Tag Archive Procurement

ByRamanjaneyulu GV

MSP — the factoids versus the facts

Reetika KheraSudha NarayananPrankur GuptaDECEMBER 19, 2020 00:02 ISTUPDATED: DECEMBER 19, 2020 10:00 IST


The debate on agricultural issues must take into account the changed geography of procurement and the seller’s profile

According to one definition, a factoid is “an item of unreliable information that is reported and repeated so often that it becomes accepted as fact”. After the passage of the three controversial farm laws, the Minimum Support Price (MSP) — not mentioned in the laws — has gained a lot of attention. The predominance of factoids about MSP and procurement has meant that the debate has yielded more chaff than grain.

The MSP is meant to set a floor below which prices do not fall, and is announced by the government for 23 commodities. It is the price at which the government ‘promises’ to buy from farmers if market prices fall below it. In fact, however, government procurement is heavily concentrated on wheat and rice, with other crops barely being procured.

Also read: PM ‘attacked’ farmers, told ‘lies’ about MSP, say farm groups

Over the years, factoids about the MSP and government procurement have gained so much traction that the retired gentleman in the local park cites them as facts. These pertain to how many have benefited from the MSP and who has benefited from it. According to these popular beliefs, few (6%) farmers benefit, only large farmers benefit, and only farmers of Punjab and Haryana (to some extent, western Uttar Pradesh) benefit.

More States under MSP

In a forthcoming paper, we use data on State-wise procurement from the Food Corporation of India (FCI) and agricultural household data for 2012-13 from the National Sample Survey (NSS), after which these data are not available, to set the record straight on these three factoids.

One, the 6% figure from the NSS data 2012-13 relates to paddy and wheat alone. Even here, however, among those who sold any paddy/wheat, the numbers are higher — 14% and 16%.

Two, the Government of India has made a systematic effort to expand the reach of MSP to more States, via the Decentralized Procurement (DCP) Scheme. Introduced in 1997-98, it was not very popular in the initial years and began to be adopted by States in earnest only around 2005. Under the DCP scheme, the responsibility of procurement devolved to the State governments which were reimbursed pre-approved costs. FCI data suggest that by July 2015, as many as 15 States had taken up this programme, though not all were implementing it with equal enthusiasm. Largely on account of it, procurement began moving out of ‘traditional’ States (such as Punjab, Haryana, western Uttar Pradesh). Until 2000, barely 10% of wheat and rice was procured outside the traditional States. By 2012-13, the share of the DCP States rose to 25-35%.

In the case of paddy, Chhattisgarh and Odisha have been the star performers. These States today contribute about 10% each to the total paddy procurement in the country. For wheat, decentralised procurement has taken off in Madhya Pradesh in a big way, accounting for approximately 20% of wheat procurement. In 2020-21, wheat procurement from Madhya Pradesh surpassed that from even Punjab. Among agricultural households which sell paddy under the procurement system, while 9% and 7% come from Punjab and Haryana, 11% are in Odisha and 33% are in Chhattisgarh. An overwhelming majority of agricultural households selling wheat to the procurement agencies come from Madhya Pradesh (33%) compared to 22% from Punjab and 18% from Haryana. That only Punjab and Haryana farmers have benefited from the MSP is now truly a thing of the past.

Which farmer benefits

Three, as per the factoid, only large farmers have benefited. In fact, procurement has benefited the small and marginal farmers in much bigger numbers than medium and large farmers. At the all-India level, among those who sold paddy to the government, 1% were large farmers, owning over 10 hectares of land. Small and marginal farmers, with less than 2 hectares accounted for 70%. The rest (29%) were medium farmers (2-10 hectares).

In the case of wheat, 3% of all wheat-selling farmers were large farmers. More than half (56%) were small and marginal farmers.

In Punjab and Haryana, the share of small and marginal farmers is not insignificant (38% and 58%, respectively, among paddy sellers). In the non-traditional States that adopted the DCP scheme, the overwhelming majority of farmers who sell to State procurement agencies are small and marginal. In Chhattisgarh and Odisha, for example, small and marginal farmers comprise 70-80% of all sellers to government agencies. Similarly, in Madhya Pradesh, nearly half (45%) of those who sell wheat to government agencies are small or marginal farmers.

To recap, the facts are as follows: one, the proportion of farmers who benefit from (even flawed) government procurement policies is not insignificant. Two, the geography of procurement has changed in the past 15 years. It is less concentrated in traditional States such as Punjab, Haryana and western Uttar Pradesh, as DCP States such as Chhattisgarh, Madhya Pradesh and Odisha have started participating more vigorously. Three, perhaps most importantly — it is predominantly the small and marginal farmers who have benefited from the MSP and procurement, even if the size of the benefits may be larger for larger farmers. This is true not just in the DCP States, but also in the traditional States.

The true picture

Getting the facts right is an important first step in resolving the issues facing the agricultural sector and farmers’ issues. We have picked three factoids of many as an illustration of how little we know about how the MSP works. The range of claims made regarding, for example, the consequences of the MSP on diversification need to be examined as well. Among Punjabis who cultivated any crop, 21-37% did not grow paddy and wheat. Among all agricultural households including those which did not cultivate a crop (indicating more diversified sources of agricultural income), a larger proportion (58 and 48%, respectively) stayed away from paddy and wheat, suggesting that procurement in Punjab may not have prevented diversification to the extent we imagine.

Similarly, confusion reigns about other areas of interest from the point of view of the new farm laws. It is widely believed that for the first time, the new laws allow farmers to sell outside the Agricultural Produce Market Committee (APMC). Even for commodities for which MSP is announced, the proportion of sales via the mandi range is only between 10-64%; the demand for the MSP originates because the prices paid outside the mandi tend to be much lower. Countrywide, sales to mandi or government procurement agencies fetched on average 13.3% higher prices for paddy and 5.8% for wheat.

We are not unsympathetic to those who question the heavy concentration of wheat and rice in government procurement (millets are better suited to agro-climatic conditions prevailing in large parts of the country, more nutritious and also grown by small and marginal farmers), to the flaws in the current mandi system, or how the MSP is implemented. Yet, the debate — popular, academic or political — on these issues must take into account the changed geography of procurement and the profile of the seller.

Prankur Gupta is at the University of Texas, Austin; Reetika Khera is at the Indian Institute of Technology Delhi, and Sudha Narayanan is at the International Food Policy Research Institute (IFPRI), Delhi



Cabinet approves New Umbrella Scheme “Pradhan Mantri Annadata Aay SanraksHan Abhiyan” (PM-AASHA)
PM-AASHA will provide MSP assurance to farmers A reflection of Government’s commitment to the “Annadata”
Giving a major boost to the pro-farmer initiatives of the Government and in keeping with its commitment and dedication for the Annadata, the Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved a new Umbrella Scheme “Pradhan Mantri Annadata Aay SanraksHan Abhiyan’ (PM-AASHA).  The Scheme is aimed at ensuring remunerative prices to the farmers for their produce as announced in the Union Budget for 2018.
This is an unprecedented step taken by Govt. of India to protect the farmers’ income which is expected to go a long way towards the welfare of farmers.  Government has already increased the MSP of kharif crops by following the principle of 1.5 times the cost of production. It is expected that the increase in MSP will be translated to farmer’s income by way of robust procurement mechanism in coordination with the State Governments.
Components of PM-AASHA:
The new Umbrella Scheme includes the mechanism of ensuring remunerative prices to the farmers and is comprised of

  • Price Support Scheme (PSS),
  • Price Deficiency Payment Scheme (PDPS)
  • Pilot of Private Procurement & Stockist Scheme (PPPS).

The other existing schemes of Department of Food and Public Distribution (DFPD) for procurement of paddy, wheat and nutri-cereals/coarse grains and of Ministry of Textile for cotton and jute will be continued for providing MSP to farmers for these crops.
Cabinet has also decided that participation of private sector in procurement operation needs to piloted so that on the basis of learnings the ambit of private participation in procurement operations may be increased. Therefore in addition to PDPS.
It has been decided that for oilseeds, states have the option to roll out Private Procurement Stockist Scheme (PPSS) on pilot basis in selected district/APMC(s) of district involving the participation of private stockiest. The pilot district/selected APMC(s) of district will cover one or more crop of oilseeds for which MSP is notified. Since this is akin to PSS, in that in involves physical procurement of the notified commodity, it shall substitute PSS/PDPS in the pilot districts.
The selected private agency shall procure the commodity at MSP in the notified markets during the notified period from the registered farmers in consonance with the PPSS Guidelines, whenever the prices in the market fall below the notified MSP and whenever authorized by the state/UT government to enter the market and maximum service charges up to 15% of the notified MSP will be payable.
The Cabinet has decided to give additional government guarantee of Rs.16,550 crore making it Rs. 45,550 crore in total.
In addition to this, budget provision for procurement operations has also been increased and Rs. 15,053 crore is sanctioned for PM-AASHA implementation. The scheme henceforth is a reflection of Government’s commitment and dedication to our ‘Annadata’.
Procurement over the years:
During financial years 2010-14 total procurement was Rs. 3500 crore only whereas during financial years 2014-18, it has risen 10 times and reached to Rs. 34,000 crore. For procurement of these agri-commodities during 2010-14, Government Guarantee of Rs. 2500 crore was provided with expenditure of only Rs. 300 crore; while during 2014-18, Guarantee  amount has been increased to Rs. 29,000 crore  with expenditure of Rs. 1,000 crore.
Government of India is working with the holistic approach of solving any issue rather than in fragments. Increasing MSP is not adequate and it is more important that farmers should get full benefit of the announced MSP. For this, government realizes that it is essential that if price of the agriculture produce market is less than MSP, then in that case State Government and Central Government should purchase either at MSP or work in a manner to provide MSP for the farmers through some other mechanism. With this approach, Cabinet has approved the Umbrella Scheme of PM-AASHA with three sub-schemes i.e. Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS) and pilot of Private Procurement & Stockist Scheme (PDPS).
In Price Support Scheme (PSS), physical procurement of pulses, oilseeds and Copra will be done by Central Nodal Agencies with proactive role of State governments. It is also decided that in addition to NAFED, Food Cooperation of India (FCI) will take up PSS operations in states /districts. The procurement expenditure and losses due to procurement will be borne by Central Government as per norms.
Under Price Deficiency Payment Scheme this scheme (PDPS), it is proposed to cover all oilseeds for which MSP is notified. In this direct payment of the difference between the MSP and the selling/modal price will be made to pre-registered farmers selling his produce in the notified market yard through a transparent auction process. All payment will be done directly into registered bank account of the farmer. This scheme does not involve any physical procurement of crops as farmers are paid the difference between the MSP price and Sale/modal price on disposal in notified market. The support of central government for PDPS will be given as per norms.
Pro-farmer initiatives of the Government:
The Government is committed to realizing the vision of doubling farmers’ income by 2022.  The emphasis is on enhancing productivity, reducing cost of cultivation and strengthening post-harvesting management, including market structure.  Several market reforms have been initiated.  These include Model Agricultural Produce and Livestock Marketing Act, 2017 and Model Contract Farming and Services Act, 2018.  Many States have taken steps to adopt these through legislation.
Efforts are on for a new market architecture, so as to ensure that farmers get remunerative prices on their produce. These include setting up of Gramin Agricultural Markets (GrAMs) so as to promote 22,000 number of retail markets in close proximity of farm gate; competitive and transparent wholesale trade at APMC through eNAM and a robust and pro-farmer export policy.
Besides, several other pro-farmers’ initiatives such as implementation of Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri KrishiSinchai Yojana, ParamparagatKrishi Vikas Yojana and distribution of Soil Health Cards have been undertaken.  The commitment for farmer welfare is also reflected by unprecedented decision of announcing minimum support price based on the formula of 1.5 times the cost of cultivation.