The Centre is exploring a mechanism to assist states in depositing the losses suffered by farmers into their bank accounts, instead of purchasing their produce.
The move would give some relief to the states, which were finding it difficult to dispose tonnes of onions, pulses and other commodities purchased from growers during a price crash. This, officials said, would also eliminate the problem of storing and transportation of purchased commodities and minimise the possibility of manipulation of the terms and conditions of purchase and sale.
"If the states can develop a mechanism through which the farmers can be directly compensated for the loss suffered in producing any commodity, we (the Centre) are ready to help till the time a robust system of storage and disposal is developed, in the next few years," a senior official said.
Purchasing directly from farmers would be easier than ensuring all farmers suffering losses get compensated individually.
However, experts have pointed out several loopholes in the proposal. Compensating farmers directly poses a challenge as it would be difficult to estimate the number of growers of the crop and the actual loss. Sudhir Panwar, former member of Uttar Pradesh Planning Commission, said: "Creating infrastructure to ensure funds reach farmers directly is difficult. It is done in some countries but there the number of farmers is less. Also on ground a farmer might have sown wheat, but on paper he might claim to have grown onion. How do you verify it? Such a proposal does not look feasible."
As of now, the states are free to procure commodities outside the Minimum Support Price (MSP) mechanism (mostly perishable horticulture items) to give remunerative prices to farmers whenever prices fall sharply. The market intervention scheme (MIS) is operated if a state government requests for it. It becomes operational only if the state agrees to share half the losses with the Centre. No fund is allocated to the states in advance, but the Centre's share of the loss is released.
The issue of states' problems in handling huge quantities of perishable commodities became all the more important after Madhya Pradesh went on an onion-buying spree to quell farmer unrest. Some reports said till the middle of July, the state was staring at a loss of Rs 900 crore. It was purchasing onions at around Rs 8 a kg from farmers, while finding it difficult to sell the produce at even for Rs 2 a kg through the public distribution system due to production glut and inadequate storage and processing facilities. About 73 per cent of the 1 million quintals of purchased onions were destroyed last year. The state spent Rs 2.88 crore just to destroy surplus onions, a reply in the Assembly showed.