,400 a quintal fixed by the Centre during the peak harvest season, partly due to a bumper harvest. Similarly, arhar prices had dipped by almost 34-40 per cent below an MSP of Rs 5,450 a quintal.

Bulk of the sowing this time seems to have shifted towards soybean, whose acreage has risen by almost 231,000 hectares as on July 26.  

A similar situation prevails in neighbouring Maharashtra, where the southwest monsoon has been 15 per cent more than normal till July 30 this year. Farmers in the state have planted less arhar and urad and switched to the more lucrative soybean. 

The shift has been mainly due to two reasons. The first is prospect of better price realisation in soybeans due to an increase in the demand for Indian soymeal from China. The second reason is that there is a huge carry-over inventory of unsold pulses from last year due a fall in prices.

“In my village (Harda), between last year and this year, there has been a 40 per cent drop in the number of farmers who have sown urad and arhar. I myself sowed the crop on 20 acres last year, but this year I haven’t even planted it on two acres because price realisation has been extremely bad, due to policies like Bhawantar and other factors,” said Kedar Sirohi, a prominent farmer leader in Madhya Pradesh. 

Soybean rates in the state, which were weak during the peak harvest season, picked up pace during the latter half of the 2017-18 crop season to reach Rs 4,000-4,500 a quintal due to the curb in oil imports.

So clearly, Indian farmers have increasingly begun responding to price signals much quicker than anticipated, and their cropping decisions haven't been driven solely by the timeliness and distribution of the monsoons and the prevailing minimum support prices. 

Sirohi said a similar situation prevails in other parts of the state, where farmers have preferred soybean over arhar and urad. 

In Rajasthan, moong acreage has gone up even as its price remains steady. On the other hand, bajra acreage has dropped despite a sharp rise in MSP in 2018-19.

In Gujarat, though the monsoon arrived late in Saurashtra and Kutch, pulling down groundnut and cotton acreage by 12 per cent and eight per cent respectively, traders said the shift in acreage towards jowar and moong has also contributed to the fall.

“Two factors were at play here. First, the monsoon arrived late over Saurashtra and Kutch, and pulled down the acreage. Secondly groundnut and cotton prices were also down last year, deterring farmers from cultivating them,” Govind Bhai Patel, managing director of a leading Gujarat-based trading firm said. 

Govind Bhai, whose crop predictions are keenly tracked by the oilseed industry, said that this year groundnut acreage in Gujarat is expected to be 15-20 per cent lower than last year, while cotton area is expected to be lower by 10 per cent.

The sowing window of kharif crops extends up to mid-August, and in many parts, farmers upped sowing after monsoon became active. However, in states like Madhya Pradesh, Gujarat and Rajasthan, there is distinct shift in acreage as farmers saddled with last year’s unsold stocks don’t want to risk another year of low prices.

Experts said this once again goes to prove that the Indian farmer's sowing decision is directly linked with the price his produce fetches in the market, and isn't guided by the price that government sets for him through the MSP mechanism, except in paddy and wheat, where again, MSP's predominance is limited to a few regions.

“The cropping pattern this year seems to have been impacted more by fear of prices falling for another year than monsoon, which has been fairly distributed,” said Madan Sabnavis, chief economist CARE Ratings.

In the past too, market prices and rains have been the major guiding factors for farmers, except in cases where there is assured procurement.

Monsoon watch

The monsoon started on a brisk note this year, but contracted around June 13, before reviving on June 26. This delayed sowing of kharif crops in some parts. 

Till July 30, with half the 2018 southwest monsoon season already over, rains have been normal to excess in almost 74 per cent of the country, and deficient in the remaining 26 per cent, with the eastern and north-eastern states receiving less rainfall in the first two months of the season.

The last few days have seen a marked improvement in precipitation in the monsoon-deficit regions of eastern India, particularly Bihar, Jharkhand, eastern UP and Odisha. In fact, the cumulative deficit in some states like Bihar has come down from almost 40 per cent to less than 30 per cent in just three or four days. But how far this will be sustained and whether it would be good enough to wipe off the deficit and rejuvenate kharif sowing remains to seen. The state government had been making preparations to declare drought before the rains revived. 

In eastern India, another redeeming factor is that ground water levels aren’t extremely low as in the case of north and central India, and a little extra effort in running diesel-operated pump sets can help farmers arrange water for paddy, the main foodgrain grown during kharif season in these states. 

As the monsoon enters the crucial last two months of its four-month journey over India, from here onwards each week will be important for the health of standing kharif crops, final acreage of all crops and water availability. 

A sudden or sharp retreat earlier than expected due to the impact of El Nino might impact the final harvest.