What did FCI do differently this season to push wheat procurement?

Experts point to three major initiatives that led to a bumper purchase and laid the foundation for deeper and more structural reforms in the annual grain procurement process

Amid the gloom surrounding the second Covid-19 wave, one economic activity that has done commendably well despite all the bottlenecks is wheat procurement in the current rabi season.

According to latest data from the Department of Food and Consumer Affairs, till May 17, at an all-India level, around 37.35 million tonnes of wheat have been procured as compared to over 30.05 million tonnes during the same period last year, a jump of almost 24 per cent.

With still a fortnight or so to go before the annual procurement season comes to a close, both the Centre and the Food Corporation of India (FCI) are confident of achieving the 42-million-tonne procurement target fixed for FY22.

Data shows because of this bumper procurement till May 17, some four million farmers from big wheat producing states have been benefited and a sum of over Rs 73 trillion has been transferred into their bank accounts.

Of the 37 million tonnes of wheat procured by Central agencies till May 17, Punjab has contributed the most, at around 13.21 million tonnes, followed by Madhya Pradesh (11.2 million tonnes), Haryana (8.47 million tonnes) and Uttar Pradesh (2.74 million tonnes).

Data shows till May 12, around Rs 56,059.54 crore has been directly transferred into the bank account of farmers in the country, of which Rs 23,402 crore (almost 42 per cent) has gone into the bank accounts of Punjab farmers alone.

This is about 91 per cent of the payment due to them.

So, apart from the usual rise in output this year, benign weather, absence of private players due to Covid lockdown in many parts of the country, are there any other factors behind this performance?

Officials and industry experts said there are three main things that the Centre, the states and even the FCI have done differently this year that led to this bumper purchase and laid the foundation for deeper and more structural reforms in the annual grain procurement process.

Direct Payment of MSP

Direct payment or DBT as a concept has been in existence for long, and various government departments and ministries, both in the Centre and states, have been transferring funds through this method to actual beneficiaries, using the Aadhaar and mobile platforms.

In grain and cereal procurement too, most big producing states had adopted this system to minimise leakage and pilferage and to ensure the actual cultivator benefits from the Minimum Support Price (MSP).

In fact, Madhya Pradesh, Odisha and Chhattisgarh had mastered DBT in the procurement process and have, over the years, developed a foolproof system of advance registration, regular intimation and timely and direct fund transfer into the bank accounts of farmers for the grains sold by them to government agencies.

All this is also linked to the land records to ensure only genuine farmers get the MSP while there is an in-built transparency in the system.

Among major procurement states, Punjab was the only one which for years had resisted the system--with good reason.

Procurement of wheat and rice in Punjab is facilitated through a complex and well-oiled system of mandis, labourers and commission agents also called at ‘arthiyas’ in local parlance.

The ‘arthiyas’ are the backbone of procurement in Punjab and at the village level, provide all sort of service to the farmer including, bringing his produce from the fields, arranging for loading and unloading at the mandis, cleaning and drying the produce to match procurement norms, ensuring the grains are quality-certified by authorised agencies and finally ensuring that the funds are made available to the farmers.

The system has been in place for the past several years and has delivered great benefits not only to farmers but to everyone else in the value chain.

In Punjab, FCI too does its procurement through arthiyas or middlemen.

However, till last year, the payment for procurement and every other service was sent to the state government, which in turn made the payments to the arthiyas for the service rendered by them and who in turn then paid the MSP to the farmers for the produce sold.

But sources said that it so happened that the arthiyas deducted interest on the loans and other advances they made to farmers before making the final payment for the produce sold.

From this year onwards, FCI has insisted that no payment will be made via this method. Instead, MSP will be paid directly into the bank accounts of farmers while arthiyas' commission will be credited into their accounts after the end of the procurement season for the services rendered by them.

“Arthiyas aren’t being eliminated. In fact, we will make payment to them at the conclusion of the season for the bills raised by them, as has been practice. The only difference is that MSP won’t be routed through them anymore due to DBT,” Atish Chandra, chairman of FCI told Business Standard.

Chandra said as a result of the process, Punjab will now make direct payment to the farmers who have sold their grains to them as part of Central procurement, while FCI will do the same for farmers who have sold them directly.

However, one reform that Punjab hasn’t adopted is linking of the land records to MSP transferred so as to ensure only genuine farmers benefit from selling the produce.

This is because the land records portal of the Punjab government isn't yet ready, but Chandra said that the state has assured the Centre that it will link the land records with the DBT portal by the next kharif procurement season.

This will further eliminate any possibility of middlemen, commission agents or traders selling cereals on behalf of the farmers to corner the MSP.

FCI’s Chandra though categorically denied that the move to link land records of Punjab farmers with DBT is meant to end the open-procurement system prevalent in Punjab and move towards a system of limiting the quantity of grains that can be sold to government procurement agencies based on average yield and land holding, as has been the practice in several other states.

“I can categorically state that the Government of India is committed to the open ended procurement system and will not tinker with it in any form,” Chandra said.

Extra storage

Another big change that FCI has introduced in its operations in the current wheat procurement season is tweaking the grain stacking norms to create extra space.

FCI and its godowns, both owned and hired, are allowed to increase their grain stacks by up to 127 meters in case of exceptional circumstances or when procurement takes place in large numbers.

From this season, FCI has removed the exceptional circumstances clause and instead made it a regular exercise to increase the stacking limit wherever possible as procurement has been rising at a quicker pace than storage creation.

By bringing the buffer into the mainstream, immediately an extra 20 per cent or around 2.4 million tonnes of storage space was freed in godowns and warehouses owned by FCI. If all the hired and rented warehouses are taken together, an extra 16 million tonnes of storage space will be created, without adding a single extra brick of new space.
 

“We are physically verifying all the godowns and warehouses owned and hired by us and wherever possible this will be done to create new space,” Chandra said.

He said that extra height of grain stacks can be created only when new stacks are built because stacking has to start from the bottom and then move upwards.

“You can’t put extra gunny bags on top of already existing stacks,” Chandra explained.

As a result of this extra storage, FCI hopes that by the end of July not a single newly procured grain will be stored in un-scientific storages.

“We usually have two types of storages, scientific storages that include regular covered spaces and Covered-Area Plinth (CAP) and unscientific storages which can be anything like railways sidings, unused buildings etc. Our aim and objective is to eliminate the unscientific storages fully by the end of this procurement season,” Chandra said.

Grain movement

The third vital initiative that FCI, along with Indian Railways, has taken this year is to quicken the movement of grains from producing states to consuming states so that additional storage space is available in the former.

This also included some innovative movement plan like pushing grains directly from mandis into wagons and faster movement along the tracks.

Several critics said absence of full passenger transport in Indian Railways due to Covid restrictions has been a big factor in smooth and quicker movement of goods. Nevertheless, FCI and Indian Railways are moving greater quantities of wagons this year.

Usually, FCI moves around 30-35 wagons of grains daily from producing states to consuming ones during peak season, but this year this number has gone up to 40-45 wagons.

A key outcome of this swift movement is that till early May, 1.2 million tonnes of wheat and only 40,000 tonnes of rice from the 2018-19 season remain to be evacuated from Punjab.

“In the next three months, the pace of grain evacuation will further pick up pace. That apart, we are already trying to impress upon major producing states to build their own storages and so far, some like Madhya Pradesh have responded very well,” Chandra said.

THE PROCUREMENT STORY IN NUMBERS 

• Total storage available with FCI (owned+hired) as on March 31: About 81.94 million tonnes
• Of this, fully covered storage is 66.94 million tonnes, remaining 15 million tonnes is Covered Area Plinth (CAP).
• Total grain stocks in Central Pool As on May 1: About 83 million tonnes, not including 17.56 million tonnes of rice lying with the millers.
• Total wheat procurement till May 17: About 37.35 million tonnes, up 24% from last year.
• Total MSP transferred to farmers all India via DBT till May 12: Rs 56,059.54 crore, of which 42% to Punjab alone