The Hindu Business Line : Ad hoc Rs 850/quintal support price for paddy

New Delhi, June 12 The Centre has announced an ad hoc minimum support price (MSP) of Rs 850 per quintal for common paddy and Rs 880 per quintal for Grade ‘A’ varieties to be marketed during 2008-09 (October-September).

While this is Rs 105 per quintal higher than the corresponding procurement prices for the previous year’s crop, it is below the Rs 1,000-1,050 per quintal range recommended by the Commission for Agricultural Costs & Prices (CACP).

States views

“The State Governments have expressed different views on the CACP’s recommendation. Some (Andhra Pradesh, Punjab, Haryana) want still higher prices of up to Rs 1,300 per quintal, some (Chhattisgarh) want no change from the current Rs 745 and a few (Himachal Pradesh) want even a lowering to Rs 645. We have, therefore, decided to refer the CACP report to the Prime Minister’s Economic Advisory Council (EAC)”, the Union Finance Minister, Mr P. Chidambaram, told presspersons after a meeting of the Cabinet Committee on Economic Affairs (CCEA) here on Thursday.

The CCEA did not take any decision on the MSPs for other kharif crops, the sowing of which is now underway with the arrival of the south-west monsoon rains. “There is no urgency for announcing the MSPs in other crops, as their market prices are in any case ruling far above. This is not so in paddy, where transplanting has already started and we had taken a decision immediately”, he added.

Mr Chidambaram said that the Rs 850 per quintal rate for paddy was an “ad hoc” price and the EAC (headed by Dr C. Rangarajan) would decide on the final MSP “as soon as possible”.

‘Bad precedent’

When contacted, the former CACP Chairman, Dr T. Haque (who had recommended the Rs 1,000-1,050 per quintal MSP), said that the Cabinet’s decision “has created a bad precedent”. The CACP, he noted, was an independent body set up through an Act of Parliament, comprising economists and experts in the field of agriculture.

“If the Government feels the EAC is better placed to recommend MSPs, then why have a CACP at all? Why not simply wind it up”, Dr Haque told Business Line. According to him, the CACP recommends prices taking into account various factors such as cost of production, supply-demand position, inter-crop price parity and international price situation. Besides, “we undertake on-the-spot field observations and obtain the views of State Governments, processors and farmer organisations”.

This is the first time since 1991-92 that the Centre’s MSP has been set below the CACP’s recommended level. In all other years since the CACP’s inception in 1965, the Centre has announced prices higher than or equal to that proposed by the CACP.

MSP on inflation

The Centre’s main worry is the effect of any steep hike in MSP on inflation. This is particularly so, since rice has a 2.45 per cent weight in the wholesale price index — more than even the 2.02 per cent for diesel and 0.89 per cent for petrol (the prices of which were hiked sharply only last week).

If the CACP recommendation of Rs 1,000 a quintal for paddy is accepted, the equivalent price of milled rice (at 67 per cent conversion) is expected to go up from about Rs 1,300 to over Rs 1,700 a quintal. This would still be much below the current global prices.

On Thursday, the benchmark Thai 100 per cent grade B rice was quoting at $860-867 a tonne, free-on-board Bangkok (over Rs 36,000 a quintal). In May, they averaged as high as $949 a tonne, as against $325 a tonne in the same month of 2007. The Centre has managed to keep domestic prices on leash so far by first stipulating a minimum export price and then altogether banning non-basmati rice shipments from April 1.

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