In today’s Finshots, we tell you why Bihar’s government thinks that makhana should be covered under MSP.

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The Story

In 2022, the government awarded a geographical indication (GI) tag to makhana - a product from Bihar’s Mithila region. For the uninitiated, makhana or fox nut is the humble seed of the water lily plant, and has been a staple in Bihar for years. And a GI tag is a certification given to a product to attribute it to a certain location, like Kashmiri Saffron or Dharwad Pedas. This helps prevent others from selling their products as the real deal.

In makhana’s case, the GI tag might have helped push raw makhana prices up by 10 times since 2012, now hitting around ₹800 per kilo. Its popularity soared, especially during the pandemic, when healthy snacking became all the rage in India and abroad, where they could even fetch up to ₹13,000 per kilo.

In India, the makhana industry is booming, currently worth a whopping ₹3,000 crores, and it’s expected to more than double in the next 2-3 years. Snack industry players are dubbing it a superfood and getting creative with flavoured munchies and even makhana pasta to replace junk food. Just the flavoured makhana snack market alone is worth ₹150 crores and is growing at about 30% each year. And that might seem like the makhana industry is rolling in profits.

But that’s only part of the story because Bihar’s government is actually urging the central government to set an MSP (Minimum Support Price) for the crop. And if you’ve been reading us for a while, you know MSP is the price at which the government agrees to buy farmers’ crops if no one else does, protecting them from market price swings and big losses.

So yeah, it’s come to that for makhana now. How’s that, you ask?

Before makhana, farmers in Bihar mainly grew crops like corn and rice, but these weren’t very profitable. Weather uncertainties and recurrent flooding often ruined the crop.

Enter makhana — a crop perfectly suited for Bihar’s climate, transforming it into a cash crop. Bihar became the heart of makhana production, churning out around 10,000 tonnes annually. And this now means that over 80% of India’s makhana comes from Bihar, providing a livelihood for farmers across 10 districts.

But here’s the catch. Makhana isn’t exactly a high-yield crop. Between July and October, farmers in Bihar’s makhana-growing areas navigate thorny leaves and dive into murky ponds to gather the seeds of the water lily plant. These seeds are then dried, manually processed under high heat and popped (like popcorn). And despite all the hard work, not all seeds turn into edible makhana. To put things into perspective, only about 40% of the original haul makes it to the market.

Now, you might think that scarce output would drive up the per kilo prices, but it actually lowers overall income for farmers. Their earnings are often outweighed by their investments, leaving them in debt and needing to produce more to make ends meet.

That's not to say they haven't tried reversing their fortunes.

For starters, in 2015, research led to the development of a new makhana variety called ‘Sabour Makhana-1’, which doubled crop yields and increased the output of edible makhana to nearly 60%. This variety was available under a government scheme at a 75% subsidy. So, if a farmer spends ₹97,000 to cultivate makhana on one hectare of land area, they’d only have to pay about ₹24,000.

And the proof is in the pudding. These benefits have expanded the makhana cultivation area by nearly 170%, reaching 35,000 hectares over the last decade.

But the real issue lies in how farmers sell their produce.

See, the wholesale market for makhana is unorganised. So, farmers often end up selling to middlemen at low prices, who then sell to companies at double the price. These middlemen know that makhana is in high demand, marketed as a healthy snack and a vegan protein source. And they exploit the farmers who can’t afford to store their produce until market conditions are favourable. Middlemen stock up, create artificial scarcity and profit while farmers struggle.

An unorganised market also often breeds misinformation. For instance, in 2021, a price crash was blamed on surplus production. But the increasing use of makhana in the snack market suggests otherwise. This hints at traders possibly cheating farmers with incorrect information to make money off their plight.

Add to the fact that makhana is manually processed, leading to unevenly sized popped seeds. So, a significant portion of it gets rejected for export. For context, only about 2% or 200 tonnes of the makhana produced in India are exported annually. And this gives traders another excuse to bargain for lower prices from farmers while still selling high to local companies.

Sure, bringing in machines could help grade makhana by size, but farmers fear job losses and further exploitation by profit-driven companies.

And that’s exactly why the state government believes that makhana deserves an MSP. It could protect its farmers from exploitation and price fluctuations.

However, MSP might not be the perfect solution since only about 6% of farmers benefit from it. At least that’s what media reports suggest. Even if that’s a poor estimate, other figures peg it at 15%-25%. And that still doesn’t seem like much.

So, perhaps the real fix is streamlining the supply chain and connecting farmers directly with companies that add more retail value to makhana. This could address farmers’ issues and save the central government from the burden of spending more on buying crops under MSP.

But we’ll only have to wait and see how the central and state governments come to grips with the matter.

Until then...

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