Who is the hoarder and who is distorting market prices?

Dr. G. V. Ramanjaneyulu1

Another Fear About this amendment being expressed is about the effect on MSP
operations

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.
1
Agricultural Scientist with Centre for Sustainable Agriculture and can be reached at ramoo@csa-india.org or
http://www.ramoo.in
.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.

Economic Cost of Wheat Economic Cost of Rice procurement

procurement Rs 2683.84/q for Rs. 3726.76/q 2020-21
2020-21
564.03
473.09

469.76

370.57

1850.18
2692

Pooled grain cost Procurement incidentals Pooled grain cost Procurement incidentals
Distribution cost Distribution cost

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 (https://fci.gov.in/procurements.php?view=86). 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 Economic Reserve Price Buffer Stock

Support Cost
Price (MSP+cost of Earlie January, Recommended In store
(Rs/Quintal) handling) r 2020
(Rs./quintal)
Paddy 1835 3,601 2,785 2,250 76 lakh tons 237.15
lakh tons

278.7
lakh tons
unmilled
paddy
Whea 1840 2,505 2,135 2,245 138 lakh tons 327.96
t lakh tons

• Mounting loans

• High rate of interest

• Rs. 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/greengram/bengalgram prices are
continuously below MSP for the last five years due to OMSS.

The NAFED has released the Greengram (Moong in the following price range in
August/September, 2020 which is much lower than the Minumum Support Prices which
resulted in the decline in the market prices of greengram all over.

SN Commodity State Season Price range

1 Moong Andhra Pradesh Rabi 2019 5767 5771
Odisha Rabi 2020 6102
Rajasthan Kharif 2018 5700 5775
Maharashtra Kharif 2019 5701 5711

(http://www.nafed-india.com/Home/ProcDispoDetails)

The modal price which farmers got in the procurement centres for Greengram in Telangana
during August, 2020 and previous years for reference.

Year Area in Quantity Market arrivals (in MSP Modal Price

(ha) produced Quintals) Rs/Quintal
(in (Rs per
Quintals) Quintal)
2018-19 1,63,000 42,000 38,879 6,975 4,144
2019-20 1,51,000 48,000 24,436 7,050 5,344
2020-21 1,54,790 66,000 8,296 7,196 4,144

(compiled by Ravi Kanneganti, Rytu Swarajya Vedhika, from the Telangana Marketing
website http://tsmarketing.in/)

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.

(This is part of 3 articles on What is wrong with our current marketing system and what reforms are
required. More can be read at http://www.ramoo.in. We are doing a series as ‘Agriwatch’ to use
data to make informed choices)