A worker tosses a basin of onions into a tractor trailer at the APMC wholesale market in Umrana, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

The Challenges Of Procurement At MSP

BloombergQuintOpinion

The Union Government has announced a substantial increase in MSP of kharif crops. However, it would be unrealistic to expect the government to procure all the 14 kharif crops for which higher MSPs have been declared.

India was facing an enormous crisis of cereals in the early-1960s when the country was producing only about 10 to 12 million metric tonnes of wheat. In 1964-65, the country had to import 6.57 MMT of wheat from the United States under the PL-480 programme. In 1966, the government imported about 18,000 tonnes of a high-yielding variety of wheat seeds and thus the foundation of the Green Revolution was laid.

In the early years of the Green Revolution, the government set up the Food Corporation of India in 1964 to procure foodgrains from farmers at remunerative prices, distribute them to consumers through the public distribution system and to maintain buffer stock for food security. In 1965, an Agriculture Prices Commission was set up to advise on a price policy for agricultural commodities and its impact on the rest of the economy.

Over a period of 54 years, FCI has evolved into a mammoth organisation, having a presence in most districts of India. Procurement of wheat and rice was primarily restricted to Punjab and Haryana, whose state governments made substantial investments in creating the required infrastructure of mandis and roads.

Vehicles travel past an entrance to the National Agricultural Market  in Karnal, Haryana, India, on May 19, 2016. (Photographer: Prashanth Vishwanathan/Bloomberg)
Vehicles travel past an entrance to the National Agricultural Market in Karnal, Haryana, India, on May 19, 2016. (Photographer: Prashanth Vishwanathan/Bloomberg)

Also read: Can Higher MSPs Do The Trick? For Farmers, And The BJP.

Assured of a remunerative price, the farmers took full benefit of subsidised fertiliser, seeds, and electricity and reached high levels of productivity.

The actual procurement of wheat and paddy in mandis is done by state agencies like Agro-Industries Corporation, Cooperative Marketing Federation, State department of food and State Warehousing Corporation.

FCI’s share in procurement in Punjab and Haryana is now less than 10 percent.

The paddy stocks are handed over to rice mills and they deliver rice to agencies of state government who store it on behalf of FCI. When required, these stocks are handed over to FCI for movement to other states across the country for meeting their requirement of PDS.

Sacks of wheat sit under tarps while being stored in the open at the site of a Food Corporation of India grain warehouse in Sonepat, Haryana, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Sacks of wheat sit under tarps while being stored in the open at the site of a Food Corporation of India grain warehouse in Sonepat, Haryana, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Also read: Government Committed To Agri Sector Growth, PM Modi On MSP Hike

In Punjab and Haryana, about 85-90 percent of market arrivals of wheat and paddy are procured at MSP by government agencies. Over a period of time, the government realised that the farmers of other producing states were not getting the benefit of MSP operations. Transportation of food grains from a handful of procuring states to all other consuming states was too expensive and wasteful. In view of this, the government introduced decentralised procurement of food grains in 1997-98. Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Karnataka, Maharashtra, Madhya Pradesh, Odisha, West Bengal, Tamil Nadu, and Uttarakhand have since joined the decentralised procurement scheme. These states take the responsibility of procurement of wheat and paddy/rice and its storage and distribution under PDS.

The quantity required by them for the PDS is retained and surplus is given to FCI for movement to deficit states.

For example, FCI moves excess rice from Chhattisgarh to TN and excess wheat from MP to Karnataka or Maharashtra.

Several decentralised procurement states have set up a robust system of procurement under which farmers are registered in advance and they are asked to bring their produce to mandis on pre-determined dates. These states have built warehouses—MP has built silos too—with their own funds. They have recruited agriculture graduates for preservation and quality control of foodgrains procured by them. They use information technology to maintain data of each farmer and MSP is paid to them in their bank accounts directly. The decentralised procurement scheme has been so successful that MP has increased its wheat procurement from about one lakh tonne in 1997-98 to 72.81 lakh MT this year. In the same period, Chhattisgarh has increased rice procurement from nil to 32 lakh MT this year. In Odisha, the procurement in this period has increased from 7 lakh MT to 28.18 lakh MT.

In these states, the chief ministers themselves led the drive to put in place an efficient system for procurement. In MP and Chhattisgarh, the state government extended a guarantee to banks for loans on working capital. Such deep engagement of political executive has been missing in states which are still not able to ensure MSP to farmers even for paddy and wheat.

Thus, there are several states where procurement apparatus is non-existent or rudimentary.
Mahua leaves lie on the ground  in Latehar district, Jharkhand, India, on May 17, 2018. (Photographer: Prashanth Vishwanathan/Bloomberg)
Mahua leaves lie on the ground in Latehar district, Jharkhand, India, on May 17, 2018. (Photographer: Prashanth Vishwanathan/Bloomberg)

Also read: Kharif MSP Hike To Benefit Farmers Only If Procurement Is Done Right

In the entire state of Assam, for example, only 24,000 MT of rice has been procured this year. In other states in the North East, there is hardly any procurement. Even in large rice producing states like West Bengal and Bihar, the procurement infrastructure is not adequate to ensure that farmers receive MSP for paddy.

  • West Bengal is the largest producer of rice in the country (149 lakh MT this year) but it has procured only 45,000 tonnes.
  • Bihar produced 72.96 lakh MT of rice this year but it has procured only 7.93 lakh tonnes.

In Bihar and Jharkhand, mandi system was abolished in 2006 and now there are no wholesale markets where farmers can bring their produce and get remunerative prices.

In many places in Bihar, agricultural commodities are sold on the side of a road where no facilities exist for farmers or traders.
A farmer stands in a field in Raghopur, Bihar, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
A farmer stands in a field in Raghopur, Bihar, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Also read: Risk Of Tightening Cycle ‘Very Much Alive’ With Kharif MSP Hike, Economists Say

Open auctions do not take place and there are no APMC employees to monitor the price at which farmers sell their produce. Bihar has emerged as a major producer of maize and farmers in some areas (e.g. Samastipur district) have reached productivity levels of Iowa (8 MT per hectare) but due to the absence of procurement, the market prices of maize rule below MSP year after year.

Ironically, too much of procurement may not be good for farmers as it depresses the prices in the open market and the traders do not buy in the market and they wait for the government to sell excess stock. The government decided to create a buffer of 2 MMT of pulses but it has procured much more and is now saddled with 5.5 MMT of pulses.

And there hangs a tale for another day!

Siraj Hussain is Visiting Senior Fellow at ICRIER and was Agriculture Secretary, Government of India.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.