New compensation scheme for oilseed farmers: The devil is in the detail

Rajalakshmi Nirmal BL Research Bureau | Updated on September 12, 2018 Published on September 12, 2018

The Price Deficiency Payment scheme must target marginal farmers, check price manipulation by traders

The Centre has made a new promise. This time its not on procurement, but to make good the difference between the market price and MSP to oilseed farmers. It has also said that States can rope in private players to procure oilseeds at MSP, and that they would be compensated through an incentive. The incentive could be in the form of bearing the administrative cost (up to 15 per cent of MSP) for procurement or relaxing the regulations, including the stock control order.

The announcement follows recommendations of the NITI Aayog earlier this year where it suggested ‘Price Deficiency Payment’ for implementation of Minimum Support Price (MSP) in crops where procurement is poor.

The move will cheer oilseed farmers, as this crop has been neglected in Central procurement until now.

The 2018-19 Price Policy report of CACP says that in kharif 2017-18, the National Agricultural Cooperative Marketing Federation of India (Nafed) procured only 948 tonnes of groundnut and 6,539 tonnes of sunflower, which is minuscule compared to the production.

However, only when finer details of the scheme — the cap on the quantum of produce of each State that will derive benefit under the PDP scheme, and, the level to which a farmer will be compensated — are known, can we judge how good the scheme is for farmers. When NITI Aayog proposed the PDP scheme in March, it said that there will be a cap on the maximum compensation that will be given. It said: “if the sale price is below a modal price (average price in three states in the same crop) then the farmers may be compensated to the extent of the difference between MSP and actual price subject to a ceiling which may not exceed 25 per cent of the MSP”. The government has also announced that in pulses and copra, in addition to Nafed, Food Cooperation of India (FCI) will take up Price Support Scheme operations in States and the procurement expenditure will be borne by the Central Government.

The M.P. experience

A Business Line study done on the Bhavantar Bhugtan Yojana of Madhya Pradesh (which works in the same lines as Price Deficiency payment) soon after its launch in October last year, showed that there were many drawbacks.

First, market price across crops — urad, tur as also maize — corrected in M.P. and turned sharply lower when compared to the neighbouring Uttar Pradesh, signalling that cartels were in action. The paper heard from sources in the market that traders forced farmers to take lower prices from them as the government is anyway going to compensate.

Also, since not all farmers, especially the small and marginal ones, are able to register for the scheme, they take a double blow as prices post the Bhavantar Bhugtan Yojana have dropped in other States due to the trader cartel rigging the price and they are unable to get the compensation given by the State.

Recently, in a paper titled ‘Supporting Indian Farmers: Price Support or Direct Income/Investment Support?’ co-authored by the agri-economist Ashok Gulati, it was clearly indicated that the price deficiency payment (PDP) scheme may end up helping traders and lower level mandi functionaries more than the farmers, despite best intentions of the Government.

Implementation, the key

The success of the government’s scheme for oilseed farmers depends on how efficient the States will be in the implementation — how smooth the process of registration of farmers will be and if it facilitates easy registration for small and marginal farmers with less paper work and how it will check rich farmers from exploiting the system.

It also depends on how effective the States will be in checking the manipulative practices of the traders.

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