How silos can cut foodgrain procurement costs by 6%

With the Centre setting an ambitious target to create 11.11 million tonnes (mt) capacities of steel silos at 249 locations over the next 4-5 years, its integration with the official procurement system could help save up to ₹20,000 crore annually. However, the consent of State governments is required to allow the procurement through silos, independently.

In the economic costs of rice estimated at ₹3,597.17/quintal and wheat at ₹2,499.69/quintal (for 2022-23), the share of procurement incidentals is over 13 per cent. The is the same as last year.

Unavoidable costs

According to the Food Corporation of India (FCI), the cost of gunny bags (highest among procurement incidentals) and some other expenses could not be avoided even after shifting the purchases through silos. But those costs which can be avoided by FCI are — mandi /statutory charges, commission to arthiya and societies, mandi labour, forwarding charges, internal movement and interest on storage. These put together can be nearly 7 per cent of the economic costs. If silos can manage by charging about 1 per cent of MSP, the government can save at least 6 per cent of economic costs, an expert said.

“The cost will be less than 1 per cent (of MSP) in case silos are used to procure wheat,” said Sanjay Gupta, Managing Director and CEO of National Commodities Management Services Limited (NCML). Currently, the Centre bears about 6.5 per cent (of MSP) in Haryana and about 8.5 per cent in Punjab to procure wheat and rice on account of market fees, rural development cess and arhtiya commission.

“Though at some places in Haryana wheat procurement was done this year through silos, still, FCI had to pay market fees, cess and arhtiya commission despite no role of mandi or commission agents in it,” said an official involved in procurement. These charges have to be completely done away with when farmers bring their grains directly to silos, the official said.

Two messages

Recently, the Union Food Secretary Sudhanshu Pandey said the Centre had sent two clear messages to the State governments on the procurement of foodgrains. One, it would provide up to 2 per cent incidental expenses (all inclusive) on the procurement undertaken by them. Secondly, the private sector would be roped in to buy foodgrains for the Central pool.

NCML’s Gupta said, “If the government wants to privatise the procurement system, it needs to work closely with them and make policy framework conducive for private participation. It is a challenge since the ticket size of every transaction is very small, but technology can be of help, particularly after rapid progress that has been made since it was tried more than 10 years ago.” NCML would like to participate in this process whenever it is opened up, Gupta said.

However, some industry officials said the Centre has to make the regulatory process simple and an enabling environment has to be created along with State governments. The government has to clarify if it wants private participation in procurement only through silos, which is easy and efficient, or with the conventional system of opening procurement centres, the official said.

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