Larger role for private players in procurement at MSP could be challenging

Last week, NITI Aayog along with representatives from the state governments and Central ministries discussed various options to ensure farmers get the right price for their produce, something which Finance Minister Arun Jaitley had announced in his 2018-19 budget speech.

Among the various options that were discussed, according to an official statement released after the meeting, procurement by private players at the Minimum Support Price (MSP) in lieu of a commission offered ‘great promise’. 

In fact, NITI Aayog vice chairman Rajiv Kumar, according to the same statement, was of the opinion that some sort of commission should be given to private procurement agencies if they procure on government’s behalf and abide by all other rules of engagement.

The Aayog is expected to firm up its suggestions by month-end.

However, involving private players in procurement of foodgrains at MSP has been in the works for the last several years and despite best efforts, the experience hasn’t been very encouraging so far. 

That apart, encouraging private players to procure commodities other than wheat and rice on behalf of the government has its own challenges, including storing and transportation. Many say the concept itself is fraught with dangers and could minimise the role of the Food Corporation of India (FCI) in procurement operations.

At best, private sector agencies could play a supplementary role in procurement alongside FCI, in places where it is weak, but that would only be for wheat and rice -- something that in any case has been going on for some time now, with limited success.

In recent times, the first attempt to involve private sector was made in 2008 when FCI engaged NCMSL (now known as NCML) and NBHC for procurement of paddy in Odisha and some other states. 

Thereafter, in 2016-17, the Centre along with FCI again roped in the private sector for procurement of paddy in eastern India, where the procurement process was weak. This time, it was slightly more structured and modalities were worked out in little more detail. 

Three private players including National Collateral Management Ltd (NCML) were roped in for rice procurement on cluster basis in Uttar Pradesh, Jharkhand and West Bengal. The other two firms were Veerprabhu Marketing Ltd and Farmers Fortune (India) Pvt Ltd.

Food Minister Ram Vilas Paswan, in a written reply to Rajya Sabha, had then stated that as per the norms framed, private companies are bound to furnish daily procurement reports to FCI, which has the right to inspect purchase centres, storage points and miller premises. FCI was to conduct quality checks on rice at the time of acceptance at its depots.

Paswan had said FCI would evaluate the performance of private players and impose commensurate penalty on them for acts of omissions and commissions. 

These companies have to mandatorily make MSP payments to farmers within 48 hours of electronic procurement. 

NCML was given a cluster to procure rice from four districts in Uttar Pradesh -- Ballia, Mau, Ghazipur and Chandauli. 

Veerprabhu Marketing Ltd was awarded an area covering Allahabad, Kausambhi, Pratapgarh and Sultanpur. 

Similarly, Farmers Fortune (India) Pvt was given a cluster covering Ambedkarnagar, Basti Sant Kabirnagar and Siddarthnagar and in Jharkhand, NCML was given two clusters covering South Chottanagar and Kolhan districts. 

In West Bengal, Veerprabhu Marketing Ltd was awarded four clusters covering Bankura, Burdwan, Dinajpur and Siliguri districts.

The success or failure of these experiments is still being evaluated. 

Moreover, the bulk of these purchases was for wheat and rice, for which FCI and others have adequate storage capacity. 

If the same operations are extended to include other commodities such as pulses or oilseeds, storage could be a big challenge.

“For paddy and wheat, FCI has built adequate storage capacity in all the states, except Bihar, Jharkhand, West Bengal and the north-eastern states, so procurement of wheat and paddy is possible and storage is not a major problem. However, if other commodities are to be procured at MSP, there will surely be shortage of space in almost all the states as the storage requirement assessed by FCI for each district took into account only the procurement of wheat and paddy,” Shiraz Husain, former agriculture secretary and chairman of Food Corporation of India (FCI) told Business Standard.

In fact, a high-powered panel of experts on reforming the FCI, constituted by the Narendra Modi government immediately after it assumed office in 2014, had suggested enhancing the role of private sector in storage and transportation of grains and also to supplement FCI’s efforts in procurement.

“One thing to be remembered is that the private sector won’t procure wheat, rice or any other commodity at MSP for free and if their commission is less than cost, then they won’t come. Also, where is the storage? I feel this government has woken up quite late on reforming the farm sector, after much damage has already been done,” Ashok Gulati, Infosys Chair Professor for Agriculture in ICRIER said.

Gulati was a key member of the high-powered panel of experts headed by former food minister and senior BJP leader Shanta Kumar, on reforming FCI.

Another nagging issue is the reimbursement of losses in procurement to private parties.

As Shiraj Husssain points out, MSP operations are likely to result in losses and unless the government of India gives and assurance that it will bear the losses, private sector is unlikely to come forward. 

“It is important to remember that losses of Nafed in procurement of various commodities at MSP under price stabilisation scheme including pulses are yet to be reimbursed by the government,” he added.

Devendra Sharma, noted food policy expert no private sector would venture to purchase farm goods at MSP on behalf of the government and at a time when MSP based procurement is limited to just wheat and rice. “If they were so efficient, Indian agriculture won’t have been passing through such difficult times,” Sharma said.

He said one pre-requisite of private sector participation in procurement is reforming the APMCs, which in itself is a failed model globally and opens the door for private sector monopoly in farm marketing. 

“A better idea is to adopt the cooperative model for farm marketing,” Sharma added.

However, there are supporters of the idea, Chairman of Bharat Krishak Samaj, Ajay Vir Jakhar in a tweet seemed to support the idea in places where government procurement is absent to ensure that atleast farmers get MSP. 

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