NEW DELHI (Reuters) - India, the world's largest importer of edible oils, wants farmers to increase output of oilseeds and lentils next season, its adviser on prices told Reuters in an interview, and is using support price rises to encourage the move.
But high international prices for cotton mean farmers are planting more of that, which may be a concern if markets fall, added Ashok Gulati, chairman of the government's commission on farm costs and prices.
"There is a shortage of edible oil followed by pulses. These are our two biggest import items in the food basket and the price policy is giving a signal of the direction we need," Gulati said.
India raised oilseed support prices by 15-19 percent for 2011/2012 crop year earlier this month, with the increase for lentils about 10-14 percent.
It raised the support price for rice, where stocks are already bulging, by 8 percent, and cotton by about 12 percent -- below input costs, which include labour increases of about 20 percent, according to Gulati.
"The question in front of us was should we give more to the farmers of Malaysia and Indonesia ... or should we incentivise our own farmers to produce more oilseeds. So the choice was very clear," Gulati said.
The budget for the fiscal year 2011/12 allocated additional funds to raise output of lentils, vegetables, milk and edible oil, and analysts have said India needs to raise output to cool prices. Food inflation currently around 9 percent, is "uncomfortably high," a deputy governor of India's central bank said on Thursday.
India's vegetable oil imports soared 40 percent in May, the second straight monthly rise. Most of its imports are palm oil from Malaysia and Indonesia, with small quantities of soyoil from Argentina and Brazil.
Soybean acreage in 2011/12 is seen edging lower with cotton replacing it in some areas because of the high returns given by the fibre.
International and domestic cotton prices have hit all-time highs this year as adverse weather conditions have hit supplies from the United States, the world's biggest exporter, and other producers.
"I'm a little concerned about this big rush towards cotton," Gulati said, adding farmers could be left exposed if world prices collapse.
"Cotton is gaining momentum in terms of attracting area and we are giving a signal that you could come more towards oilseeds," he added.
Gulati, speaking after the weather office said this year's monsoon would be just below normal, said any pause in rains in early July could hit crops already sown and the government should consider giving seeds to farmers affected.
"If the first sowing doesn't succeed in some areas then (the government) may have to give them seeds ... and effectively go for a second round," he said.
India's meteorological department said on Tuesday it now thought monsoon rains would be 95 percent of long-term averages, down from a prediction of a normal 98 percent in April.
Rains so far in the season have been above normal and should pick up in mid-July, suggesting there could be a pause during the first two weeks of July.
Gulati said there was "no need to get nervous at this stage," adding reservoir levels were currently above average for the time of year, helping irrigation which is available to about 43 percent of farmland.
A clearer picture of acreage sown to different crops would probably emerge in the first weeks of July, he said.
"In another 15-20 days, sometime in the first week of July, I think we'll have a complete picture of the sowing," he said.
(Editing by Aradhana Aravindan)