Indian Govt still in the dark over kharif output shortfall

Almost two months after the yearly deadline for release of kharif crop advance estimates, the food ministry is still groping in the dark over the extent of foodgrain production shortfall. But it is now clear that the government buys for welfare programmes could come down by at least 10% compared to last year’s 33 million tonnes. The hint of a larger-than-projected shortfall is causing prices to harden.

Rice output could be way above the 10-12 million tonne estimated earlier, causing government procurement to come down by at least 10% compared to last year’s record 33 million tonnes, especially in key producer state UP. In order to boost the paddy procurement, the Centre, government officials say, is working on ‘imminently’ announcing a bonus on paddy varieties of different grades.

The shortfall in procurement is expected despite the deficit in rice procurement dropping to only 5% between October 1 and 25 in the new marketing season compared to the same period last year. The deficit was as high as 16% in the period October 1-16 but has come down because of a pick up in procurement.

“We are optimistic that the drop in rice procurement this year compared to last year will be only marginal,” a food ministry official said.

Indications of a paddy bonus to boost state buys are themselves considered ample proof of a sharp drop from the key producer state. “We expect that the bonus on paddy, when announced, will attract farmers that are holding back paddy in expectation of a higher price,” he said.

The government had announced floor prices (minimum support price or MSP) of Rs 950 and Rs 980 respectively for common and grade A varieties of paddy in end August compared to Rs 850 and Rs 880/qtl (inclusive of a Rs 50/qtl bonus) last year.

However, it had deliberately left the question of a bonus open at that time in the hope that the record state buys of 33 million tonnes and the record output of 99.15 mt in 2008-09 — implying that a substantial quantity was already available in the open market and would therefore, lead to suppressed demand and lower prices — would keep the private sector and millers away from big buys. It was expected to force farmers to mandis to sell to the state. That calculation appears to have fallen apart.

In August, the USDA had projected a massive 17 million tonnes drop in rice/paddy output for India. Against a kharif output of 89 million tonnes, that would mean only 72 million tonnes production in 2009-10. The Centre is keen on pushing up rabi rice output by five million tonnes to around 16-17 million tonnes this year. Ironically, for the last six years, any increase in foodgrain output has only been in the kharif season. Rabi output, in fact, fell by 1.9% in drought year 2002-03.