The India government, in a bid to incentivize production of oil seeds have decided to give a fillip in the form of MSP(Minimum Support Price) hike for Mustard Seed and several other commodities. Also, the government hiked the MSP for wheat, but not to the same extent that it decided in case of mustard seed.
So, will the hike in MSP for mustard seed affect its prices negatively on the NCDEX? If yes, when and to what extent? Will the hike in MSP’s for oil seed would be at the cost of Wheat production?
Sudha Acharya, oil seed/pulses analyst with Kotak Commodities gives the answers to Rakesh Neelakandan of Commodity Online in an interview.
Q: How effective is the MSP regime when it comes to boosting crop output?
Sudha: The announcement of Minimum Support Price has a positive impact on crop output. It largely helps the farmers to give preference in order to allocate his farm acreage. However one should not forget that MSP is not the key factor to boost the production prospects as there are various other factors like.
a) Weather conditions
b) Rainfall and soil moisture
c) Price during the season
d) Prices for the competitive crop
We have a very good example this year during Kharif season where favorable weather played a very important role in allotment of acreage despite the significant surge in MSP.
Q: To what extent do you think production and productivity of the MSP-hiked commodities would gain?
Sudha: The productivity of any commodity largely depends on the rainfall and weather conditions during the period of crop growth. Also quality of seed sown impacts the productivity and the production. Hence the hike in MSP will not largely impact the production as it is an incentive to the farmers to allocate the land to the commodity while sowing.
Q: Will the hike in MSP for mustard seed affect its prices negatively on the NCDEX? If yes, when and to what extent?
Sudha: The recent hike in Mustard Seed MSP by Rs.550/qtl to Rs.2500 will not have any negative impact on prices due to firm fundamentals. Mustard seed prices traded at NCDEX during 1st to 27th October has rallied from Rs.2663/qtl to Rs.3114/qtl. The rise in price is mainly attributed to declining stocks at NCDEX ware house (from 160556 tons to 90143 tons during 3rd to 25th October 2011) and low inventories with the traders at the cash market.
Q: Chana (and for that matter masoor) are also seen getting a hike in MSP’s. Will the move affect chana prices negatively?
Sudha: Rise in Chana MSP is much higher as compared to other commodities this season. Chana MSP is at Rs.2800/qtl up by Rs.700/qtl as compared to last year. Such a move by the government is made in order to boost the pulses production in Rabi season and to offset the lower output during the Kharif season and also lower the dependence on imports. I do not see any negative impact on prices due to lower inventories and production during the season 2010-11.
Q: Do you feel soybean is getting enough of price support in MSP?
Sudha: I feel that soy beans are not getting enough support through MSP as compared to other oil seed crops this year. As compared to the spot.
Q: Will the hike in MSP’s for oil seed would be at the cost of Wheat production?
Sudha: I don’t feel the hike in MSP for oil seed would be at a cost of wheat production. India’s edible oil imports counts for more than 50% of its annual consumption. Hence, in order to lower the country’s dependence on imports and make the country self reliant we need to give incentive to the farmers to increase the oilseed cultivation. The major reason for discouraging the farmers to cover acreages in Wheat is overflowing stocks with the government of India. Higher stocks are result of record wheat production since last two years as compared to other crops.
As published in: http://www.commodityonline.com/news/Will-MSP-hike-in-pulses-oilseeds-negatively-affect-prices-43339-3-1.html
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