Commodity Analysis

Making oilseeds procurement work

Rajalakshmi Nirmal | Updated on October 21, 2018 Published on October 21, 2018

Checks and balances can ensure trader cartels don’t ruin a workable scheme

One of the three arrangements under the new PM-AASHA scheme to ensure good returns for farmers is the price deficiency payment scheme (PDPS).

Oilseed farmers will be compensated through the scheme for this kharif. Under PDPS, a brainchild of NITI Aayog, farmers who sell crops at a price below the MSP (minimum support price) are to be compensated for the difference. Under the former earlier MSP procurement scheme, since the government was not always able to procure the entire produce that farmers brought to mandis, setting the MSP offered little respite to farmers.

PDPS offers relief to farmers as the government pays them the difference between the MSP and the market price. This is the same as Bhavantar Bhugtan Yojana (BBY) that the Madhya Pradesh government introduced in kharif 2017.

The BBY scheme has worked well for the State and its farmers. However, there were some pain points, too. Lessons from MP show that if the States implementing PDPS do not place proper checks and balances, the scheme may be open to manipulation.


Data from the State government, which BusinessLine was privy to, show that the scheme which replaced the MSP procurement operation in eight crops in kharif 2017 not only saved the government the trouble of physical procurement, but also reduced the cost outgo. In soyabean, for instance, farmers brought in a total of 135 lakh quintals.

With MSP at ₹3,050/quintal, the cost of procuring all the arrival was ₹4,136 crore, but since, under BBY, it is only the difference between the MSP and the market price that is paid to farmers, the cost was ₹425 crore.

In six crops — soyabean, green gram, groundnut, maize, pigeon pea and black gram — procured under BBY in the kharif 2017 season, the cost for the State was ₹1,952 crore. Had all the produce been procured at MSP, the cost would have been ₹9,387 crore.

Also, unlike in the usual procurement mechanism, where not all farmers of the State are covered because of the high cost, under BBY, all the farmers who registered benefited.

In the kharif 2017 season, a total of 21.88 lakh farmers in Madhya Pradesh registered for the scheme, reports the State government.

The 10.59 lakh soyabean farmers who registered themselves for BBY produced half the State’s soyabean crop. In black gram, maize and groundnut, too, a large number of farmers benefited.

Prices drop

The BBY scheme, however, did face some criticism last year — that it helped trader cartels benefit. Traders forced farmers to sell at lower prices and asked them to take the compensation from the government. When the BBY scheme opened in kharif season last year, the prices of many crops, including black gram, green gram, maize and soyabean, in the Madhya Pradesh mandis were lower than in Rajasthan, Maharashtra or UP.

In black gram, for instance, the price in MP was ₹2,803/quintal in October last year, while it was quoting at ₹3,814/quintal in UP and ₹3,595/quintal in Rajasthan.

Further, in the month after the BBY scheme opened, prices in MP fell 12 per cent, while in UP, the price correction was only 6 per cent.

However, an official from the Madhya Pradesh Mandi Board, whom BusinessLinespoke to, referred to a study by NITI Aayog to say: “The price trend was the same. For instance, in urad (blackgram), prices dropped in MP, but they were also down in UP and Rajasthan. Traders reduced the prices, but it was because of higher arrivals.”

Arrivals across crops in MP jumped significantly higher last year. Soyabean arrivals last year were 22.7 lakh tonnes, up from 15.51 lakh tonnes the previous year. Arrivals in black gram were 6.46 lakh tonnes, versus, 1.97 lakh tonnes the previous year. Prices dropped also because the scheme was open for a shorter period.

The mandi board official added: “What the farmer earlier brought to market over a period of 6-12 months, now came in two-three months, and this resulted in prices spiralling down.” States which plan to implement the price deficiency payment scheme should take away a few learnings from the experience in Madhya Pradesh.


Faiz Ahmed Kidwai, MD of the MP Mandi Board, says: “A farmer shouldn’t be given compensation if he/she sells the crop at 50 per cent or below. This price ceiling will ensure that a trader doesn’t cut the price too much.”

There should also be a cap on how much each farmer can sell under the scheme. If a quantitative ceiling is in place, the sale window can be kept open for a longer time, says Kidwai.

“The farmer should not be forced to come and dump in the first or second month. Theoretically, the scheme can continue throughout the year. Once you have fixed a ceiling for the farmer, why should he be forced to sell in the first two months of the season?”

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Published on October 21, 2018
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