Price collapse: The MSP mirage

Modi government’s decision to hike import duty on edible oils has come too little, too late for soyabean farmers

Written by Parthasarathi Biswas | Latur | Updated: November 23, 2017 10:04 am
Modi government, Narendra Modi govt, soyabean farmers, import duty on edible oils, edible oils import duty, india news, indian express, indian express news Bagged soyabean lying at the Latur APMC market yard in Maharashtra (Partha Sarathi Biswas)

Arun Kulkarni planted soyabean on 10 out of his 14-acre holding in the recent kharif season and harvested 65 quintals of the crop towards September-end. But unlike most of his neighbours, this farmer from Tandulja village in Latur — Maharashtra’s largest soyabean-growing district and the country’s No. 2 by area after Ujjain in Madhya Pradesh (MP) — decided not to sell in October itself.

“It didn’t make sense, as prices at the APMC (agriculture produce market committee) yard here were ruling at Rs 2,500-2,600 per quintal and have been at these levels in this month as well. Why should I sell at below even the Rs 3,050 MSP (minimum support price) declared by the government at Delhi?” points out Kulkarni.

He hopes to realise a better rate now, especially with the Narendra Modi government, on Friday, hiking the import duty on crude soyabean oil from 17.5 to 30 per cent and that on refined oil from 20 to 35 per cent. The basic customs duty was similarly raised from 30 to 45 per cent on soyabeans, from 15 to 30 per cent on crude palm oil, from 25 to 40 per cent on refined palm oil/palmolein, from 12.5 to 25 per cent on crude sunflower and crude canola/rapeseed/mustard oils, and from 20 to 35 per cent on refined sunflower and canola/rapeseed/mustard oils.

But Kulkarni admits that even if domestic soyabean prices were to go up due to imported oils/oilseeds becoming costlier, not many farmers would benefit. “About 60 per cent of growers in my village have already sold their crop. They needed ready cash, without which they couldn’t have bought their household provisions or seeds, fertilisers, pesticides and other inputs to plant chana (chickpea) and wheat in the current rabi season,” he notes.

Kulkarni could hold on to his 65 quintals, only because he grows sugarcane in his balance four acres. This cane he supplies to the Manjara cooperative sugar factory at Latur, which has already started crushing operations. “I will soon be receiving payment for my cane. Without that, even I would have had to sell all my soyabean at these very low rates,” he adds.

Modi government, Narendra Modi govt, soyabean farmers, import duty on edible oils, edible oils import duty, india news, indian express, indian express news Labourers sorting soyabean before auction at the APMC market. Partha Sarathi Biswas

Maharashtra is India’s biggest soyabean-producing state after MP, with almost 90 per cent of its crop being cultivated in the largely rainfed and relatively backward belts of Marathwada (mainly Latur, Osmanabad, Nanded, Hingoli, Parbhani and Beed districts) and Vidarbha (Buldhana, Amravati, Akola, Washim and Yavatmal).

Soyabean prices this time were below MSP levels even during the sowing period in June-July. As a result, farmers planted less area under the crop compared to 2016 (see table). Lower acreage and output has, however, not helped lift prices. On Friday, just before the decision to increase the import duties, soyabean prices averaged Rs 2,600 per quintal at the Latur APMC. This Monday, they rose to Rs 2,700, before easing to Rs 2,680 per quintal the very next day.

The higher duty, in other words, hasn’t helped even farmers like Kulkarni, who are still to sell, to realise a price closer to the MSP. At the National Commodity and Derivatives Exchange, soyabean is at present trading above the MSP of Rs 3,050 per quintal only for the March 2018 futures contract. Obviously, not many farmers have the capacity to hold on to their crop for so long.

Davish Jain, chairman of the Indore-based Soyabean Processors Association of India, attributes the sustained low crop prices to the industry’s inability to pay. For every quintal (100 kg) of soyabean crushed, processors recover roughly 18 kg of crude oil. The remaining 82 kg comprises the protein-rich de-oiled cake and other solid extractions, also called “meal”.

Currently, ex-factory prices of meal are ranging at Rs 21,500-22,000 per tonne, while crude soyabean oil realisations have risen from around Rs 64,500 to Rs 68,500 per tonne since Friday. But the gross revenue from processing one quintal of soybean, even after factoring in the post-duty hike oil price, adds up to just over Rs 3,000. After deducting about Rs 170 per quintal of processing cost and another Rs 150 towards transport and mandi-related expenses, the “parity price” for soyabean would be Rs 2,700 per quintal or so – which is what farmers are now getting.

“We welcome the import duty increase in oil. But soyabean prices cannot go up without higher realisations on meal, which is our main product. And for that, we need to really push exports,” says Jain.

India produces some 70 lakh tonnes (lt) of soyabean meal annually, of which 20 lt is exported and the rest 50 lt consumed as feed (45 lt) and food (5 lt). “Till up to 2012-13, we were exporting 35-45 lt every year, which collapsed to 4 lt by 2015-16. Although exports recovered to 20 lt last year, they are still hardly half their previous levels. Basically, global prices have crashed on account of bumper harvests in the US, Brazil and Argentina for three years in a row,” explains Jain.

According to Anand Bhutada, managing director of Kirti Group, a leading edible oil player in Maharashtra based out of Latur, the Centre should provide additional export incentives on meal and also remove the 5 per cent goods and services tax (GST) on oilseeds to boost domestic soyabean prices. When other primary agriculture produce such as grains and pulses attract no GST, what is the logic for charging 5 per cent duty on oilseeds, he asks.

Meanwhile, farmers are the ones really feeling the heat. Shivaji Jirmire is yet to be given a date for bringing his 25 quintals of soyabean harvested from four acres to a government purchase centre, where he can hope to realise the official MSP of Rs 3,050 per quintal. This farmer from Kanheri village in Latur district’s Ausa taluka had registered with the local purchase centre in early October.

Modi government, Narendra Modi govt, soyabean farmers, import duty on edible oils, edible oils import duty, india news, indian express, indian express news

The so-called online registration is itself a complicated process, with the farmer having to submit his Aadhaar identification number, 7/12 land record extract and sowing report authenticated by the village revenue officer. After registration, he is to be allotted a specific date and time to bring a sample of his produce for moisture content testing. Only if the crop confirms to the “fair average quality” norm will the procurement be undertaken.

Farmers in Latur have been complaining of the long wait — an average of one month — for the whole process to be completed, with the payment taking at least another fortnight. Small wonder, as on November 17, a mere 81,430 quintals of soyabean had been procured from 5,280 farmers across Maharashtra under the state government’s MSP guarantee programme.

“Had the increase in import duty taken place two months ago, I would have got a reasonable realisation from selling in the open market, rather than waiting indefinitely for the government to buy,” states Jirmire. Aggravating the situation has been the MP government’s Bhavantar Bhugtan Yojana, a scheme that promises to directly deposit into the bank accounts of farmers the difference between the MSP and the average modal price prevailing at the markets. Given that the modal market rate is to be calculated over a period of two months, it has led to farmers in MP rushing to sell their entire crop.

“In the ordinary course, many farmers would have staggered their sales. But given desperation to sell within the 60-day deadline, the mandis in MP have been flooded with arrivals and that has, in turn, depressed prices in Maharashtra and other states, too,” observes Bhutada.

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