oodgrains procurement in India has had a chequered history. It has received national interest and attention of public policies since 1960 and further gained salience when the National Food Security Act, 2013 was passed. The Food Corporation of India has been the nodal agency for foodgrains procurement and the decentralised procurement policy since 1996–97. It has encouraged state-designate procuring agencies to adopt Minimum Support Prices (MSPs) that farmers should realise once they sell their produce to the agency.
But why is MSP an important instrument of price support scheme? It has a dual effect on the supply and demand-side. First, MSP helps farmers reduce distress sale. Second, MSP signals to market forces of price and non-price factors, and eventually, helps bridge the gap in prices between local and regional or national markets, except transportation costs. Also, owing to high socio-political tension in foodgrains procurement, (agricultural) markets are not free to discover prices of essential commodities otherwise covered under the price support scheme (currently 23 commodities are included).
From 2013-14, technological improvisation has led to Online Procurement Management System. Electronic procurement offers cost-effective and near real-time interactive platform between several state agencies, banks and farmers
Besides adoption of a cost of production-based MSP policy from 2017–18, Government of India has brought some structural changes in the procurement system, that is effectuated through public private partnership (PPP) across procurement, storage, and transportation, and strengthened the payment system to transfer MSP benefits to beneficiary farmer account.
So, what are the salient features of this PPP model? How is procurement operation different from archaic processes?
These agencies deploy a relatively good number of procurement associates in remote centres announced at the onset of MSP operation supervised by procurement officers and/or area manager/state head of procurement operations. Procurement associates buy foodgrains from farmers in a few stages.
Farmer identity cards are duly scrutinised and then, weights checked along with minimum quality standards determining the eligible common variety of paddy/wheat for policy-determined MSPs.
After necessary scrutiny, the associate fills-in paddy receipt acknowledgement and then instructs the contracted rice/wheat miller to lift the paddy/wheat from the centre. The farmer receives a cheque or pay order for their MSP dues in T+2/3 days. If there is bonus announced by the central/state government, procuring agency issues a separate cheque to the farmer.
Millers who lift paddy/wheat mills the grain and delivers it to the FCI after obtaining rice/wheat delivery certificate from the procuring agency.
Millers receive custom milling commission/service fee from the agency and agency receives the payment for rice/wheat delivered to FCI and due incentives for paddy procurement as decided by the government. However, to improve efficiency of the process, real-time monitoring is required.
From 2013-14, technological improvisation has led to Online Procurement Management System. Electronic procurement offers cost-effective and near real-time interactive platform between several state agencies, banks and farmers. The E-Uparjan system in Madhya Pradesh and Paddy Procurement Automation system in Odisha deserve mention. However, many small farmers are still excluded from the direct benefit transfer of MSP-based procurement.
Now, the central challenge that has caught the attention of development professionals and policymakers is finding the means to extend benefits of price support scheme/MSPs to smallholders.
Some actionable steps could be as follows: First, the level of awareness among small and marginal farmers should be increased as only 20 per cent of the farmers are aware of MSP at the all-India level in 2016-17 and only about 19 per cent of farmers have heard of the FCI and 75 per cent did not sell to any procurement agencies as quoted in some policy notes. State agricultural marketing and food inspection authority needs to play a significant role in this regard. Farmer Producer Companies can be pivotal in organising member-producers and help them participate in the MSP operation and realise a secure price.
Second, there is dire need to set up price deficiency payment and reserve funds to safeguard and insulate smallholder farmers from price volatility and market uncertainties. The importance of MSP should not be turned down in the wake of electronic physical and/or futures market where participation requires initial investment, risk capital, and training that smallholders do not own or have capacity to invest.
Third, improved governance mechanism, institutional structure and management of procurement system is important to bring efficiency in the procurement system. While existing procurement models complement the PPP model from procurement to buffer stock management, Online Procurement and Depot Management System (introduced by FCI and some state agencies) offer a near real-time information of (decentralised) procurement, storage, offtake for public distribution system. Although e-governance has empowered a group of farmers to participate and realise the benefits of MSP in a few states, we need to collect and count on more such evidences to formulate a legitimate procurement policy. From organisation and governance viewpoint, producer organisations need to encourage their members to participate in procurement and follow an equitable distribution of MSP-payment to their members, for example, Small Farmers’ Agribusiness Consortium promoted Farmer Producer Companies participate in pulse and oilseed procurement in Gujarat, Rajasthan, and Madhya Pradesh.
Fourth, Agricultural Produce Marketing Committee Model Act, 2003 and Agricultural Produce Livestock (Promotion and Facilitation) Act, 2017 has made provision for private warehousing and logistics entities to set up private market yards for direct procurement from farmers and to extend MSP benefits. This can instil buoyancy in procurement system and competitive market environment might help broaden farmers’ choice-set for better decision making or help them take informed decision for participation.
Finally, in 2017-18, Commission for Agricultural Costs and Prices (CACP) introduced some revision called Comprehensive Cost (C2) basis to MSP determination for major food grains, pulses, and oilseeds. Although the revised pricing has included imputed value of rent on the land, opportunity cost of family labour, other fixed costs and added to erstwhile cost structure (A2+FL), it is yet to be implemented in spirit. In addition, GoI’s policy think-tank Niti Aayog can further work on the issues in consultation with CACP for a legitimate price policy.
The writer teaches at IIM, Bodh Gaya. Views are personal.