Wheat MSP up 7%, the biggest hike in five years
The Cabinet Committee on Economic Affairs (CCEA) announced minimum support prices (MSPs) for the rabi marketing season 2024-25 on Wednesday, October 18, 2023.
While the average MSP is up 4-5% on-year, that for wheat (the major rabi crop accounting for 60-65% of all rabi harvest) is up a significant 7% (from Rs 2,125 per quintal to Rs 2,275).
This is the highest such raise in the past five marketing years.
The underlying intent of all the MSP decisions seems to be price stabilisation, especially in wheat and pulses (lentils).
But wheat is the only crop where MSP has significance given 35-40% of the harvest is procured at that rate.
For others, it may only serve as a minor price cue, owing to very low procurement at MSP seen over the past few years.
The MSP matrix
|
RMS |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
2024-25 |
|
Average MSP hike |
6% |
4% |
5% |
6% |
4% |
|
Wheat MSP hike |
5% |
3% |
2% |
5% |
7% |
There are three important considerations when assessing the MSP of crops: cost of production, level of procurement at MSP, and traded price.
- The government has considered an average 5% rise on-year in the cost of production for RMS 2024-25. Given the slight moderation in price of fertilisers and pesticides and the hike in labour expenses this appears a fair estimate
- From a procurement and traded price point of view, four key rabi crops – wheat, gram, mustard and lentil – are crucial
· In the case of wheat, this year we expect the procurement at MSP to be higher on year owing to ~36% lower stocks with FCI as of October 1st, 2023, compared to the last five-year average and also ~24-25% lower procurement than the target for RMS 2023-24.
· In the case of lentils, though only a small share of production is procured by NAFED – and anticipating an increase in the prices of pulse complex owing to lower kharif production expected – a 7% rise in MSP is a good step to stabilising prices
· For mustard, NAFED has resumed procurement from RMS 2023-24 after a gap of two seasons following a decline in prices from the highs of the past two marketing years. Currently, the average price of mustard is estimated at Rs 5,100-5,200/quintal (January-September 2023). That’s a decline of ~15-20% on-year and ~8-9% lower than the MSP announced. Therefore, it is likely that a 4% hike in MSP at Rs 5,650/quintal is expected to encourage farmers to retain acreages for the rabi season. About 5-10% of the mustard production is typically procured by NAFED.
· Bengal gram and safflower have witnessed only a minimal hike in MSP at 2% and 3%, respectively.
