After MP’s Bumper Wheat Procurement, Storage and State Finance Challenges Lie Ahead

Unlike Punjab and Haryana, MP is a decentralised procurement state and the food subsidy incurred by it is reimbursed by the Centre with a lag of several months.

The success of procurement of wheat produced in 2019-20 is being celebrated across India and especially by Mumbai’s financial markets, which see in it a sign of a relatively healthy rural economy.

What should be noted though is that a major contribution to this bumper procurement was made by the state of Madhya Pradesh.

Out of 38.5 million tonnes wheat procured in the country – despite the scare of COVID-19, shortage of labour and gunny bags, restrictions in mandis and government recommendations of physical distancing – Madhya Pradesh (MP) procured 12.93 million tonnes, putting Punjab in second place with 12.71 million tonnes.

There is a story behind this success.

In 2006-07, when India procured just 9.2 million tonnes of wheat and had to import wheat (5.5 million tonnes in 2006-07 and 2007-08) to meet its requirement of PDS, MP was completely dependent on allocations made by the Centre as its procurement was negligible. Even in 2007-08, when the food secretary was visiting every wheat and rice producing state to gear up the procurement machinery, MP procured only 58,000 tonnes out of 11.12 million tonnes procured in the whole country. It was Punjab and Haryana which literally fed the nation by contributing 6.7 and 3.3 million tonnes of wheat.

From procuring just 58,000 tonnes in 2006-07 to 12.93 million tonnes in 2020-21, MP has shown what a determined state machinery (under much maligned bureaucrats) can achieve to not only increase its production but also to put in place an effective and efficient system of procurement which benefits the farmers also by ensuring that he realises the MSP. The Centre also helped MP by relaxing the FAQ specifications of wheat damaged due to rains. About 70% of wheat procured in MP was under relaxed specifications (URS) this year.

Also read: India’s Bumper Wheat Crop Should be Giving Jitters to the Food Corporation of India

In the last three years, the area under wheat cultivation in MP has been going down. In 2016-17, it was 6.02 million hectare (ha). This went down to 5.31 million ha in 2017-18 and further decreased to 5.52 million ha in 2018-19. Wheat area and production in 2019-20 is not known as the Ministry of Agriculture releases state wise data of area and production after a lag of several months.

But it can safely be assumed that due to late rains in September and October 2019, soil moisture was high and probably the area under wheat was higher than in 2018-19. Due to the prolonged winter, the productivity would also have been higher. In all likelihood, the area under gram may have gone down which is reflected in the fact that procurement is only about 7.03 lakh tonnes while last year it was 5.75 lakh tonne. The MSP of gram in MP is Rs 4,875 per quintal. It is clear that farmers of MP are confident that while they can realise wheat MSP of Rs 1,925 per quintal, they do not have similar assurance of receiving MSP for gram or other pulses and oilseeds.

It is therefore no wonder that India will continue to import pulses while struggling to deal with an excessive stock of wheat. The stock of wheat in MP on June 1 was 16.46 million tonnes.

While the financial analysts in Mumbai rightly feel happy that rural India and the agriculture sector are coming to the rescue of India’s COVID-19-hit economy, the finance officers of MP’s state government would be having sleepless nights over the reimbursement of food subsidy by the Centre.

Food department officials will also be extremely worried about safe management of wheat during monsoon.

Unlike Punjab and Haryana, MP is a decentralised procurement state and the food subsidy incurred by it is reimbursed by the Centre with a lag of several months. A certain percentage can take years to be reimbursed. MP has paid Rs 2,489 crore as wheat MSP alone. Economic cost of procurement in ‘decentralised procurement states’ (DCP) states is not released by the Government but MP will surely have to incur additional expenditure on handling, storage and interest etc. which could well be about Rs 1000 per tonne. So, DCP status puts an additional burden on the states.

Moreover, FCI will be reluctant to take over wheat in MP as it will give preference to evacuate wheat from Punjab and Haryana where storage space will need to be created space for rice whose procurement will start in October 2020. In addition, receiving states object to distributing URS wheat under PDS.

With the state’s revenues hit hard by economic distress due to COVID-19, the finance secretary of MP would be a very worried man.

Also Read: Budget 2020: Does the Govt Intend to Reduce Coverage Under the Food Security Act?

On April 30, MP had covered storage capacity of 8.76 million tonnes and CAP capacity of 0.53 million tonnes. In addition, the MP government has built 0.45 million tonne of steel silos. It is possible that in May and June, the state government has hired more private warehouses but it is not possible that the state would have found covered storage for 6.7 million tonnes of wheat. It seems about 2.1 million tonnes of wheat is stored in Cover and Plinth (CAP storage) in MP. If any of this is stored on kutcha plinths, it will be highly prone to damage due to rains and flooding. Images of damaged food grains attract huge criticism in the media and demands are made for free distribution.

So, for the next 10 years, the Centre and the states should decide how much wheat and rice they expect to hold in government stocks. When additional storage capacity was being calculated in 2008-10, the peak stock was assumed to be about 60 million tonnes. On June 1, the stock was 97.2 million tonnes.

The government should be quickly deciding its MSP and stocking policy for the next ten years. If the current policy regime has to continue, substantial storage capacity needs to be urgently added.

Siraj Hussain has worked as CMD, Food Corporation of India. He retired as Union Agriculture Secretary and is presently a Visiting Senior Fellow at ICRIER.