What Is Wrong with the Pricing Policies in India-A Case of Paddy in Andhra Pradesh

What is wrong with the Pricing Policies in India-a case of Paddy in Andhra Pradesh

G. V. Ramanjaneyulu1

Rice is mainly grown under irrigated conditions in the command areas in Andhra Pradesh. However it is also grown in rainfed conditions during kharif season. Medium to long duration (120-170 days) varieties are grown in fertile Krishna Godavari Zone. State has a long coastal belt and short duration (110-125 days) varieties are grown in the Northern Coastal Zone. Southern Zone mainly grows long duration (165-170 days) varieties and Southern Telangana grows medium duration varieties while Northern Telengana grows mainly the short duration varieties. In terms of rice productivity, the state with its productivity level of 2807 kg/ha, ranks fourth in the country after Punjab, Tamil Nadu and Haryana. In Andhra Pradesh, rice is grown in 22 districts and grown in about ¾th of the gross cultivated area. It is a staple diet and important cash crop for the farmers.

The increasing costs of cultivation and stagnant and negative prices are pushing farmers into serious debt trap taking their lives. As per the National Crime Bureau Records, in the last ten years about 21,809 farmers have committed suicides (NCRB, 2001-2010). During 2011 farmers declared crop holiday in 90,000 acres in Konaseema completely in Allavaram, Uppalaguptam, I.Polavaram, Katrenikona and partial in other mandals (in the total 1.9 lakh acres in 16 mandals).

The data shows that the prices of agriculture commodities have increased not more than 25 % in the last ten years (2001-2011) where as the costs of other commodities sold (iron, cement, or processed foods) have increased by over 300-600 %. During the same period on average the incomes of exployees has increased over 150 % (leaving sixth pay commission raise), and the pay for MLAs has increased by over 500 %. The committee headed by Arjun Sen Gupta on ‘Unorganised Sector’ analysed that on average Indian farmers income is Rs. 2115/month where as the expenditure is Rs. 2770/month. If we take small and marginal farmers who form 84 % of total farmers, their average income is only Rs. 1818/per month from all sources where as their total expenditure is coming to about Rs. 2678 per month.

The main reasons for this are

 The agriculture prices are not fixed based on actual costs of cultivation or livelihood needs of the farmers.  The rising inflation always had a double impact on farmers with increasing costs of living and decreasing incomes due to reduction in agriculture prices as a result of price intervention mechanisms of the government.  Minimum Support Prices are announced for 25 commodities and market intervention operations exist only for rice and wheat. So farmers growing other crops are left to the mercy of the markets.

Commission for Agricultural Costs and Prices (CACP) of Govt. of India fixes support prices every year in order to safeguard farmers and avoid distress sales. Government is supposed to buy the entire paddy offered by the farmers for sale at the minimum support price. Food Corporation of India is the major organization responsible for implementing MSP with the help of the states.

1 Agriculture Scientist working with Centre for Sustainable Agriculture and can be contacted at [email protected] Cost of Cultivation per Acre in A.P. in Rabi 2010-11 in Sample Households (Rs)

District East Krishna Karim Mahabu Medak Nalgonda Nizama Waran Av Godavar nagar b bad gal Cost i Nagar Cost A1 21643 24623 20196 20909 18162 19725.62 19507 22437 20380 Cost A2 30084 25914 23184 23009 20112 22225 22007 24437 23872 A2+FL 35413 32051 28105 27294 25844 25531 24091 30278 28576 Cost B1 21645 20490 20248 20979 18231 19788 19563 22515 20432 Cost B2 38085 31126 25736 25079 22181 24788 24563 26515 27259 Cost C1 26973 26627 25169 25264 23963 23094 21647 28356 25137 Cost C2 43414 37264 30657 29364 27913 28094 26647 32356 31964 Cost C3 47755 40990 33723 32301 30704 30904 29312 35592 35160 Yield 26 21 27 17 27 25 28 27 Source: Field study; Cost A1: All paid-out costs except rent; Cost A2= Cost A1+Rent on leased-in land; Cost A2+FL = CostA2+Family Labour; Cost B1 = cost A1+ interest on fixed cost; Cost B2 = Cost A2+Imputed Rent on Own land; cost C1= costB1+imputed family labour, Cost C2=Cost B2+family labour, Cost C3 = Cost C2+ 10 percent managerial input.(Cost C2* is also defined to consider minimum wages in case they are higher than actual labour.) [source: Cost of Cultivation Manual, published by CACP, 2005]

Support prices recommended for paddy by State govt and final prices fixed

year Cost of cultivation MSP** AP recomm. (Rs./q) (Rs./q)* 2004-05 578 560 2005-06 570 560 2006-07 580 570 2007-08 700 675 (incl. bonus of Rs. 25) 2008-09 1000 875 (incl. bonus of Rs. 25) 2009-10 1200 950 (plus of Rs. 50) 2010-11 1300 1030 (no bonus) 1400 2011-12 1450 1080 2070 2012-13 1600 - 2135 * Cost of cultivation data from few states by DES http://dacnet.nic.in/eands/ up to 2010 the remaining two years data is collected from field. ** MSP announced by Government of india http://www.dacnet.nic.in

The problem is not only with paddy, but with all the crops. The prices are falling below the costs of cultivation. The situation of crops which are linked to market with out MSPs/procurement is much worse. Just in the last one year the prices of most of the commodities have fallen by more than 50%. Prices for farmers for various agricultural commodities during 2010 and 2011

Crop 2010-11 Rs/Quintal 2011-12 Rs/Quintal

Cotton 6500 3600 Turmeric 14000 4000 Chillies 12000 5500 Redgram 5000 3500 Blackgram 5200 3500 Bajra 4000 2000 Jowar 2500 1800 Onion 16000 2500 Sweet Organge 75000 60000

This shows that even leaving the entire prices to market also do not help farmers. The Government should continue with the MSPs for all the food crops along with procurement.

For the year 2011-12 the prices recommended are given in the following table. As we can see from the table the prices recommended are farm high compared to the previous years MSPs announced by the CACP. How much the centre is going to announce for the year 2012-13 we still need to wait and see.

Prices recommended by AP government for 2012-13

Crops Cost of Rec. Support MSP in 2010 Cultivation Price Rs /acre Rs/Quintal Rs /acre Paddy (Fine var) 28,784 2,135 1110 Paddy (Common) 27,140 2,102 1080

Groundnut 13,456 5,543 2700 Jowar 6,321 1,953 980 Maize 20,890 1,844 980 Redgram 9,819 6,066 3200 Blackgram 8,974 5,544 3300 Greengram 7,677 5,691 3500 Soyabean 13,316 3,086 1690 Cotton 25,731 6,359 3300 Sugarcane 67,458 312 139.12 Ragi 8,994 2,381 1050 Sunflower 11,998 5,559 2800 Sesame 5,008 6,890 3400

Procurement problems

• In 2007-08 govt of ap has started Rice scheme at Rs. 2/- and restricted open market fine rice price to Rs. 20/- Which has brought down farmers open market price • 2009-10 warehouses full and Govt has not procured most of the paddy from farmers

In 2010-11 govt procured only 4.7 lakh tons (of 60 lakh tons remaining from 2009-10 and 100 lakh tons produced in kharif 2010) for want of space. The rabi produce of about 60 lakh tons is pending.

Government of India announces MSP for 25 crops but procures only Rice (October-September) and Wheat (April-March). Procurement of millets happens only on a very small scale. In that also currently only 25.8% of of the net production of food grains are procured. Only 18.9% of the net available food grains are distributed through the PDS. Procurement of various food grains by the Government (2004-05 to 2010-11)

Year Rice Wheat Coarse grains Total

Prod Procur. Prod. Procur. Prod. Procur. Prod. Procu. 2004-05 885.3 246.85 721.5 167.95 276.0 8.27 1882.8 423.07 2005-06 831.3 276.56 686.4 147.87 334.6 11.51 1852.3 435.94 2006-07 917.9 251.06 693.5 92.26 340.6 0.00 1952.0 343.32 2007-08 933.5 287.36 758.1 111.28 339.2 2.03 2030.8 400.67 2008-09 966.9 336.85 785.7 226.89 407.6 13.75 2160.2 577.49 2009-10 991.8 301.34 806.8 253.82 400.3 4.08* 2198.9 555.08 2010-11 225.25* Source: Koushik Basu (2010) Economics of Food grain management in India and Data from Directorate of Economics and Statistics and updated from Ministry of Food and Civil Supplies website.

In AP procurement is operated through the Millers. Millers procures from the farmers, processes and gives to FCI. The millers produce a certificate saying they gave Minimum Support Price to the farmer and gets MSP + processing and transport costs. Where as in all others states majority paddy is procured by the State government agencies and given to FCI

Procurement of rice during KMS 2009-10 by FCI and State Agencies (In '000 tonnes) 2009-10 *(OCTOBER to SEPTEMBER) State / U.T FCI State agencies Total

Andhra Pradesh 6228 204 6432 Assam 8 0 8 Bihar 283 549 832 Chandigarh 14 0 14 Chhatisgarh 437 2705 3141 Haryana 81 1737 1818 Jharkhand 15 7 23 Karnataka 72 10 83 Kerala 0 261 261 Madhya Pradesh 0 194 194 Maharashtra 55 156 211 Orissa 190 2277 2467 Punjab 474 8801 9275 Tamil Nadu 0 1143 1143 Uttar Pradesh 374 2317 2691 Uttaranchal 207 169 375 West Bengal 252 914 1166 Total : 8690 21443 30134 Neg. - below 500 tonnes *Position as on 30/07/2010.

The millers who buy the paddy make double benefit. They buy at lower prices and also make profit by selling all the bye products. Coarse Rice Fine Rice Kgs Price Total Kgs Price Total Rs/kg (in Rs) Rs/kg (in Rs) Rice 60 17 1020 62 20 1240 Broken rice 7 11 77 7 11 77 Fine Broken rice 4 8 32 4 8 32 Bran 10 11 110 10 11 110 Husk 18 10 180 16 10 160 Total 1419 1619

Often it is also observed that Millers give lesser price to farmers showing high moisture content, rice quality etc.

Deficiencies in fixing MSP by CACP

The official CACP data fail to capture these costs due to certain methodological problems. Consequently, cost projections made by the Commission of Agricultural Costs and Prices are way below the actual costs of production. The methodology followed regarding imputing family labour, rental value of land, interest on capital depreciation on fixed assets and agricultural machinery, cost of transportation, marketing charges and storage is working against the farmers’ interest. Thus the MSP based on the under-estimated cost of production has seriously affected the returns of farmers in the state, the worst moment brought by the glut. There is an urgent need to revise the MSP to make it remunerative to the farmers. The market prices have fallen below the MSP and official procurement is way below the market prices. There is a greater discrepancy between the costs of cultivation estimated and recommended by the state and the costs estimated by the CACP. Based on their cost estimation CACP is recommending prices which are fall lower than the costs estimated by states.

The Cost estimations by AP government and CACP and the MSPs for different products 2011-12

Crop A.P. Cost/Qtl A.P. Cost/qtl Recommended MSP (CACP est.) (State govt est.) Paddy 896 1270 1080 Jowar 1393 1145 980 Maize 935 1114 980 Tur 2373 3668 3100 Groundnut 3185 3324 2700 Sunflower 2799 3439 2800 Cotton 2579 3828 2900 Moong 2974 3480 3400 Source: CACP Kharif Price Report,, 2011-12

The Directorate of Economics and Statistics (DES), New Delhi obtains data regarding cost of cultivation of various crops from the centres working under agricultural universities of concerned states for which the work is entrusted by Commission for Agricultural Costs and Prices (CACP), New Delhi. It is noticed that large number of field assistant’s posts are vacant and there is no transparency in the data collected. The computation of costs regarding family labour and bullock power and other parameters have no relevance with the cost of cultivation actually incurred by farmers. Further it is observed that data pertaining to previous years is adopted for current year without giving cognizance to the increase in the cost of inputs.

In AP information shows that only 25 of the 60 posts are filled and the field assistants do not live in the villages as per their mandate. The other deficiencies in the system are mentioned below

1. Expert groups from time to time recommended that MSP be fixed and announced well in advance, before the farmers commence Kharif and Rabi sowing operations so that the farmers choose the crops to be grown based on the support price fixed by GOI. Unfortunately this is not happening.

2. There are complaints about the Minimum Support Price (MSP) announced by the Central Government, that the all-India average cost of production has often not covered the costs in several states. The states with higher than average cost of production have always suffered in this scheme. Second, given long time-lag in processing the cost of cultivation data by the Commission for Agricultural Costs and Prices (CACP), the annual projections have been based on 3-4 year old data, viewed creating discrepancies between the actual costs and projected. There have been years when the MSP fixed was even lower than that are recommended by the CACP. The putative concern to contain foodgrain inflation in fixing MSP conservatively in the recent times seems to have led to a situation where prices are lagging behind the costs of production.

3. It is gathered that MSP for various crops, though announced, before marketing season, the information is not percolating to farmers. It is pertinent to note that, even the grass root level functionaries of agricultural/marketing departments are also not aware about support prices. There is immediate need to evolve systems to fix and announce MSP under a time bound programme and ensure that the information reaches to grass root level Government Departments, Farmers Organizations and particularly farmers.

4. Among others, thrust of MSP Scheme and guidelines issued from time to time, depending on the recommendations of various committees and expert groups, were to transparently take into consideration all costs actually incurred by farmers for producing crops. The cost index of various inputs is abnormally increased, including agricultural labour. But the computation of costs has not been made depending on the field situation. Statutory obligations like payment of wages as per Minimum Wages Act, Fertilizers prices and other agricultural implements fixed by GOI are not adopted while computing production costs of various commodities.

5. As per recommendations of expert groups on the subject, the MSP is required to be fixed and announced 6 months before Kharif and Rabi harvests reach the market. Untimely fixing and announcing of MSP is working against the interests of farmers.

6. Coming to the case of Andhra Pradesh, the paddy prices in the last two decades moved in tandem with the MSP, barring the last two years. The farm harvest prices have mostly remained marginally above MSP for most of the years. Since 1998-99, the farm harvest prices of rice have remained marginally above the MSP for both Grade-A and Common variety. However, during 2010-11 both of them have fallen below the MSP. In fact, a closer look suggest that as far as prices of Common variety are concerned, not only have they remained below the MSP since 2008-09 to the present by Rs.50-60, in 2010-11 they have fallen short by nearly Rs.200. The actual prices that farmers received remain even lower in that year. FARM HARVESR PRICES AND MINIMUM SUPPORT PRICES OF PADDY IN AP

Farm Harvest Price Minimum Support Price YEAR Kharif Rabi Average Grade- Common A 1998-99 510.53 426.17 486.35 470 440 1999-00 559.42 524.44 538.66 520 490 2000-01 507.93 478.58 499.61 540 510 2001-02 565.77 529.40 550.16 560 530 2002-03 623.29 578.08 609.27 560 530 2003-04 569.37 572.27 570.38 560 530 2004-05 605.49 604.07 605.02 580 550 2005-06 648.21 579.59 616.95 600 570 2006-07 670.19 622.22 650.30 610 580 2007-08 777.76 767.17 773.66 675 645 2008-09 1035.75 892.28 963.56 921 950 2009-10 1100.67 955.76 1072.66 1030 1000 2010-11 880.65 850.76 865.70 1080 1030 2011-12 1050 1110 1080 Source: DES, AP Govt

Harvest price and MSP (Fine varieties) Harvest price and MSP (Common)

7. The farmers are unable to obtain remunerative prices, either MSP implemented in time or after the commodity shifted out of farmers’ hands for the following reasons out of total production of agricultural commodities, it is estimated that only 25% of it is marketed through regulated market yards. In view of various manipulation made by traders and middle men in the market yards, the farmers are resorting for distress sale. In the name of grading and quality of produce, lesser prices are offered to the farmers. It is pertinent to observe that none of the market yards possess the equipment to test quality of produce.

8. The balance 75% of the produce is marketed through agricultural input dealers, local traders and village money lenders since farmers avail agricultural credit facilities from them and are at obligation to sell the produce to them only. In view of the foregoing the MSP neither implemented in time nor implemented after the commodity shifted out of farmers hands, makes no difference. The way out is to relieve farmers from the clutches of input dealers, local traders and village money lenders by providing necessary institutional agricultural credit.

9. Year after year the farmers of every crop vexed with un-remunerative MSP fixed, without taking into account the actual production cost and suffering with increased debt burden. 10. Commission on Farmers’ Welfare Chaired by Dr. Swaminathan recommended that the minimum support prices should be C2+ 50%.

In view of the deficiencies explained above, the farmers are getting only about 22% of the price consumers pay. The intermediary margins are on high side. Thus it is assumed that recommended and fixed prices by CACP and GOI respectively are not based on the actual costs of cultivation / production costs. It appears to be a ritual and the price fixed is a Political Support Price (PSP), but not Minimum Support Price (MSP).

The whole system is required to be revamped and transparent procedures introduced by involving and inducting more farmers into the system as recommended by Prof. M.S. Swaminadhan to enable the farmers to obtain remunerative price.

Classification and Grading

Rice variety Grain length Ratio of length and thickness Common variety less than 6 mm length < 2.5 Fine variety less than 6 mm length 2-5 to 3.0 4.5mm 2.0 to 2.5 Super fine Variety less than 6 mm < 3.0

But off-late the government has clubbed fine variety and super fine variety into one grade, namely fine variety. As such now only two grades exist in the marketing. In Haryana high yielding fine varieties and Basmati (scented) are grown in 30-40% area. They have been classified on the basis of mainly length of rice.

Grain size shape and appearance Scale Size Length Shape L/W Ratio 1. Extra long > 7.5 mm Slender Over 3.0 2. Long 6.61-7.5 mm Medium 2.1-3.0 3. Medium 5.51-6.6 mm Bold 1.1-2.0 4. Short 5.50 mm or less Round 1.0 or less The grading of rice depends on percentage of full grain with no of brokens.

 Premium grade - 95 % full grain,  1st grade - 85 % full grain,  2nd grade - 75 % full grain,  3rd grade - 65 % full grain. How remunerative are the support prices fixed by the government

Crop States where the C2 cost projection by CACP for 2005-06 were not covered by MSP of 2004-05 Paddy A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal Jowar A.P, Karnataka, M.P, Maharashtra & Tamil Nadu Bajra Gujarat, Haryana, U.P, Maharashtra Maize A.P, H.P, Karnataka, M.P, Rajasthan & U.P Ragi Karnataka, Tamil Nadu Tur A.P, Gujarat, Karnataka & Orissa [Arhar] Moong A.P, Maharashatra, Orissa & Rajasthan Urd M.P, Maharashtra, Orissa, Rajasthan & Tamil Nadu Gram Haryana, Rajasthan Barley Rajasthan

Based on K. Ramasubba Reddy’s paper and compiled using data from Directorate of Economics and Statistics http://dacnet.nic.in/eands/costofcultivation.pdf

How remunerative Pricing policy should be?

 MSPs should take into account actual costs of cultivation and living costs (corrected to inflation rise)

 NFC’s recommendation (Cost C2+50 %) can be used as a guide (Rs. 1700/q for paddy and wheat) (gives about Rs. 1.19 lakh crore additionally to farmers)

 Price differential (MSP –actual realised/procurement price) should be paid directly to farmer

 Producers are consumers: Only 20-30 % is procured…what about more than 40 % produced-consumed

What is happening in other states?

Decentralized Procurement Scheme

 This scheme was introduced in 1997-98 to encourage procurement in non-traditional States, thereby extending the benefits of MSP to local farmers. This system also enhances the efficiency of the Public Distribution System (PDS) and enables supply of food grains more suited to local taste for PDS. This also results in saving in transportation cost of the FCI.  Under this scheme, the State Government itself undertakes procurement of paddy/rice and wheat on behalf of Government of India, and also stores and distributes these food grains under PDS and other welfare schemes. The Central Government reimburses the entire expenditure incurred by the State Governments on the procurement operations.  The State Governments undertaking this scheme are: S.N. Name of the State Procurement of items 1. West Bengal Rice 2. Uttar Pradesh Rice/Wheat 3. Madhya Pradesh Wheat 4. Chhattisgarh Rice/Wheat 5. Uttaranchal Rice/Wheat 6. Andaman & Nicobar Islands Rice 7 Orissa Rice 8. Tamil Nadu Rice 9. Gujarat Wheat 10. Karnataka Rice 11. Kerala Rice

See annexure for case studies from Chhattisgarh and Tamil Nadu

Procurement though Women Self Help Groups: AP has a strong base of Federations of Women Self Groups. From 2001 onwards, these groups were involved in marketing of agriculture produce to fetch a better price for farmers. In 2005-06 when the maize prices have fallen in the market Society for Elimination of Rural Poverty (SERP) has stepped into procure maize from the farmers at MSP. With this experience, the Women SHGs have stepped into procuring paddy under MSP from 2006 onwards. The farmers got the benefit of correct weighment and price. The payments were also made promptly. This can be extended to the entire state if the revolving funds/advances can be provided to the groups to procure from the farmers.

Procurement of Paddy under MSP by SHG's (Rabi and Kharif) 2006 to 2010-11

No. of Value in Earned No. of No. of Qty in No Year Season Procurement Rs in Commission Rs Dists Mandals Tonnes Centers Crores in Crores 1 2006-07 Kharif 11 159 188 63954 40.79 0.61 Rabi 13 198 316 330052 214 2.71 2 2007-08 Kharif 12 133 257 75418 57.92 0.81 Rabi 13 200 436 334441 259.1 3.38 3 2008-09 Kharif 8 100 272 205630 189.7 2.69 Rabi 13 233 541 584380 543.3 7.94 4 2009-10 Kharif 7 40 61 18073.2 18.47 0.28 5 2010-11 Rabi 13 168 296 213663 218.7 5.2 Total 1825611 1542 23.63

What should be done? Remunerative pricing policy

 MSPs should take into account actual costs of cultivation and living costs (corrected to inflation rise). State should have a State Prices Commission which calculates the costs and fixes the prices

 National Farmers’ Commision’s recommendation (Cost C2+50 %) can be used as a guide

 Price differential (Recommended by state and announced by centre/MSP –actual realised/procurement price) should be paid directly to farmer

 Producers are consumers: Only 20-30 % is procured…what about more than 40 % produced-consumed

 Costs cannot be based only on COC as they could be low for crops like sorghum and where people use their own inputs

Proposal for Price Compensation system for cultivators

The gist of the proposal is that a crop-wise Minimum Fair Price (MFP) be determined, and when the average Farm Harvest Price (FHP) is below this MFP, the shortfall be paid out by the government to the cultivator. In essence, this gets around the constraints on direct market intervention and concerns about consumer prices (as described in the previous section) and still ensures that the cultivators get fair returns.

This provision is proposed only for food crops which are included in the MSP regime. C2'+50% is proposed as the basis (C2' is C2 with some improvements). This system can be implemented with the district or taluk as the unit. The payment is calculated based on district-level or taluk- level averages of the FHP and yield per acre, and not based on the figures for each individual cultivator. Note that this system should apply to the actual cultivators, including tenants and sharecroppers.

Rationale

• A key reason for agrarian distress is the adverse farmer economics of rising costs and low prices. • Farmers as our annadatas, providing food security for the entire nation, and are entitled to a Minimum Fair Price as return for their efforts. • If the government and society want to keep food prices low, the burden should not be borne by the farmer. Note that this system is not proposed as a replacement for the procurement and public distribution systems; we believe they should continue to be improved and diversified to include more crops but we realize that those systems cannot fully ensure remunerative prices to the farmers since their priorities are different. • The formula of C2 + 50% has been a long-standing demand of farmer organizations, and the recommendation of the National Farmers’ Commission and the recent Working Group on Agricultural Production. The Price Compensation mechanism operationalizes this demand without increasing market prices directly. The government’s procurement price can be fixed independently. • This system will not only enhance agricultural incomes but also incentivize production and productivity because the payment is tied to actual local production levels. • This is not linked to actual sale so it will also benefit those cultivators who don’t sell their produce. Operational Details

• For each cultivator, record the crops sown and respective areas, at the start of the season. These can be cross-checked during the season to ensure that the crops are actually being cultivated. There are already mechanisms at village-level to record this information, which might need improvement. • Take weighted average Farm Harvest Prices (FHP). These are already available for each market yard in every district across the country. • For each crop, if FHP < MFP, calculate Unit Price Compensation per quintal, PC = (MFP – FHP) for each district/taluk. • Take Production and Yield numbers at district or Taluk level. District level numbers already exist. • For each cultivator, determine (PC x Cultivated Area x Average Yield), which should be given as cash payment to the cultivator, where PC is the Unit Price Compensation per qtl. for that district/taluk. • It is important that this system should benefit the real cultivators including tenant farmers and sharecroppers rather than non-cultivating land-owners. There should be system in place to identify and record tenants and sharecroppers. For example, the AP government is introducing a Bill to provide Loan Eligibility Card to tenants and sharecroppers so that they can access loans, crop insurance, crop compensation and so on. For the same purposes, it is imperative for governments to introduce such mechanisms in other states also. The same mechanism can be used to record the cultivator data for the Price Compensation system. • The payments of crop compensation should be made directly to the farmers, through a local delivery mechanism such as post office, bank account deposit, panchayat or self-help groups. Timely payment should be made for each season. Effective Procurement and Storage System

Today only small part of the total production is procured by the govt. The government can use the women self groups, farmers cooperatives and other community based organisations for procurement of the paddy. In fact in AP women self help groups have done a wonder job of procuring and handing over to FCI while giving remunerative price to farmers from 2006-11. Some how this is discontinued. In states like Chhattisgarh state governments have established efficient systems of procurement and distribution. AP also should move into a system of procuring and going for custom milling rather than procuring through millers.

Governments should build rural warehouses to facilitate the storage of the grains.

Can allowing exports be the solution?

One of the major demand from the leaders of both ruling and opposition parties is to allow exports of Sona Mashuri and paraboiled rice (25 lakh tons each) citing the excuse that the warehouses are full and there is no space for the new procurement. This will only benefit the millers and not the farmers. Given the experiences of exports of food in this country, Madhya Pradesh which has 60 % are under soybean and exports most of the crop produced still has the highest poverty. Annexure

Case studies from Down to Earth http://www.downtoearth.org.in/node/1997 Issue: Oct 15, 2010 Two innovative states prove PDS can be made efficient

CHHATTISGARH

In the 2003 state elections, Raman Singh, leader of the BJP, made PDS corruption a major issue. After he became chief minister he brought in reforms in making food reach people. The first step was the landmark Chhattisgarh Public Distribution System (Control) order 2004 which took all fair price shops out of private hands and gave these to cooperative societies, gram panchayats, women’s self-help groups, primary credit cooperative societies and forest protection committees.

It proved to be a tough legal battle since 400 petitions challenging this order were filed in the high court. The case went to the Supreme Court but finally in September 2005 the state won the case and moved ahead with reforms. he focus patently was on inclusion even if the costs are high (See:The cost of reform).

With 45 per cent of its people falling below the poverty line, the state had to take bold measures to get food to these overwhelming numbers. Since the Centre had classified just 1.4 million families of the total 22 million as BPL, the state decided to foot the bill for bringing all those eligible into the PDS. In 2007 it gave Shukla, who had just taken over as food secretary, a budget of Rs 700 crore and a mandate: increase the food subsidy (grain quota upped from 25 kg/month/family to 35 kg), make it more inclusive and clean up the system.

Rajeev Jaiswal, joint director, food and civil supplies, said around 3,000 new fair-price shops (FPS) were opened to increase accessibility and, more important, to make them viable—a key factor in making PDS sustainable. Interest-free loans of Rs 75,000 were given to each shop along with a month’s supply of ration on credit. This has pushed up monthly profits of fair price shops substantially.

The Centrepiece of the reform was end-to-end computerisation, said Jaiswal. Chhattisgarh computerised the entire supply chain from procurement of paddy at 1,532 purchase centres to the trucks carrying supply to 10,416 FPS for further distribution to 3.7 million ration cardholders. Close to one million farmers who sell their grain to the state receive computer- generated cheques without any delay.

Among the bold measures Chhattisgarh took was cancelling of all ration cards (2.1 million) to set up a computerised unified ration card database. It scrapped 300,000 fake cards but issued 3.3 million new cards with a hologram to the expanded list of the poor (the number has since gone up to 3.7 million) from a centralised database. However, it is primarily efficiency that made the big difference. “The trick,” explained Shukla, “is to keep supplies moving without any carrying costs. So we buy, stack, transport, mill and then store the paddy simultaneously.” All this involves strict inventory control and careful logistics for which an MIS was created. Before the MIS it took 18 months to get the paddy to the mills but now the time lag is down to just four months. It also helps with financial management. States borrow from the market to finance their PDS operation and Shukla said it calls for some acumen to negotiate good rates with commercial banks and then to ensure that the capital is kept rolling for the shortest period.

But officials say all this will not work unless there is constant monitoring by the officials—and by the people. One of the most effective tools that Chhattisgarh deploys is a grievance redressal system: anyone with a problem can call a toll-free number and be certain that the complaint will be attended to. In the ultimate analysis, it’s customer care that makes the PDS work.

Panchayats and women’s groups make a success of food distribution in Bastar In village Sonarpal, in Chhattisgarh’s Bastar district, a large yellow signage on a house with terracotta tile roof announces that this is the village ration shop. In the dimly lit interior, brisk business is on as several women queue up to receive BPL rations— 25 kg of rice and 10 kg of wheat. Salesperson Kushal Singh Thakur fills out the day’s figure of stock of various commodities on a chart hanging on the wall. “I do this first thing in the morning,” he smiled, “If I don’t, the women start asking questions.”

The women are happy that for the last three years or so, the ration shop has been opening regularly six days a week (barring festivals) and everyone is getting their full quota of rations. “If we do not have enough money to buy the entire amount at one go, we can come back and take it in three installments,” said Parbati Lohar, a resident. Supri Padhe in neighbouring Devda Panarpara said, “Even when there are no supplies the shop is open, so we can come and find out when supplies are expected.”

Budhram Bagher, former gram panchayat member, said, “It is only in the last two and a half years, since the gram panchayat took over the running of the shop, that the shop has been running regularly. Earlier, the cooperative marketing society was running it, and it did not open for more than a day or two in a month.”

In Chapka, the running of the PDS store has been taken over by a village self-help group (SHG). The shop opens six days a week, you can take home your rations in three or four installments, and when kerosene stocks come, the women in charge of the shop spread the word, said Mahadeo Panara, as he hoisted a bag of rice on his shoulders. Lakshmi Dehari, one of the women running the shop, said, “Three women from our 15-member SHG take turn to work in the shop every day.”

The women complained that the government supplies that reach the shop are often subjected to pilferage en route. “So often a 50-kg bag contains only 48 or 47 kg of grain; there is no point complaining to authorities.”

In Chapka the PDS shop is run by an SHG, in Devda Panarpara, by the gram panchayat, and at Sonarpal, the gram panchayat has leased the shop to a cooperative marketing society. All three systems appear to be running effectively. Loveleena Jangde, an outreach worker with the Chhattisgarh government’s M Plus programme said, “This is the work of Mitanins.”

Link person

The Centre calls her Asha, in Jharkhand she is Sahiyya and in Chhattisgarh she is Mitanin. This key village worker was a role that was conceived of under the National Rural Health Mission in 2005. Every village it was envisaged would have its own Asha (accredited social health acitivist), someone who would link the village to government primary health care. Chhattisgarh was among the states that made quick progress by having a high number of of Mitanins in place; they were trained and given government support to extend their service beyond public health and include PDS in a programme called M Plus. That was four years ago.

“In the first year, Mitanins had to work first of all to make village women aware that they had rights with regard to PDS, midday meals and Anganwadi health care. People actually believed that the Anganwadi workers were doling out nutritious food out of pure personal generosity,” said Jangde, a nutrition worker coordinating with Mitanins and Mitanin trainers in the M Plus programme.

This was followed by collective action from women. “Women’s groups met the Sarpanch and the person running the ration shop in our village and talked to them about PDS rules, demanding that the shop, which opened just two-three days a month and doled out very scanty rations, should open daily and supply the full quantity of rations,” said Sonarpal Mitanin Shyamali Baghel. Following these initiatives, women’s groups and panchayats took joint decisions on who should run the ration shops, and how.

“We regard shops that are opening three times a week regularly as among the positive cases,” said Jangde. “It is a big improvement from the one-day-a-month frequency earlier, and most such arrangements are made by the village panchayats themselves.” There is also a simple, women-led grievance redressal system in place in case of problems. Mitanins review the rations situation with women regularly at monthly meetings, and in case of any problem, action is taken promptly.

TAMIL NADU

The Assembly elections of 1967 revolutionised public distribution of food in Tamil Nadu and established an efficient PDS. “That was the first time Congress was voted out and regional parties took over,” said N L Raja, consumer rights activist in Chennai. He was also part of the Wadhwa Committee team in Tamil Nadu that looked into the problems plaguing PDS in several states on Supreme Court orders.

On coming to power the DMK offered rice at a highly subsidised price; about three kgs for Rs 1. “DMK was not able to cover the entire state as promised, but for both DMK and its rival AIADMK, food security became an issue that could change the tide during elections,” Raja said.

The second factor which led to an efficient PDS, he said, is universalisation— everyone was entitled to subsidised food. “In a targeted system, those in need are often left out and the undeserving reap the benefits,” Raja said. Tamil Nadu does not have categories like APL and BPL, but does recognise the poorest of the poor under the Antyodaya Anna Yojana. As of now, there are about 19.6 million families with the PDS, of which 1.86 million are covered under the Antyodaya scheme; they get 35 kg of rice per month. The remaining get an amount ranging between 12 kg and 20 kg depending on the number of adults in the family.

Rice has been sold at Rs 1 per kg in ration shops since 2008. It was Rs 3 when the DMK came to power in 2006; it slashed it to Rs 2. People have a choice of green or white ration cards and the police officials get a khaki card. Green card holders can buy all commodities from a ration shop while white cardholders can buy everything except rice. There is also a no-commodity card for people who want to use it as a document of identity proof.

Since 2007, the fair-price shops have also been stocking fortified wheat flour, pulses, spices, iodised salt and palm oil, which they procure from open market, besides rice, sugar and kerosene. “The idea is to focus on nutrition security rather than just food security. As a result, our food subsidy burden is high but since political parties and the government support the scheme, funding hasn’t been a problem,” said a former commissioner of the Tamil Nadu Civil supplies and Consumer Protection department. The food subsidy budget for 2009-10 was slated to be Rs 4,000 crore (see table).

“ The subsidy burden is high but the state also earns about Rs 12,000 crore from liquor sale,” said Raja. With increasing subsidy there have been allegations that the state government has been diverting money from other schemes like Annapurna and the mid-day meal. “Nothing has been proven though. The noon-meal scheme in schools started in Tamil Nadu in 1977, long before the Supreme Court ordered that it should be implemented all over the country in 2002,” Raja added. The Kamaraj government pioneered the noon-meal scheme in the 1960s, but then it did not continue. It was relaunched in 1977 by then chief minister M G Ramachandran.

Another reason for the success of PDS is that cooperatives run 93 per cent of the ration shops; as of February this year, women self-help groups ran 617 fair-price shops. The rest are run directly by the state civil supplies corporation. “This has provided employment to rural women and there is one shop every two km,” said an official of the state civil supplies corporation.

Tamil Nadu has established a sound supply chain and strict monitoring, including flying squads, eliminating bogus cards. Officials provide information about food-stock on the website and provide mobile phone numbers of officers concerned for effective grievance redressal.