Every three or four years, India witnesses a boom-and-bust cycle in agriculture. In the trough, prices hot up and imports of foodgrains become necessary. At the crest, all that is forgotten, there is talk of exports and life moves on. Any thought of smoothing this cycle, let alone creasing it out, never occurs to our policymakers.
A crest is at hand once again. The third advance estimate of the ministry of agriculture peg the foodgrain output at 236 million tonnes (mt) for the crop year 2011 that ends in June. At the same time, the godowns of the Food Corporation of India (FCI) are overflowing. In early April, the government was sitting on a pile of 44 mt of wheat and rice, more than double of what is required for maintaining the buffer stock. As expected, there are loud voices for lifting the ban on the export of wheat.
It is time that a more durable solution was found to this problem. One proposal that has been mooted in recent days is to invite the private sector to participate in foodgrain purchase and management, withiin a public-private partnership (PPP) model. The chairman of the Commission for Agricultural Costs and Prices (CACP), Ashok Gulati, made the suggestion recently. In theory, should such a model see daylight, problems of storage, movement and most importantly managing costs could be sorted out.
At the moment, FCI has a near monopoly in all these areas. Its inefficiency is well known. For one organization to manage the procurement of more than 50 mt of foodgrains in close to 14,000 purchase centres across the country is a formidable challenge. FCI has managed this, but at a great cost. This is evident from the final cost of wheat and rice that it stores. The economic cost of these commodities is well above the minimum support price it shells out to farmers.
With the private sector in the picture, this work will be forked out to many firms and competition between them is bound to bring the costs down. Once the process is decentralized across many states, the need to store and move the massive quantities that FCI does will disappear. Along with that will go the huge transport costs and time delays that add significantly to inflationary pressures when the demand for these commodities outstrips supply. It is time this idea is explored in detail.
Can PPPs work in the foodgrain sector? Tell us at email@example.com