Food security, Agricultural pricing, Food Procurement and Public Distribution System

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WHO Defines Food security to exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life.
Food security has three interlinked contents such as :-

  1. Availability of food,
  2. Access to food and
  3. absorption of food.

Food security is a multidimensional concept covering even the  micro level household food security,energy intakes and indicators of malnutrition.

 

Major components of food security are:-

  1. Production and Procurement
  2. Storage
  3. Distribution

Indian Agriculture is rightly called as a gamble with Monsoon, variability in food production and rising population creates food insecurity in the nation and worst effected are the downtrodden section of the society.

While India has seen impressive economic growth in recent years, the country still struggles with widespread poverty and hunger. India’s poor population amounts to more than 300 million people, with almost 30 percent of India’s rural population living in poverty. The good news is, poverty has been on the decline in recent years. According to official government of India estimates, poverty declined from 37.2% in 2004-05 to 29.8% in 2009-10.

Need for Self-Sufficiency:

India suffered two very severe droughts in 1965 and 1966. Food Aid to India was restricted to a monthly basis by USA under the P.L. 480 programme.  The Green Revolution made a significant change in the scene. India achieved self-sufficiency in food grains by the year 1976 through the implementation of the seed- water-fertilizer policy adopted by the Government of India.

Food grain production increased four-fold during 1950-51 and 2001-2002 from 51 million tons to 212 million tones. The country is no longer exposed to real famines. But the regional variation in the success of Green Revolution which was chiefly limited to northern- Western states has lead to the divide in the nation. Evergreen revoloution and Bringing green revolution to eastern India is the need of the hour.

Green revolution was focused on wheat and rice and thus the production of pulses was stagnant.

National Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12). The Mission is being continued during 12th Five Year Plan with new targets of additional production of food grains of 25 million tons of food grains comprising of 10 million tons rice, 8 million tons of wheat, 4 million tons of pulses and 3 million tons of coarse cereals by the end of 12th Five Year Plan.
The National Food Security Mission (NFSM) during the 12th Five Year Plan will have five components

(i) NFSM- Rice;

(ii) NFSM-Wheat;

(iii) NFSM-Pulses,

(iv) NFSM-Coarse cereals and

(v) NFSM-Commercial Crops.

Government through Public Distribution System has tried to counter the problem of food insecurity by providing the food grains through fair price shops.

The central Government through Food Corporation of India has assumed the responsibilities of  procurement,storage,transfer and bulk allocation of food grains to state governments.

The public distribution system (PDS) has played an important role in attaining higher levels of the household food security and completely eliminating the threats of famines from the face of the country, it will be in the fitness of things that its evolution, working and efficacy are examined in some details.

PDS was initiated as a deliberate social policy of the government with the objectives of:

i) Providing foodgrains and other essential items to vulnerable sections of the society at resonable (subsidised) prices;

ii) to have a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and

iii) to attempt socialisation in the matter of distribution of essential commodities.

 

The focus of the Targeted Public Distribution System (TPDS) is on “poor in all areas” and TPDS involves issue of     35 Kg of food grains per family per month for the population Below Poverty Line (BPL) at specially subsidized prices. The TPDS requires the states to Formulate and implement :-

  1. foolproof arrangements for identification of poor,
  2. Effective delivery of food grains to Fair Price Shops (FPSs)
  3. Its distribution in a transparent and accountable manner at the FPS level.

 

India is the third largest producer of cereals, with only China and the USA ahead of it. India occupies the first position in milk production and is the third largest producer of fish and second largest producer of inland fisheries in the world. According to ministry of Agriculture ,India is likely to produce a record 273.38 million tonnes of food grains 2016/17, slightly higher than the previous estimate of 271.98 million tonnes.

Economic growth is typically accompanied by improvements in a country’s food supply, both quantitative and qualitative, and a gradual reduction in nutritional deficiencies.  It also brings about changes in the production, processing, distribution and marketing of food. Diets evolve over time and are influenced by factors such as income, prices, individual preferences and beliefs, cultural traditions, as well as geographical, environmental, social and economic factors.

India faces a greater food challenge – having only 2.3 per cent share in world’s total land area it has to ensure food security to about 17.5 per cent of the world’s population. Total foodgrain production is estimated at an all-time high of 272 million tonnes in 2016-17, 8% higher than the 251.6 million tonnes last year, and surpassing the previous record of 265 million tonnes in 2013-14.

Wheat production is estimated to rise by 4.7% to 96.6 million tonnes in 2016-17 (compared to 92.3 million tonnes in 2015-16),

Production of pulses is likely to rise 35% from 16.4 million tonnes last year to 22.1 million tonnes in 2016-17.

Production of rice, the most popular staple, is estimated to increase by over 2 million tonnes, from 104.4 million tonnes last year to 106.7 million tonnes in 2016-17.

As per 2nd Advance Estimates, the estimated production of major crops during 2016-17 is as under:

Foodgrains  –  271.98 million tonnes (record)

  • Rice  –  108.86  million tonnes (record)
  • Wheat – 96.64 million tonnes (record)
  • Coarse Cereals  –  44.34 million tonnes (record)
  • Maize  –  26.15 million tonnes (record)
  • Pulses  –  22.14 million tonnes (record)
  • Gram – 9.12 million tonnes
  • Tur  –  4.23 million tonnes (record)
  • Urad  –  2.89 million tonnes (record)

Oilseeds  –  33.60 million tonnes (record)

  • Soyabean  –  14.13 million tonnes
  • Groundnut  –  8.47 million tonnes
  • Castorseed – 1.74 million tonnes

Cotton  –  32.51 million bales (of 170 kg each)

Sugarcane – 309.98 million tonnes

Benefiting from the green revolution technologies introduced in 1965-66, the per capita net availability of foodgrains per annum in India increased from 144.1 kg per capita per year in 1951 to a peak of 186.2 kg per capita per year in 1991. Post-1990s though, there is a clear decline in the per capita foodgrain availability which has declined to 160.1 kg per capita per year in 2010.

Since agricultural growth is limited, imports can help improve the country’s supply situation for a short term. But for the long term, the country will need to focus on productivity enhancement, through public investment in irrigation, research and efficient use of water, plant nutrition and other inputs.

ADMINISTERED PRICES INCLUDING MSP AND PROCUREMENT PRICES

Historical context

  • The emergence of agricultural Price Policy in India was in the backdrop of food scarcity and price fluctuations provoked by drought, floods and international prices for exports and imports. This policy in general was directed towards ensuring reasonable food prices for consumers by providing food grains through Public Distribution System (PDS) and inducing adoption of the new technology for increasing yield by providing a price support mechanism through Minimum Support Price (MSP) system.
  • In recognition of the importance of assuring reasonable produce prices to the farmers, motivating them to adopt improved technology and to promote investment by them in farm enterprises, the Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in 1985) was established in 1965 for advising the Government on agricultural prices policy on a continuing basis.
  • The thrust of the policy in 1965 was to evolve a balanced and integrated structure to meet the overall needs of the economy and with due regard to the interests of the producers and the consumers. The first Commission was headed by Prof M L Dantwala and in its final report the Commission suggested the Minimum Support Prices for Paddy.

 

Minimum Support Price (MSP):- is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices.

  • The minimum support prices are announced by the Government of Indiaat the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). 
  • MSP is price fixed by Government of India to protect theproducer – farmers – against excessive fall in price during bumper production years.
  • The minimum support prices are a guarantee price for their produce from the Government that this will be the minimum price at which their product will fetch.
  • If the market price is above, MSP, the farmer can obviously sell it at the market In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market,government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

    The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

    As of 2015-16, Minimum support prices are currently announced for 24 commodities, which includes food grains like Wheat, paddy etc and non-food crops like raw cotton, raw jute etc.

  • A pilot project under the Direct Payment Deficiency System (DPDS) for paying MSP guarantee for the cotton farmers has been initiated at Hinganghat taluka of Maharashtra in 2015. Under this system, the farmers will directly get the amount which is the difference between the Minimum Support Price (MSP) and the market price, should the market price fall below the MSP. For availing of the benefit, farmers would have to present proof of cotton sold at Agriculture Produce Market Committee yards, plus other papers such as ownership document, yield estimation and other details. If the pilot is successful, the DPDS would be rolled out in all cotton growing regions, as per the present decision. DPDS is essentially a mode of direct benefit transfer to cotton farmers.

    Then there is this concept ofPROCUREMENT PRICE, which is the price at which government procures food grains for buffer stocking and PDS purposes through FCI.

  • Consider the situation where, in the wake of an imminent food shortage that may occur, the traders are willing to procure food grains in advance, driving up the market price.

 

  • When the market prices are much higher than the MSP, the farmer will obviously be willing to sell it in the market.
  • But the government, still, needs to procure food grains on its own to meet its distribution commitments inPDS at subsidised rates (issue price) and to create the buffer stock, necessary to intervene from supply side in case there is food deficiency and high food inflation.
  • Therefore the government so as to fulfil these commitments, declares a Procurement price which is > or = to the MSP.

    The major difference between MSP and PP is that while PP is for food grains only, MSP is for 24 crops which includes both food grains and non-food grains.

 

Method of Calculation

  • In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
  • Other Factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.
  • The Commission makes use of both micro-level data and aggregates at the level of district, state and the country.

Supply related information – area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry, cost of processing of agricultural products, cost of marketing – storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; etc. are also factored in.

Report of National Commission for Farmers (NCF) had recommended that MSP should be at least 50% more than the weighted average cost of production. However, this had not been accepted by the Government.

Procurement at MSP

  • Farmers are made aware of the procurement operations by way of advertisements like displaying banners, pamphlets, announcement for procurement and specification in print and electronic media.
  • Some States have taken steps to pre-register farmers for ensuring procurement from them through a software system.
  • Keeping in view the procurement potential areas, procurement centres for MSP operations are opened by Government agencies, both Food Corporation of India (FCI) and State Government, after mutual consultations.
  • Procurement centres are opened by respective State Govt. Agencies/ FCI taking into account the production, marketable surplus, convenience of farmers and availability of other logistics / infrastructure such as storage and transportation etc. Large number of temporary purchase centres in addition to the existing mandis and depots/godowns are also established at key points for the convenience of the farmers.
  • The Govt. agencies also engage Co-operative Societies and Self Help Group which work as aggregators of produce from farmers and bring the produce to purchase centres being operated in particular locations/areas and increase outreach of MSP operations to small and marginal farmers. These Co-operative Societies are in addition to the direct purchases from farmers.
  • Co-operative societies/Self Help Groups are engaged in many States like Bihar, Chhattisgarh, Odisha, Maharashtra, Karnataka, Jharkhand and Rajasthan. Whereas, in some states like Punjab and Haryana, the Government of India has permitted the State Governments to engage locals for procurement of food grains from the farmers on payment of commission. These steps have been taken by Government of India so that Govt. agencies can procure maximum food grains directly from farmers by expanding out- reach of MSP benefit to farmers.
  • Food Corporation of India (FCI) is the designated central nodal agency for price support operations for cereals, pulses and oilseeds.

 

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