Can PDS be a solution to the farmers’ agitation?

MSP was fixed in Bharat for the first time in 1966-67 for wheat and paddy consequent to the recommendations submitted by the Food Grain Price Committee in December, 1964. To fix the prices Agricultural Prices Commission was formed, which was renamed as Commission for Agricultural Costs and Prices (CACP) in 1985.

CACP currently comes under Ministry of Agriculture & Farmers Welfare, government of Bharat. The procurement of grains done from the farmers are stored with FCI and NAFED (National Agricultural Cooperative Marketing Federation of India) and in turn distributed to the poor under the PDS. 

State wise total quantum of wheat and paddy procured by FCI since March, 2019 under MSP (figure in LMT)

States  RMS 2019-20 RMS 2020-21 KMS 2018-19 KMS 2019-20 *
Assam  0.00 0.00 0.69 1.80
Chandigarh  0.13 0.11 0.00 0.22
Haryana  11.33 6.69 0.00   0.05
Himachal Pradesh  0.01 0.03 0.00  0.00
Jharkhand  0.00 0.00 0.36 1.06
Jammu & Kashmir  0.00 0.00 0.00 0.15
Punjab  15.72 14.20 0.00 2.24
Rajasthan  12.09 16.29 0.00 0.00
NEF (Tripura)  0.00 0.00 0.00 0.13
U.P. 1.09 1.34 0.01 0.95
West Bengal  0.00 0.00 0.46 0.76
Total  40.37 38.66 1.52 7.36

*As on 9.9.2020

(RMS- Rabi Marketing season, KMS- Kharif Marketing Season) 

Crop  No. of farmers availed MSP  Year  No. of farmers availed MSP Year 
Paddy  9693641 2018-19 12416252 2019-20 *
Wheat  3977029 2018-19   3557080 2019-20

*As on 9.9.2020

(Source- Ministry of Consumer Affairs, Food & Public Distribution) 

Has MSP lost its relevance?

Only 6% of the farmers in Bharat get an MSP for their crops. As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial crops (copra, sugarcane, cotton and raw jute). Therefore, the relevance and efficacy of MSP is debatable.

Nevertheless the current ongoing farmers’ agitation has government’s assurance of the continuance of MSP as one of their major agenda.

There are two main reasons behind this issue.

1. The currently passed three farm laws do not have any mention of MSP and

2. The government can withdraw the protective cover of MSP anytime since it is not a statutory obligation though it is in vogue as a matter of convention. 

The government also does not want to use MSP as a reference price for minimum price protection to the farmers when they enter into contracts with the traders and corporate intermediaries in line with the recently passed farm laws as that would result in making MSP a statutory obligation for the government.

Accordingly the farm laws have clauses wherein the farmers can opt for market driven prices or also opt for a guaranteed price when the price is subject to variation.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 states that the price reference to protect the guaranteed price may be linked to the prevailing prices in specified APMC yard or electronic trading and transaction platform or any other suitable benchmark prices but it does not mention MSP nor any does it make any reference to MSP what so ever.  

Backward integration vs Forward integration

The recently passed three farm laws are though aimed at providing direct market access to the farmers and selling their produce as per their choice to the intermediaries, i.e., traders, middlemen and corporates at a price that is remunerative to them, due to the lack of direct access to market linkages it may end up in the farmers continuing to sell their produce to the intermediaries and also not necessarily at remunerative prices.

The current three farm laws essentially provide back ward integration for traders, middlemen and corporates (i.e., from market to farmers) whereas what the farmers basically need is forward integration (i.e., farm land to market).

The small and marginal farmers who hold less than 2 acres constitute 86.21% of the total agricultural land holdings according to Agricultural census 2015-16. They also primarily depend on micro finance companies and local money lenders for crop loans that attract higher interest rates.

As these farmers neither have direct market access nor can afford to hold the farm produce to get remunerative prices on a future date they are normally compelled to go for distress sale to the middlemen.

Therefore, the open market access now created by the government through the three farm laws which is obviously without a level playing field will in all probability lead to corporates entering the fray along with the existing middlemen through the channel of back ward integration and have an upper hand over the farmers in procurement of the farm produce.

Open market access to the farmers can become a reality only when forward linkage is provided from the farm yard to the markets wherein the farmers will have a control over the supply chain so that the middlemen can be eliminated. This will also ensure remunerative prices to the farm produce which in turn will improve the farmers’ incomes.

Can PDS become a Social enterprise Model?

The government can think of procuring the food grains directly from the farmers only to cater to the requirements of the targeted beneficiaries under the PDS at MSP and convert the PDS infrastructure into a SPV (Special Purpose Vehicle) wherein the centre, states and the farmers’ federations become the stake holders. The farmers may use the PDS infrastructure to reach the market and sell their produce at market prices through the federations. 

The PDS infrastructure may be maintained by the SPV as a self-financing model by levying a fee from the farmers for using this facility to sell their produce in the market. Having access to market and assuming co ownership of the PDS infrastructure will certainly boost the confidence of the farmers as they will have the option to avoid the middlemen completely.

In due course this SPV can strengthen and upgrade its infrastructure by investing in cold storage chains, ware houses and retail outlets from the revenues generated by it.

Every year the government spends huge expenditure on PDS. For 2020-21 fiscal, Rs 1,15,569.68 crore fund has been allocated for supplying subsidised foodgrain through the public distribution system (PDS) and welfare schemes, which is 6.33 per cent increase from the revised estimate of Rs 1,08,688.35 crore for the year 2019-20.

Currently PDS does not generate any revenue since the government treats it as a welfare programme. Once the PDS infrastructure is transferred to a SPV and 5,45,484 fair price shops across the country are effectively converted into retail outlets that not only supply essential items to the targeted beneficiaries under PDS but also simultaneously serve as retail outlets enabling the farmers to sell the farm produce at market prices directly to the consumers, it will become a viable social enterprise model providing sustainable livelihoods to the rural population.  

Let us hope the government and the agitating farmers will explore this possibility which is a win-win model. 

Reference- 

  1. https://nfsa.gov.in/public/nfsadashboard/PublicFPSDashboard.aspx
  2. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1656291.
  3. https://cacp.dacnet.nic.in/content.aspx?pid=32.

(Featured image for representational purpose only)


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About the Author

Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]