Involving private players in grain procurement needs clear modalities

A few days back, a senior government official once again floated the idea of involving private players in the procurement of food grains, for which he said that attempts are being made to involve the states as well.

The idea in itself is not new and previously several attempts have been made to involve private players in official procurement, most recently in oilseeds.

PPSS for oilseeds

In fact, the PM-ASHAA scheme has a component called ‘Private Procurement and Stockiest Scheme’ (PPSS).

But, this is limited only to oilseeds and has been started on a pilot basis on request from the states.

The government, while launching the scheme had intended to conduct as many as eight pilots across the country for involving private players in official procurement.

The purchases had to be mandatorily at the minimum support price (MSP), for which the private players were to be granted 15 per cent of the crop’s notified MSP as a services charge, while all other expenses etc had to be borne by the private party themselves.

The responsibility of disposal of the procured commodity was with the private players along with handling and transportation expenditures. The state governments were required to provide a favourable environment for the operation of the private player through lowering or waiving of mandi fees etc.

However, little is known about the progress of this component of PM-ASHAA ever since it was launched sometime in 2017. By all available sources, it hasn’t evoked a great response.

Earlier Attempts

Prior to this, there have been attempts to involve private players in the procurement of a variety of agricultural products that the government purchases.

The first attempt to involve the private sector was made in 2008 when the Food Corporation of India (FCI) engaged National Collateral Management Services Limited (now known as National Commodities Management Services Limited (NCML)) and National Bulk Handling Corporation (NBHC) for procurement of paddy in Odisha and some other states.

Thereafter, in 2016-17, the Centre, along with the FCI again, roped in the private sector for procurement of paddy in Eastern India, where the procurement process was weak.

This time, it was slightly more structured and modalities were worked out in more detail.

Three private firms, including NCML, were roped in for rice procurement on a cluster basis in Uttar Pradesh, Jharkhand, and West Bengal. The other two firms were Veerprabhu Marketing Ltd and Farmers Fortune (India) Pvt Ltd.

Then food minister Ram Vilas Paswan, in a written reply to the Rajya Sabha told that the rules mandated that private companies are bound to furnish daily procurement reports to the FCI, which has the right to inspect purchase centres, storage points, and miller premises.

The FCI would do the quality checking of rice at the time of acceptance at its depots.

Moreover, these firms have to mandatorily make the MSP payment electronically to farmers within 48 hours of procurement.

The FCI would evaluate the performance of private players and impose a commensurate penalty on them for their acts of omission and commissions.

In UP, the NCML was given a cluster to procure rice from four districts -- Ballia, Mau, Ghazipur and Chandauli.

Veerprabhu Marketing Ltd was awarded an area covering Allahabad, Kaushambi, Pratapgarh and Sultanpur.

Similarly, Farmers Fortune (India) Pvt was given a cluster covering Ambedkarnagar, Basti Sant Kabirnagar and Siddarthnagar. In Jharkhand, the NCML was given two clusters, covering districts -- South Chottanagar and Kolhan.

In West Bengal, Veerprabhu Marketing Ltd was awarded four clusters, covering Bankura, Burdwan, Dinajpur and Siliguri districts.

The success or failure of these experiments was never made public.

The problems

In most cases, participants said that market prices were lower than the rate at which they purchased (at MSP), thereby incurring losses.

When the purchases were made on behalf of FCI for foodgrains, the commission and other modalities remained fuzzy.

In the case of oilseeds, the commission offered 15 per cent of the MSP, which was too little at times when prices fell in the open market.

Also, most states in a NITI Aayog discussion conducted a few years back on the same issue, felt that involving private players in procurement could at best supplement existing processes and should not become the main method of procurement.

“It is a good idea but has not been picked up because modalities remain unclear and remain to be worked out properly. If private players buy at MSP and then prices fall in the open market they won’t be disposing of them at a loss while if he buys on behalf of FCI then too the entire quantity needs to be picked up or else they will suffer losses,” Dr S Mahendra Dev, former Chairman of Commission for Agriculture Costs and Prices (CACP) told Business Standard.