Wheat MSP at Rs 750/quintal

In an obvious move to avert a repeat of the last year's wheat procurement fiasco, the government on Monday fixed the minimum support price (MSP) of wheat for the next rabi marketing season at Rs 750 a quintal.

This is Rs 50, or 7.1 per cent, higher than Rs 700 a quintal, which was the effective procurement price (including a bonus of Rs 50) for the last season. The Commission for Agricultural Costs and Prices (CACP) had also recommended a price of Rs 700 a quintal.

The new price was approved by the Cabinet Committee on Economic Affairs (CCEA) at its meeting held on Monday. The CCEA also approved the MSP of mustard oilseed to be fixed at Rs 1,715 a quintal, against Rs 1,600 recommended by the CACP.

The announcement of the new prices has come at a time when the sowing of rabi crops, including wheat and mustard, has just begun.

Last year, owing largely to low procurement price, the government could procure merely 9.3 million tonne of wheat, which was inadequate to meet the needs of the public distribution system (PDS). This had necessitated an import of nearly 5.5 mt of wheat for the PDS.

The low procurement of wheat was also attributed to the belated announcement of incentive bonus of Rs 50 a quintal. A sizeable quantity of wheat had already been mopped up by the private trade by offering prices marginally higher than the original official price of Rs 650 a tonne prior to the announcement of bonus.

The private trade continued to buy wheat even after the announcement of the bonus at prices higher than Rs 700 a quintal.

Wheat prices in the open market had firmed up sharply after the main wheat marketing season was over. This had led the government to waive customs duty on wheat even for stocks imported by the private trade to tame domestic prices.

The new wheat MSP of Rs 750 a quintal falls short of Rs 800 demanded by the governments of key wheat-producing states, such as Punjab and Haryana. Farmers' organisations had been demanding a higher price, maintaining that if wheat could be purchased from abroad at around Rs 1,000 a quintal, why the same price could not be given to the domestic producers.

The government has given no indication of any bonus on top of the MSP for the next wheat marketing season that will begin from April 2007.

With the government increasing the MSP by Rs 50 a quintal, the prices of wheat in the futures and spot markets were only marginally affected.

At the NCDEX, the wheat futures for November and December delivery fell marginally from Rs 1,119 and Rs 1,128 a quintal on Friday to Rs 1,113 and Rs 1,125 respectively on Monday. At the MCX, the spot price of wheat fell from Rs 1,109 a quintal on Friday to Rs 1,102 on Monday.