A reply to the editorial of thehindubusinessline

Rope in private players for crop purchases to make MSP effective: CACP chief

Dr Ashok Gulati 

Dr Ashok Gulati
New Delhi, March 21:
The Centre should rope in private corporates to procure grains, pulses and oilseeds on its behalf for more effective implementation of the minimum support price (MSP) mechanism, feels Dr Ashok Gulati, Chairman, Commission for Agricultural Costs and Prices (CACP).

“You can’t simply announce an MSP and forget about it. The Government is morally obliged to ensure that farmers get the declared floor price. If it cannot do that on its own, the job could be entrusted to private players on the same terms as offered to the Food Corporation of India (FCI) or Nafed (National Agricultural Cooperative Marketing Federation),” the head of the crop pricing advisory body told Business Line.

From storage to procurement

“When you have public private partnership (PPP) in storage, there is no reason why it cannot be extended to procurement and MSP operations. If the aim is to deliver MSP to farmers, does it matter whether it is done through FCI or ITC, Mahindra ShubhLabh and DSCL Hariyali Kisaan Bazaar?” Dr Gulati pointed out.

He illustrated the case of sunflower, where the Centre, in 2008-09, announced a steep MSP hike from Rs 1,510 to Rs 2,215 a quintal. But with no Government buyers, farmers realised less than Rs 2,000 even in Punjab, where they constitute a strong lobby.

The same story holds for pulses — the MSPs of which have been raised by 20-30 per cent this year — or paddy and wheat sold in eastern Uttar Pradesh (UP) and Bihar, where neither the FCI nor the State agencies open purchase centres during the harvesting season.

According to Dr Gulati, once big corporates — for that matter, even cooperatives and producers’ companies — are allowed to procure on Government account and guaranteed a minimum business based on competitive tendering and transparent rules of MSP enforcement, it will set off a virtuous process.

“You would incentivise the creation of a back-end infrastructure for marketing of farm produce, especially in crops and regions where MSP exists only in name,” he noted.

New revenue stream

If the Centre were to heed Dr Gulati’s advice, it would open up a new business opportunity for ITC, Hindustan Unilever and Britannia Industries, which today buy wheat mainly to meet their branded atta or bread requirements. These corporates also undertake exports and domestic trading of farm commodities on their own account.

Public-Private Partnership in MSP operations can potentially generate large revenues by way of commission fees. The Centre annually procures 25-26 mt of wheat and 45-46 mt of paddy. These purchases, at their current MSPs of Rs 11,200 and Rs 10,000 a tonne, are worth around Rs 75,000 crore.

“The system could be tried out first in States that have reformed their Agricultural Produce Marketing Committee laws to enable direct purchases from farmers. Low mandi levies and purchase taxes can be an additional inducement for corporates to go to UP and Bihar rather than Punjab and Haryana,” Dr Gulati added.

Private hand in procurement

With many regions lacking the agencies to enforce MSPs, it is time to rope private players into the business of buying on Government account.

March 24, 2011:

The Chairman of the Commission for Agricultural Costs and Prices, Dr Ashok Gulati, has recently called for involving private players in official crop procurement operations. He has a point. Everybody knows how ineffective and skewed the current minimum support price (MSP) mechanism is, being essentially confined to wheat and paddy. Even within that, more than half the rice for the Central pool is procured from Punjab and Andhra Pradesh, which account for hardly a quarter of the country’s total output. The imbalance is even more in wheat, where roughly 70 per cent of government purchases are from Punjab and Haryana. In all other crops and regions, there are no agencies to enforce MSPs that exist largely in name. Farmers are, hence, often at the mercy of traders during harvest time, with no means to stagger sales of their crop. Restricting the MSP’s effective scope to fine cereals also disincentivises cultivation of less water-intensive oilseeds, pulses, cotton or maize, the production of which are, moreover, not keeping pace with rising incomes and diversification of food baskets. Indeed, there is nothing more perverse than Punjab farmers mining already depleted groundwater reserves to grow paddy. But, then, they are only responding rationally to a system that has no Food Corporation of India (FCI) to pay MSP for arhar or sunflower.

That raises a question: Do we really believe only an FCI or a National Agricultural Cooperative Marketing Federation of India (Nafed) can deliver MSP to farmers? Why can’t the Centre also assign the task to private players which are already buying and selling farm produce for meeting their branded product requirements or for proprietary trading purposes? There is no reason for not roping them into the business of buying on Government account, as Dr Gulati has argued in an interview to this newspaper. As Deng Xiaoping said, the colour of the cat matters little so long as it catches the mice. And in the case of MSP, one can expect private corporates — having greater procedural flexibility and no legacy of excess manpower — to do at least a more cost-effective job.

Allowing the private sector to procure crops on behalf of the Government presents a potentially large revenue opportunity for agri-business corporates. Ideally, it should help throw up new players in this space similar to the fresh lot of contractors spawned by the National Highways Development Project or the Delhi Metro. But what a viable public private partnership model in official MSP operations can do, above all, is to stimulate the creation of much-needed backend agricultural marketing infrastructure. This is more pertinent to crops and regions where MSPs are just a mirage. Dr Gulati’s idea is certainly worth debating — and implementing.

A Reply to the Editorial of thehindubusinessline:

The editorial on thehindubusinessline.com dated 24th March 2011 “Private hand in procurement” posses several moot questions. The Govt of India has instituted MSP procurement for 15 Khariff Crops and 10 Rabi Crops. The system has been functioning for more than two decades though with lot of limitations. The Food Corporation of India, Nafed, Jute Corporation of India etc are the nodal agencies for procurement of Crops from the farmers at MSP rates. If properly monitored this system will be beneficial to the poor farmers who are usually subject to exploitation by traders and middlemen. Unfortunately there are several cases. Where even the officials connive with traders and both wisk away the real benefit that ought to have gone to the genuine farmers. Most drastically affected lot are small and marginal farmers. In this scenario I wonder what prompted CACP to make a suggestion that private hand in procurement in Official Operations.

How can one be sure that such a system will bring in benefit to the suffering farmers of India?


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