State-run Food Corporation of India (FCI) has recently allowed private companies to procure paddy from eastern states as recommended by the Shantha Kumar Committee, which cited diseconomies of scale in FCI’s operations.
Although private companies bring efficiencies, these might not complement the government’s efforts to reach out to farmers who are at the fag-end of the Indian agricultural supply chain. Little or no effort seems to have been made in implementing the recent CAG recommendations, such as direct transfer of MSP payments to farmers and asking for collateral from millers/ suppliers till the time of delivery of Custom Milled Rice. Also, Food Corporation of India appointed the private companies with no experience of operation in the allotted region, making them dependent on local agents for paddy procurement, thus increasing overall cost to the system.
A recent CAG report on ‘Procurement and Milling of Paddy for the Central Pool’ has also estimated loss to exchequer to the tune of Rs. 3,743 crore, as payments to millers towards paddy milling charges, based on unrevised by-product prices that are retained and sold by millers.
FCI and NAM Combination: A win-win situation
The National Agricultural Market (NAM) platform mooted by the government to integrate agricultural mandis across the country in order to provide better price discovery and wider market access to farmers may face hurdles initially due to a lack of awareness and education among the farmers along with resistance from commission agents over fear of loss to their business.
FCI with obligation to procure large quantities of wheat and paddy for its public distribution program should explore NAM platform to source these commodities both in existing and new marketplaces, as it will not only help bring transparency in the system but will also facilitate the direct transfer of MSP payments, as recommended by CAG.
Also, the private companies (those engaged to procure paddy) should be asked to take possession of all paddy milling products such as full rice, brokens, bran, husk etc and sell them on behalf of FCI (instead of procurement and delivery of only white rice) and pay necessary milling charges to millers, thus ensuring benefits of by-products price appreciation to the government.
The current agreement between private companies and FCI mandates the companies to deliver the milled rice (which is 67 percent of total paddy procured) into the designated godowns of FCI. However, the agreement does not seek to know the actual milling costs incurred by the millers either directly or through these service providers. Although FCI needs only milled rice for public distribution purposes, the current agreement in association with NAM platform presents an opportunity to take possession of the valuable by-products and make additional revenue by selling the same. FCI may ask the selected private agencies to act as procurement, warehouse and sales (of by-products) service provider, by modifying the contract in such a way that private companies physically procure the paddy, purchased by FCI through NAM platform and get the paddy milled at a designated mill at a pre-determined cost, while selling by products at market prices. As FCI makes MSP payments to farmers directly using NAM platform and private companies take the delivery of the same on behalf of FCI, additional checks and balances will be created in the system, thus ensuring transparency.
Success of e-sales of food grains
FCI’s e-auction of food grains introduced in the year 2010, with meagre quantities being sold under the system is now seeing good success with nearly all sales under domestic Open Market Sales Scheme (OMSS) held through the system. This shall help the corporation better coordinate the electronic transaction processing required for online grain procurement operations.
Although, recent budget proposals mention thel setting up of an online procurement system by FCI, it did not specify whether it will be through NAM platform. FCI exploring NAM route for food grain procurement will create a win-win situation for both as huge quantities procured by FCI could make the NAM platform a viable system, while FCI benefits from its electronic transaction processing activities.
Sudhakar Gummula is an agri-business consultant and Ankush Agrawal is an Assistant Professor at IIT Delhi