Why agriculture's abundance isn't bringing much relief to the farmer

Why new price support scheme for pulses and oilseeds this kharif season will only add to the state's inadequate procurement and storage mechanisms

Anil Puri Goswami is a farmer with an average landholding in Mandsaur district of Madhya Pradesh. Ever since the farmers’ agitation two years ago that prompted the state government to introduce a “price deficit” financing scheme, he has been trying to sell his pulse crop to state agencies at the mandated Minimum Support Price (MSP), which is higher than the going market rate.

So far, he has rarely managed to sell his entire produce through the state system, standing in long queues and waiting for hours. 

Still, on the logic that something is better than nothing, he is planning to register his crop with the state government this year too, at a newly set MSP.

“But the entire process of registration, sale and thereafter payment is so cumbersome that sometimes it really gets difficult for us. Then, too, there is a cap on the amount each farmer can sell,” rues Goswami. 

Like him, there are several thousand farmers across Madhya Pradesh and Rajasthan and other states who have registered their crop or are planning to do so for procurement operations for pulses and oilseeds to start in the next few months, if market prices fall below the mandated MSP.

The irony of this scheme to benefit farmers is that it could add to the problems for the government because the mechanism to procure and store crops like pulses, coarse cereals and oilseeds barely exists. So far, though the Central government hasn’t officially announced the process through which it will procure crops other than wheat and rice, indications from Krishi Bhawan, seat of the agriculture ministry, are that the mechanism that could be adopted might not be dramatically different from the existing ones. 

In 2017-18, the Central government procured a massive Rs 290 billion worth of pulses and oilseeds from farmers under the price support scheme. But procurement is just one part of the problem, a bigger and more acute challenge is to ensure their proper storage and transportation.

The National Agricultural Cooperative Marketing Federation of India (Nafed) is the biggest agency that undertakes procurement, stocking and disposal of pulses and oilseeds. Though Nafed’s efforts are supplemented by the Small Farmers' Agri Business Consortium and Food Corporation of India, the latters’ capacities are small (the FCI’s godowns are mostly reserved for wheat and rice).

“The problem with pulses is that the states that produce it don’t consume much so the crop needs to be transported to markets. And even if they have storage it is not scientific, which makes the stocks vulnerable to damage,” says Shiraz Hussain, a former agriculture secretary. 

Hussain adds that the plan to build proper scientific storage capacities in every producing and consuming district has not moved forward enough.

As on date, officials said Nafed is saddled with 5.5 million tonnes of pulses and oilseeds stocks procured from the last few years. Of this, around 4.5 million tonnes is pulses alone. 

Pulses are stored in Central and State Warehousing Corporation godowns in Maharashtra, Karnataka, Madhya Pradesh, Rajasthan, Andhra Pradesh, Telengana and Uttar Pradesh, and oilseeds, mainly mustard, is stored in Rajasthan, Haryana and small quantity of groundnut in Gujarat.

Added to the problem, Hussain points out, is that stocks can’t be liquidated during the procurement season because of the possibility of re-sale. 

Unless, pulses and oilseeds stocks are liquidated quickly, the Centre and state agencies will find it difficult to procure new crop when the arrivals start in the next few months. 

To hasten the process, few weeks back, the Centre announced an ambitious programme to sell pulses from its inventories at a flat discount of Rs 15 per kg, to be sold by state governments through the ration shops. 

“The scheme would serve two purpose. One, it would liquidate our inventories to enable fresh purchases. Two it would address the burning issue of malnutrition among the poor, given that pulses are readily consumed everywhere and by almost everyone,” a Krishi Bhavan official commented. 

So far, according to an official statement, five state governments -- Tamil Nadu, Karnataka, Maharashtra, Bihar and Jammu & Kashmir – have expressed interest in the scheme. This method is likely to reduce the pulses inventory by 2 million tonnes over the next one year. 

“Alongside, we are also conducting auctions on a regular basis to clear stocks and 0.6 to 0.7 million tonnes of oilseeds from the existing 1.0 million tonnes stocks will get cleared through this,” the official said.

Nafed’s precarious financial position only adds to the problems, however.  Nafed relies on a government's bank guarantee to raise credit to pay farmers, rather than a direct subsidy support to undertake procurement operations. Delays in acquiring those guarantees causes dues to pile up. 

In 2017-18, Nafed invoked the full Central bank guarantee of Rs 290 billion, which means a new guarantee is needed. This year, however, the guarantee will be less, on the understanding that Nafed will earn Rs 60-70 billion through the various programmes to reduce pulse and oilseeds stocks. 

The big question is: How much difference will this make to farmers’ incomes? Not much, the prognosis suggests. Only about 40 per cent of the annual produce is procured every year. In 2016-17 and 2017-18 despite a massive scale-up in operations a little over 5 million farming households benefited partially. To put that in perspective, India has over 120 million farm households. Though all of them might not be cultivating pulses and oilseeds, a significant proportion does. 

“If the government announces an MSP they should be able to procure all the marketable surplus. In the past two years, the government sometimes stopped the procurement operations midway, which is like stabbing farmers in the back. There shouldn’t be any cap,” said Alok Sinha, a former chairman and Managing Director of Food Corporation of India.

It is possible that open market prices may rise when the new kharif harvest hits the market under the impact of a massive increase in import duties on edible oil and curbs on import of pulses. This would reduce the need for Central intervention. 

But sceptics feel that such a scenario might not happen at all. “I don’t think prices of pulses and oilseeds would move in the open market from November because production this kharif is again expected to be bumper on the back of a good, well-distributed monsoon,” says P K Joshi, South-Asia Director of International Food Policy Research Institute (IFPRI).

The pulse of the matter

• Government prepares to start procurement of oilseeds and pulses in the next few months
   
• Cabinet note is being prepared for the process through which procurement would be done
   
• Storage facility for crops like pulses, coarse cereals and oilseeds is inadequate
   
• Govt is saddled with 5.5 million tonnes of old stock
   
• To reduce stock, pulses are sold at a discount through ration shops