Holding on to past: MSP, procurement and farmers crisis

All MSP procurements are not through APMCs. In major wheat and paddy procuring States like Punjab, Haryana & some parts Rajasthan procurement from farmers is undertaken by the FCI/State Agencies through Arhatiyas as per APMC Acts of the concerned State for which commission @ 2.5% of MSP is paid in the States of Punjab & Haryana and @2.25% in Rajasthan. In other States like MP, Chhattisgarh, UP, Uttrakhand, AP, Tamilnadu, Bihar, Jharkhand, Odisha, West Bengal procurement is made through Co-operative societies and they are paid fixed remunerations at following rates-Wheat: Rs 27.00 /Qtl, Paddy (Grade ‘A’):  Rs 32/Qtl, Paddy (Common) : Rs 31.25/Qtl. (https://fci.gov.in/procurements.php?view=86). In states like Telangana and Andhra Pradesh they are procured through the procurement centres set up with the women self help groups and they are paid the fee.

Government of India is the biggest buyers and hoarder of food grains, particularly rice and wheat. The government procures 40-50% of the marketable surplus in rice and wheat (The Socio Economic Survey, 2019-20).  But unfortunately, this procurement does not benefit all the farmers, as much of them are procured from very few states.

The data from 2018-19 as in Kharif Price Policy report, 2020-2021 and Rabi Price Policy Report shows that major procurement happens from two or three states. This causes significant distortion in the benefits of MSP reaching to the farmers. For eg. in Punjab 89% of the paddy produced (90.1% of marketable surplus) is procured during the kharif marketing season of 2018-19. Predominantly rice producing states like UP, West Bengal (which together have 27% cropped area) have less than 20% of procurement. Same is the case with wheat. As a result, some states have benefited more than other states. While 95% of farmers in Punjab got benefited less than 10% of the farmers in UP got benefitted.

 .For the year 2020-21 the cost of procurement and distribution of wheat is Rs. 2683.84 for paddy it is estimated to be Rs. 3726.76. An additional cost of Rs. 540.30 per quintal is incurred per year for the buffer stock management.

The wheat and rice are issued to the states at the following prices for different categories of the beneficiaries as per the following tables.

Source: https://fci.gov.in/finances.php?view=23

To know more about how costs are fixed read https://dfpd.gov.in/procurement-of-food-grains.htm

Rate: Rs/quintal

Commodity APL BPL AAY NFSA Other than NFSA
Wheat 610 415 200 200 610
Rice 830 565 300 300 830

In case, the common rice is issued in the states of J&K, Himachal Pradesh, Sikkim, Uttaranchal and NE states, the applicable price is Rs. 795 per quintal for APL category only

After 1997-98 decentralised procurement (DCP) was initiated and states who opted for the scheme are paid for local procurement and distribution. Many states have already made a shift towards this (). As the result the take-off from the central pool started coming down and the food stocks started accumulating. States like Punjab are continuing to contributing to the central pool (https://indianexpress.com/article/india/punjab-govt-rejects-centres-proposal-to-dial-down-foodgrains-supply-to-central-pool-6159879/) even though there is no take off by the states (https://fci.gov.in/sales.php?view=36) .

Post procurement distortions

As against the buffer stock norm of 41.1 million tonnes of rice & wheat (as on 1 July of each year), total Central Pool stocks were at 74.3 million tonnes on 1 July, 2019. The current peak comprises 45.8 million tonnes of wheat (against a buffer norm of 27.58 million tonnes) and 28.4 million tonnes of rice (against a buffer norm of 13.5 million tonnes) (Socio Economic Survey, 2019-20). (for latest stocks https://fci.gov.in/stocks.php?view=46)

FCI does dispose its stocks from time to time. While a portion of the stock goes to the TPDS (Targeted Public distribution System) and households identified under NFSA (National Food Security Act) and other welfare schemes, the balance is sold through the open market sale scheme (OMSS) and FCI doesn’t get a good price most of the times – it actually ends up selling at below cost and end up incurring loss. (https://www.thehindubusinessline.com/economy/agri-business/with-stocks-piling-up-fci-is-in-deep-trouble/article29268321.ece)

During the 2019-20 the cost evaluation of the stocks shows as follows.

Crop Minimum Support Price (Rs/Quintal) Economic Cost (MSP+cost of handling) (Rs./quintal) Reserve Price Buffer Stock
Earlier January, 2020 Recommended In store
Paddy 1835 3,601 2,785 2,250 76 lakh tons 237.15 lakh tons

278.7 lakh tons unmilled paddy

Wheat 1840 2,505 2,135 2,245 138 lakh tons 327.96 lakh tons
  • Mounting loans
    • High rate of interest
    • 1.91 lakh crore out standing loan to NSSF (National Small Savings Fund)
    • Rs 1.36 trillion
  • 50% of foodgrain stocks are at least 2 years old, 30%, between 2 to 4 years old; and some grain as old as 16 years old. To add to this is the cost of management, estimated at 30% of the entire operational cost of the FCI.

The centre opted for Open Market Sale of the produce at a subsidised prices to reduce the burden of the stocks (https://fci.gov.in/sales.php?view=32). This cheaper release of food grains into the market cause the major distortion in the prices.

  • As FCI/NAFED etc allowed only bulk sales only big companies could buy them and sell at cheaper rates in the open market.
  • The small traders, farmer producer organisations which were procuring from farmers and selling locally were all effected badly. The redgram prices are continuously below MSP for the last five years due to OMSS.

The same level of procurement done in Punjab and Haryana cannot happen across the country as there is a limit for this procurement. Already we are procuring more than what is required and the excess stocks are a serious problem. We may need to cut down from Punjab and Haryana and start procuring from other states which are not getting the remunerative prices. This will help to build the infrastructure and also increase the prices locally. The food grain procurement and distribution can also be localised. For example every state can plan district wise what are the crops grown, required for consumption and plan procurement and distribution it significantly saves on costs on procurement and distribution

Ecological Costs

These distortions also added to the ecological costs. The farmers continued to grow paddy and wheat system which use high groundwater resulting in depletion (http://www.jcreview.com/index.php?mno=117545), the short gap between the two crops resulting in stubble burning (https://www.downtoearth.org.in/blog/agriculture/stubble-burning-a-problem-for-the-environment-agriculture-and-humans-64912#:~:text=According%20to%20a%20report%2C%20one,soil%20nutrients%2C%20besides%20organic%20carbon.), high use of agrochemicals polluting the environment etc.

The shift:

As mentioned earlier MSP procurement operations have created wide disparity in cropping patterns as only rice and wheat are procured by the state. Farmers are not willing to make a shift towards other crops even if these are consuming high amount of water, electricity and huge environmental pollution due to Methane and Nitrous Oxide emissions, stubble burning etc.

The shift needs to be into concentric circles of internalisation and self-sufficiency from district to state to national level. If MSP has to ensured from farmers and states side shift in cropping patterns is also very essential.

To make this happen

Minimum Support Price

  • Several changes have to be brought in in assessing MSPs
  • Government should announce the MSPs for all the crops along with approximate quantities which may be procured. This need to state wise figures and not the central figures. Let states decide how much to procure.
  • Procure through govt agencies, use FPOs/Women self help groups platforms.
  • If the farmers do not get access to the MSP for any reason price compensation mechanisms can be followed.

Decentralising Procurement

  • A district and state level plan can be developed regarding the food produced and the foods distributed under PDS and use the existing FPOs, women self help groups, PACS and other community organisations to procure and distribute the grains under various food security schemes. The costs will go down significantly and the subsidies and benefits can be passed on directly to the producers as they are the ones in crisis.
  • Near about 40% of food is self consumed by the families. Some mechanism can be developed to compensate for self consumption otherwise it forces farmers to sell off what they produce and buy cheaper grains from PDS.
  • What is not grown locally can be procured from other regions or central pool.

Strengthening institutions

  • Strengthen the Farmer Producer Organisations and let them procure and distribute the grain grown within their region.
  • With the current identification mechanisms used for farmers based on land patta is discriminating against tenant farmers, women, Adivasi farmers and assigned land owner who may not have patta. Develop mechanisms to identify actual cultivators.

Words of caution

There would be regional variances in productivities, costs of cultivations, quality, there would be yield variances between varieties in a crop and between crops.  Fixing and guaranteeing any price will always causes distortions in cropping patterns and practices and regional imbalances. Course corrections will always be necessary.