MPs panel opposes private grain buyers in FCI area

NEW DELHI: The government has announced plan to allow private sector participation in rabi marketing season, 2008-09, for wheat despite questions raised by the 18th food and PDS standing parliamentary committee report, 2007-08. “The committee strongly recommends that the procurement of food grains through private companies should be discouraged, and FCI (the Food Corporation of India) should give more emphasis to small farmers and cooperatives for food grain procurement,” the panel had asserted.

The policy guidelines listed private participation in grain procurement for the central pool as the last option and strictly in non-traditional and backward regions where the FCI’s operations were weak. The government has hired NCDEX subsidiary NCMSL and MCX subsidiary NHBC for purchase of paddy in Madhya Pradesh, Orissa, Bihar and Rajasthan, and for wheat in Uttar Pradesh in rabi marketing season, 2007-08.

While FCI did not incur additional cost, it paid 1% commission. However, the panel asked the department to explain why subsidiaries of commodity exchanges were being used for buying food grains for the central pool, specifically when forward trading of wheat and rice had been banned by the government. The comments came in the wake of apprehension that the inadequate purchase of wheat for the central pool — the shortfall necessitated a 5-million-tonne import of high-priced wheat in 2006-07 — could be repeated this kharif marketing season with respect to paddy as well, since the private sector and key commodity exchange subsidiaries were hired.

The parliamentary panel had also observed that procurement of rice, which appears set for a shortfall in purchase for the central pool this marketing season, has been mainly from Punjab, Uttar Pradesh, Orissa, Haryana, Chhattisgarh and Andhra Pradesh, and not from non-traditional states. Overall, 13,128 centres were opened for wheat in rabi marketing season, 2007-08, compared to only 8,985 centres in 2006-07. However, the procurement shortfall recurred, forcing the government to announce import of 5 million tonnes in 2007-08. It is perhaps in view of this the government is contemplating a second bonus for paddy this season, faced with a 1-million-tonne shortfall in paddy buys compared with the same time last year. The overall shortfall in rice for 2007-08 up to April 1 is estimated at 4.5-5 million tonnes compared to the estimated demand.

New policy guidelines were issued by the food ministry in April on the involvement of cooperatives, state undertakings and private sector companies for grain purchase operations for the central pool. These were to be applicable for wheat procurement in rabi marketing season, 2007-08 (April-March), and for paddy procurement in the ongoing kharif marketing season, 2007-08 (October-September). In its action-taken report, the ministry had maintained that the guidelines were sufficiently stringent to ensure outside participation would not adversely affect central pool purchase since the agencies were only service providers and did not participate in auctions.Among the non-negotiable provisions for private participation were:

Stringent conditions should be imposed to ensure the agency opens adequate number of procurement centres in backward areas,

FCI should ensure the cost of procurement is lower than that of the state government agency or FCI, whichever is lower, when hiring a third agency to aid procurement operations,

Wherever such agencies were hired, FCI had to take a no-objection certificate from state governments first,

Only central PSUs or companies/organisations in which the central government or nationalised banks/FIs had at least 51% equity should be hired for the operations in places, and this only where central/state government undertakings and cooperatives were unable to function.