Rs. 25000 crores gamble for Tur/Arhar - Can government manage this?

Rs. 25000 Crores Gamble for Tur Inflation

Can Government Agencies Manage this?

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Government decision will hurt Pulses farmers and Consumers alike - watch this space

According to first advance estimated released by agriculture ministry in September, the production of tur is expected to be at an all-time high of 4.29 million tonne (mt) in 2016-17, against the targeted 3.62 mt. The tur or arhar output stood at 2.46 mt in 2015-16 and at 2.81 mt the year before.

Currently Tur is selling below Minimum Support Price announced for the farmers in wholesale market yards and farmers are suffering due to lower price. Due to stock limit private trade is out of procurement and government has decided to support the prices by using government agencies in procurement.

It means even if government is planning to buy Arhar at MSP, Government agencies will need about Rs. 25000 Crores only for Tur or Arhar.

Till now, about 0.12 million tonne of Tur have been purchased by Nafed, Food Corporation of India (FCI) and Small Farmers’ Agribusiness Consortium for the buffer stocks. Out of the total pulses procurement in kharif 2016-17, Nafed has purchased more than 68,000 tonne so far. The production of tur is expected to be at an all-time high of 4.29 million tonne.

The biggest question is: What will happen if government agencies will stop purchasing once buffer stock requirement is over? Will prices go up or go down? Once again, wrong intervention by government, at wrong time, by wrong agencies based on wrong assumptions.

It is becoming clear food economy is becoming the biggest challange for policy makers. It was the easiest thing to announce high MSP, without understanding its implication and how to ensure that output is lifted by trade.

Now, Challenge before Government:

1. Purchase management and funds: It is not only cost of pulses, there is also need of quality testing facilities to ensure quality of pulses purchased otherwise government agencies will land up with huge quantity of sand and foreign material in pulses and it will be big corruption scandal soon.

Even if there is 2% sand and foreign matter we are talking about Rs. 500 Crores scam in pulses purchase and every additional percentage means Rs. 250 crores scam. Who will be accountable? Traders will make money with the help of procurement agencies by offering inferior quality and premium price, this is not new in agriculture procure system.

2. Need for Gunny Bags: Another big issue will be purchase of Gunny bags. Who will count and manage these bags at APMC Mandi level? Gunny bags are required in every mandi for purchase and handling of tur, who will ensure logistics? Each gunny bag of goof quality is worth Rs. 80. Based on quality. the cost of gunny bag ranges from Rs. 30 to Rs. 80 per bag. Who will ensure quality and proper price is paid based on quality and they are not changed at mandi level. If government will go by tendering routes, it will take time and by the time pulses will be sold at lower than MSP price by farmers. It will be interesting to note, at what price these gunny bags will be purchased by the government?

3. Weighing Challenges: After purchasing, the cleaning and weighing is important, who will check the calibration of weighing scales and bridges? I will not be surprised if there is a variation to 3 to 5 kg per gunny bag of about 80 kg. This means on every bag there can be manipulation of Rs. 200 to 300. It means 4 to 6% manipulation will happen even at weighing level. In value terms about Rs.1000 Crores will be manipulated at weighing scales itself.

4. Storage Challenges: What about storage godowns, who will provide and ensure safe upkeep of purchased material. Who will ensure that after storage there is no tempering of material in godowns. It is common practice that manipulation happens in godowns where good quality stuff is replaced by bad quality. When we cannot prevent currency swapping in banks, can be expect honesty at godown levels where there is no security and traceability.

5. Loading, Unloading and Transportation: Commodities are as good as hard cash. Movement from one place to other and weighing difference in location to location will add serious accounting problem for government agencies. Traders keep their well trained and very loyal staff for these activities. How government will manage will be interesting to see this.

6. Storage conditions: After purchasing, who will ensure proper upkeep in godown? Pulses are highly susceptible to infestation. Rats will come to 'rescue' of these procurement agencies in managing and manipulating books or accounts. All loses due to corruption and malpractices will be booked in the account of rats and insects damage.

8. Disposal or liquidation of stocks: What are the plans for liquidation of purchased stocks? So far last year's stocks are still in godown and what will happen with this additional stock? State governments are not keen to lift because the tur is not ready to consumer without milling. Can government do without milling industry and private trade? If not, why they are keep them out when they are required the most.

9. Most important : What will happen if government runs out of allocated funds for pulses and space? Once government is out of market, Who will buy farmers stock and at what price?

10. What about other crops, if they will go below MSP? Will government intervene in the procurement business?

Also watch TV discussions:

click here: https://sardanavijay.blogspot.in/2016/12/msp-impacts-lentil-price-to-go-lower.html

Government should review following decision:

1. Wrong decision to use PSUs: Do not try to replace private trade with public sector companies. They will make mess of it because they don't have skills, experience, people, infrastructure and funds. Scale of operation is too big and complicated to be managed by any PSU.

2. Front-line staff may manipulate quality and funds: Do not forget role of bakers in demonetisation, how currency notes were siphoned off. What will happen if pulse are diverted and sold to private trade and junk is stuffed in gunny bags.

3. People with no experience influencing decisions: All those who are advocating government should purchase should be asked to join the procurement teams on ground, in place of advising in AC rooms and in seminars. It is easy to advise and impossible to manage at this scale.

What government should do now?

1. Remove stock limit and introduce price safeguard system for consumers.

2. Ask banks to extend credit line for traders and keep track of the credit issued mandi wise and open bank account for farmers at the earliest.

3. Monitor mandi tax collection of every mandi to ensure total purchase and [prices paid to farmers by private trade.

4. Ensure e-payment: 100 percent payment to farmers and traders should be through e-payments.
5. Use eNAM and commodity exchange platforms to attract buyers from allover for price discovery and ensure delivery, if required.

Important: What government should do?

Role of the government should be to monitor the progress and manage the gaps as and when required not to become player and disturb market forces and hurt the farmers and consumers. Refrain from short term political temptations and let market forces stabilise the system. Encourage fair trade practices and Use legal system to punish the offenders, do not try to replace them.

Without wasting time, government must review its decision of stock limit so that private trade can help in procurement to ensure farmers confidence of pulse prices and to keep farmers confidence in pulses production for future as well.

Just keep in mind :
1 percent manipulation means Rs. 250 Crores of public fund

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