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Why competition in food procurement is good

Ending FCI's dominance will save the government crores and benefit farmers in areas where the agency does not venture

Ajay Vir Jakhar 

Ajay Vir Jakhar

Finally the Competition Commission of India (CCI) is investigating the monopoly of the government of India agency, Food Corporation of India (FCI) in food procurement. Food procurement is possibly one of the greatest monopolies in the country with over 80 per cent of the cereals procured by FCI.

I have some lingering doubts, however, as to who put CCI to the task. Could this investigation be a strategic move by the government or motivated by big business interests to get a favourable order from the CCI to open grain procurement to private players? Whatever the case or intent, the idea is good and worth exploring as an opportunity.

The Bharat Krishak Samaj has advocated breaking this monopoly for some time. Let us begin by allowing private sector players to procure grain at the minimum support price (MSP) and its storage and transportation at the behest of the government from those centres where FCI does not procure grain at present.

Farmers will gain by having their produce procured and the government could save thousands of crores in the process. With the Food Security Ordinance, the billing on transport, storage, interest component and wastage will be immense, possibly over Rs 30,000 crore. The sheer magnitude of the amount of grain to be handled will overwhelm any system. The interest component of storage is 50 per cent of the agriculture ministry's budget. The government could pay the private players 20 per cent less for the procurement process, transport and storage than what it pays FCI initially.

The MSP is like a sovereign guarantee to farmers under which it is committed to procure a particular commodity should the price fall below the announced price. Apart from crops like wheat and rice in Punjab, Haryana, Rajasthan, western Uttar Pradesh (UP) and some parts of a few other states, the government has failed miserably to fulfil this promise. Even though farmers usually find the declared MSP insufficient to meet their cost of production, they wouldn't care less who procures their crop as long as they get paid the price guaranteed by the government.

Owing to FCI's dominant position and monopoly, no new initiatives are being made to spread agriculture infrastructure and service delivery. Due to the absence of a worthwhile procurement mechanism or markets in places like eastern UP, Bihar and Andhra Pradesh, farmers are forced to sell their paddy much below the MSP to rice mills and traders. For instance, when the MSP for paddy was Rs 1,250, farmers delivering paddy in the villages of Bihar got only Rs 950; when farmers delivered grain at the railway station they got Rs 1,025. The number of mandis or agriculture market yards across India has not increased although crop production has more than doubled over 30 years.

The bane of FCI is that the labour unions have a mafia-like stranglehold over it. At FCI, the highest paid loader gets a staggering Rs 2.25 lakh per month to simply load a truck with grain sacks. The same person in the unorganised sector get paid Rs 6,000 a month. FCI gives seven times more salary to its contract labour than the rates prevailing in the market. The organised trucking industry also raises its rates when transporting for FCI, thus making the Indian exchequer pay thousands of crores extra over the years.

This preposterous loot is only possible because procurement is a monopoly with no accountability. Recently, I heard that a ransom of Rs 22 crore was demanded for the release of an FCI officer from the north-east. Such a huge ransom demand for a government employee shows the level of loot. This happens even as many debate the demerits of high salaries of private sector chief executive officers. The Indian taxpayer foots the cost of this inefficiency, which gets added to the cost of farm subsidies. This then needs to be defended in international trade negotiations. As a farmer, I can say with absolute confidence, India is good at making policies that subsidise inefficiency and not farmers. The only way to end this nightmare is to build competition.

If unchecked, large institutions that create dominant positions like that of a government or a large corporation will always manipulate policy and the system to suit their interests. They do so either blatantly in policy announcements or in the fine print of the policy. At a later date when clarifications are sought by the private sector on certain clauses, the government misinterprets and clarifies them to benefit the private sector. That is exactly why we need a competition commission to safeguard the interests of smaller players and, more importantly, for larger public good.

While we may criticise the government monopoly, what is more detestable is its replacement by the monopoly of large private corporations. This is inevitable since the government abdicates its role due to inherent weaknesses in the system. Our fears are genuine because we are sceptical of the CCI's competence to effectively deal with private corporations., Twitter : @Ajayvirjakhar
The writer is Chairman, Bharat Krishak Samaj

First Published: Thu, July 18 2013. 21:44 IST