Wheat farmers unlikely to harvest bonus this season

MUMBAI: There is no move yet within the government to announce a bonus for wheat as it may further fuel inflation. With the harvest in Punjab a fortnight away, the market has been abuzz with expectation of a hike in the wheat procurement price.

While a bonus is great news for farmers, it directly impacts every household���s food bills and the government���s subsidy cash flow in already troubled times. The Centre has already increased the minimum price of wheat by a third for the coming harvest.

Speculation about the bonus led to some bread and biscuit manufacturers re-working their cost card for the coming season to factor in more expensive wheat. But it may no longer be necessary.

���There is no push within the government to announce a wheat bonus. Not even a note has been prepared to study the implications of a increase in MSP,������ officials here said.

A bonus at this stage is not a good idea for two reasons. One, if wheat MSP is raised from Rs 10 per kg to Rs 11 per kg, it would raised the base price of wheat across the country. The ripple effect would be felt even next year.

���There is no question of lowering the MSP next year. So if the MSP is hiked, it means an automatically higher anchor price next year. That is bad for inflation,������ they said.

Second, an increase in the MSP of wheat would stoke demand for an increase in the MSP of rice. States such as Andhra Pradesh and Punjab, along with the BJP, have been making a pitch for bringing rice MSP at par with that of wheat. So along with wheat, even the rice purchase bill of FCI would balloon.

More importantly, since the government has already made a Rs 1.50 per kg jump while fixing the MSP for 2008, there is little logic in making a further increase.

���In 2007, the MSP was increased in two stages ��� first Re 1 per kg, followed by another 50 paise per kg. In 2008, we have made the same Rs 1.50 per kg increase at one shot. That is equal to a 33% jump. Hence, there is no need for another revision. Farmers already knew the final price they will get at the very start of the season,������ sources said.

Though FCI buys wheat at the MSP mainly from Punjab and Haryana, farmers in neighbouring states of Madhya Pradesh, Rajasthan, Uttar Pradesh and Gujarat use MSP as the base price for selling to private traders.
Interestingly, some state governments such as MP have already announced an MSP of Rs 11/kg for this season. It remains to be seen whether or not the state has the budget to pay the extra amount to farmers. FCI procured 11 million tonnes wheat in rabi 2007. Punjab contributed over half of the wheat procured for the Central pool, followed by Haryana, Uttar Pradesh and Rajasthan.