Editorial 1 : Post-Diwali farm challenge
Context: Until recently, controlling food inflation was a central policy focus for the Indian government. However, with the easing of supply pressures and the emergence of a glut in several key crops, the challenge after Diwali 2025 has shifted. Policymakers now face a complex trade-off of balancing consumer welfare with the urgent need to protect farmer incomes as crop prices fall below incomes as crop prices fall below Minimum Support Prices (MSP).
Decline in Food Inflation:
- Retail food inflation has been in negative territory for the last four consecutive months ending September 2025.
- This marks a sharp reversal from the 18-month period between July 2022 and December 2023, when inflation in food items averaged around 8.5%.
- Favorable weather conditions, successive good monsoons, and improved harvests have collectively boosted supply, leading to stabilization or decline in food prices.
Over supply of Cereals and overflowing PDS stocks:
- The cereal market exemplifies the current oversupply problem.
- Wheat stocks in government warehouses on October 1, 2023, stood at 26.7 million tonnes, well above the buffer norm of 20.5 million tonnes and even higher than the previous year’s 24.6 million tonnes.
- Similarly, rice stocks stood at 41.6 million tonnes, nearly double the required buffer of 13.5 million tonnes.
- This situation reflects an abundant supply of cereals due to back-to-back good harvests.
- As a result, market prices have dropped significantly, with open-market wheat and rice prices ruling much below their MSPs.
- Government procurement at MSPs has thus become the primary channel sustaining demand, but this also raises fiscal concerns, as maintaining such large stocks imposes storage and subsidy burdens.
The anomaly of Oilseeds production and crucial case of Soybean:
- Soybean illustrates another dimension of the glut.
- Despite not-so-great production figures, prices have fallen well below MSP levels due to global oversupply and weak demand.
- According to the Solvent Extractors’ Association of India (SEA), India’s soybean crop for 2024–25 was around 120 lakh tonnes, but opening stocks and weak exports have led to overall excess availability.
- At present, soybean prices in Madhya Pradesh, India’s key producing state, are ruling around ₹4,100–₹4,200 per quintal, significantly below the MSP of ₹5,328 per quintal.
- Such a sharp price fall threatens farmer profitability, especially since input costs like fertilizers and diesel remain elevated.
Changing Policy Focus:
- Till last year, the government’s main policy priority was curbing food inflation to protect consumers.
- However, with food prices stabilizing and some commodities turning deflationary, the focus must now pivot towards supporting farmers facing distress sales.
- The excess supply and declining prices indicate a need for recalibrating agricultural policy.
- One immediate measure could involve expanding procurement operations beyond cereals to oilseeds and pulses.
- Additionally, export promotion and diversification of uses (e.g., for biofuel or feed industries) can help absorb surplus production.
Fiscal and Structural Implications:
- While expanded procurement may offer short-term relief, it also risks increasing fiscal pressure due to higher food subsidy requirements.
- The current stockpile of cereals already exceeds buffer norms by wide margins, and holding these stocks incurs substantial costs.
- Moreover, such policies can perpetuate production distortions encouraging farmers to continue sowing water-intensive or surplus crops.
Way forward:
After a period dominated by inflation control, attention must now shift to protecting farm incomes amid a glut situation. The task ahead involves balancing consumer and farmer interests while maintaining fiscal prudence. Ensuring remunerative prices for farmers through smarter procurement, export incentives, and crop diversification will be essential to sustain agricultural growth and rural livelihoods in 2025–26.