The Centre should rope in private corporates to procure grains, pulses and oilseeds on its behalf for more effective implementation of the minimum support price (MSP) mechanism, feels Dr Ashok Gulati, Chairman, Commission for Agricultural Costs and Prices (CACP).

“You can't simply announce an MSP and forget about it. The Government is morally obliged to ensure farmers get the declared floor price. If it cannot do that on its own, the job could be entrusted to private players on the same terms as offered to the Food Corporation of India (FCI) or Nafed (National Agricultural Cooperative Marketing Federation),” the head of the crop pricing advisory body told Business Line .

The Centre has already permitted private participation in warehousing of public foodgrain stocks. In June 2005, Adani Agri Logistics Ltd bagged the first ever tender to build, own and operate bulk silos and related infrastructure for storing 0.55 million tonnes (mt) of FCI-procured grains across seven identified locations.

From storage to procurement

“When you have public private partnership (PPP) in storage, there is no reason why it cannot be extended to procurement and MSP operations. If the aim is to deliver MSP to farmers, does it matter whether it is done through FCI or ITC, Mahindra ShubhLabh and DSCL Hariyali Kisaan Bazaar?,” Dr Gulati pointed out.

He illustrated the case of sunflower, where the Centre, in 2008-09, announced a steep MSP hike from Rs 1,510 to Rs 2,215 a quintal. But with no Government buyers, farmers realised less than Rs 2,000 even in Punjab, where they constitute a strong lobby.

The same story holds for pulses – the MSPs of which have been raised by 20-30 per cent this year – or paddy and wheat sold in eastern Uttar Pradesh (UP) and Bihar, where neither the FCI nor State agencies open purchase centres during the harvesting season.

According to Dr Gulati, once big corporates – for that matter, even cooperatives and producers' companies – are allowed to procure on Government account and guaranteed a minimum business based on competitive tendering and transparent rules of MSP enforcement, it will set off a virtuous process.

“You would incentivise creation of a back-end infrastructure for marketing of farm produce, especially in crops and regions where MSPs exist only in name,” he noted.

New revenue stream

If the Centre were to heed Dr Gulati's advice, it would open up a new business opportunity for the likes of ITC, Hindustan Unilever and Britannia Industries, which today buy wheat mainly to meet their branded atta or bread requirements. These corporates also undertake exports and domestic trading of farm commodities on their own account.

PPP in MSP operations can potentially generate large revenues by way of commission fees. The Centre annually procures 25-26 mt of wheat and 45-46 mt of paddy. These purchases, at their current MSPs of Rs 11,200 and Rs 10,000 a tonne, are worth around Rs 75,000 crore.

“The system could be tried out first in States that have reformed their Agricultural Produce Marketing Committee laws to enable direct purchases from farmers. Low mandi levies and purchase taxes can be an additional inducement for corporates to go to UP and Bihar rather than Punjab and Haryana,” Dr Gulati added.

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