India has raised the price at which it will buy new-season common rice varieties from local farmers by 3.9%, the agriculture minister said, as New Delhi tries to please farmers that have been protesting over three new agricultural laws.
The hike could encourage farmers to expand the area under the grain and will force the government to buy more rice from local growers, bumping up supplies and putting pressure on the government's stretched budget.
It could also limit rice shipments from the world's biggest exporter and lift food inflation.
For common grades of paddy rice, the government has fixed the support price at 1,940 rupees ($26.59) per 100 kg, Narendra Singh Tomar told a news conference on Wednesday.
The government announces minimum support prices (MSPs) for most crops yearly to set a benchmark, although state agencies usually buy only limited quantities of staples other than rice and wheat due to a lack of storage and funds. Market prices for many crops typically run well below MSPs.
The hike would widen the gap between the rice MSP and the market price and force government to buy more from farmers, said B.V. Krishna Rao, president of the Rice Exporters Association of India.
"Farmers sell to whoever pays them a higher price. Since open market prices are lower, they would prefer to sell to government agencies," Rao said.
India has bought a record 81.3 million tonnes of paddy rice from farmers so far in the 2020/21 marketing year, compared to 73.6 million tonnes a year ago, Tomar said.
The government knows it has to spend more on food grain purchases, but it seems it has taken a decision to please agitating farmers ahead of crucial state elections in Uttar Pradesh, said a Mumbai-based dealer with a global trading firm.
Thousands of Indian farmers, especially from northern India, have camped on major national highways for more than six months, demanding the repeal of three new agricultural laws that they say threaten their livelihoods.
India also raised the cotton buying price by 3.4% to 6,025 rupees per 100 kg and the soybean price by 1.8% to 3,950 rupees per 100 kg, Tomar said.
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