Soyabean prices in India have shot upwards weeks after the sales window for Madhya Pradesh’s ambitious Mukhya Mantri Bhavantar Bhugtan Yojana closed in December, indicating that traders might have used the scheme to manipulate prices to their benefit. This has cast doubts about whether the scheme in its present form should it be rolled out across the country, something that experts believe is a possiblity in this Budget session.

Madhya Pradesh had introduced this price deficit payments scheme in September to cushion farmers against price crashes. It was billed as an improvement on the minimum support price scheme. Declared each year for several crops, the minimum support price is supposed to cover what the Centre believes is the cost of production of those crops.
However, instead of buying farm produce as the state would do under the old minimum support price scheme, Madhya Pradesh decided to pay farmers the difference between the Centrally declared support price and the price at which they sold their produce in the market.

In its planning documents, the state had presented the price deficit payments scheme as a pilot for the rest of the country.

Price manipulation

Soon after the sales window for five of the eight oilseeds and pulses covered under the scheme opened in October, reports began to stream in of traders using the scheme as an opportunity to buy produce at low prices.

“The moment the traders saw the registration papers [for the scheme], they reduced their auction price by Rs 200 to Rs 300,” Mohan Singh Yadav, a farmer from Nasrullaganj in Sehore, told in November. “They told us to take the rest of the money from the government.”’s initial analysis in November, in the middle of the sales window, showed that prices had indeed fallen since the sales window had opened, an unusual trend for that time of the year.

Now, an analysis of soyabean prices since December shows an unusual spike in the last two weeks of January. While prices hovered at around Rs 2,800 per quintal and lower from October to December, they now average Rs 3,800 per quintal. The maximum sales price recorded by the Ujjain Agricultural Produce Market Committee on Monday was Rs 4,444 a quintal.

As Madhya Pradesh produces most of India’s soyabean, prices in this state affect soyabean prices elsewhere. Prices in Latur in Central Maharashtra, for instance, have also spiked during the same period.

An analysis of price movements during the same period in previous years makes it clear that this year’s price movements are anomalous. Where prices in previous years shifted up or down by a few percentage points from the beginning of December to the end of January, they have shot up by as much as 22% in some markets in Madhya Pradesh this year.

Indian market prices are closely linked to global markets as soyabean is mostly an export crop. It is unlikely that global prices in soyabean have affected the Indian market – these have stayed stable from December to January, according to data from Index Mundi.

Farmers spray pesticide on their soya plants. Credit: Reuters

Faulty planning

Even as market prices for soyabean seem to show evidence of manipulation, it turns out the state government has not compensated a large percentage of farmers who had registered for the scheme. A report in the Indian Express calculates that the scheme compensated soyabean farmers for only 18.5% of the total soyabean production in the state during this period.

Madhya Pradesh was aware that traders might take advantage of any promise by the state to pay for crops. So, instead of paying farmers the actual difference between the price they sold their crop at and the minimum support price, they announced a modal rate. This modal rate is the average sales price of the crop in three markets – an average of markets in Madhya Pradesh and in two neighbouring states.

The same Indian Express report shows that the average sales price for soyabean was only 12% lower than its minimum support price. However, the average sales price for urad was 42% lower than its minimum support price, again an anomaly.

A key campaign promise of the Bharatiya Janata Party in the run-up to the 2014 general elections was to raise the minimum support price to 50% more than the cost of production – also a key demand of farmer groups that protested across India in June. But an analysis of minimum support prices in the last four years by the socio-political organisation Swaraj Abhiyan shows the gap between the minimum support price and the cost of production has actually increased for several crops since 2014.

Apart from the Bhavantar Bhugtan Yojana, the Central government also plans to introduce a Market Assurance Scheme where it will shift the responsibility of procurement to states – but will compensate them up to 30% of the procurement cost. The details of this scheme are not yet publicly available.