COLLEGE OF AGRIBUSINESS MANAGEMENT

G.B. PANT UNIVERSITY OF AGRICULTURE AND

TECHNOLOGY (PANTNAGAR)

SYNOPSIS

1.Name of Student Avlokna Agarwal

2. Id No. 32149

3.Degree Programme MBA(ABM)

4.Date of Admission August 10, 2009

5.Project Title Analysis of Public Sector wheat

Procurement Model and
Prospects for PPP Mode in
Bareilly Distt. Of U.P.

6.Advisory Committee

(T.S.Bhogal)
Chairman

(M.L.Sharma) (Nirdesh Kumar Singh)

Member Member
7. INTRODUCTION

The Wheat Business in India is one of the major contributors to the rural business and
economy. Wheat is one of the major agricultural produce of the country. At present Indian is
the second largest producer of wheat in the world. With the onset of the green revolution and
other developments in the agricultural sector, the Wheat Business in India was given a major
boost.

Wheat is one of the most important staple foods, covering almost the whole country and is
consumed in different forms such flour for bread, chapattis, pasta, semolina, noodles, etc.
Nearly 70 million tonnes of wheat is produced in India every year which contributes to about
12% of the global wheat production.

Uttar Pradesh is the largest food grain producing state in India, producing about 22% of
countries total food grain production. In 1997-98, contribution of Uttar Pradesh was 41.8
million tonnes in the national food grain production of 194.1 million tonnes. By the end of
year 2007, food grain production in the state is expected to be at the level of 70.2 million tons
in the total projected national food grain production of 300 million tonnes.

However the state is also characterized by widespread poverty and extreme dependence on
agriculture. It is rich in natural resources (land and water) but has a high population density
and declining soil fertility. It is the third poorest state of India with a per capita income of Rs
10817 in 2003-04 (sampark.chd.nic.in) The rural poverty rate is 21.5% representing a total of
28.3 million people or 15% of all poor in India. In year 2003-04 about 80 percent of the
people in UP live in the rural areas; and 66% are dependent on agriculture for their
livelihood. Agriculture accounts for 38% of GSDP (2001-02) (planning.up.nic.in).
According to the agriculture statistics 2004 the state has a geographical area 24.2 million
hectares and out of this 16.8 million hectares area is actually cultivated and 3.98 million
hectare area was un-irrigated.

Uttar Pradesh is largest producer of wheat in the country contributing about 36 % of the all
India total wheat production whereas, UP is second largest producer of rice in contributing
about 15 % to the national production in year 2003-04. The area under these crops is
predominantly less than the contribution in terms of production.
In Uttar Pradesh 2.6 % of holdings is of more than 4 ha size and account for more than 19 %
of the total area while about 75.6 % of the holdings accounting for 34.1 percent of the total
area which clearly reflects severe inequities in ownership of land holdings. The state has
about 16 million tons of surplus food grains after meeting its requirements.

The agricultural pricing policies and allied institutional mechanisms evolved in India in the
context of shortages in the availability and excess demand for food grains during 1960s
(Kahlon, 1983). A system of procurement and distribution of major food grains was
introduced and statutory minimum prices were set, though not strictly enforced. India’s
agricultural price policy includes three main types of administered prices: support,
procurement, and issue price. The support price is generally announced at sowing time, and
the government agrees to buy all grain offered for sale at this price. These prices guarantee to
the farmer that, in the event of excessive production leading to oversupply in the market,
prices of his produce will not fall below the support price. Support prices generally affect
farmers’ decisions indirectly, regarding land allocation to crops. The areas to be sown,
however, depend upon the actual prices farmers realized for the previous crop and their
expectations for the coming season.

The quantity to be procured is determined by the government’s needs for disbursements

under the public distribution system. In recent years, however, the actual quantities procured
have depended upon the grain offered for sale by farmers at prices fixed by the government.
These prices are generally higher than the support prices but lower than the free market prices
in normal years. In a good crop year, in surplus states, free market prices would have been
lower but for government purchases; after the surplus is mopped up, market prices tend to run
higher than procurement prices. The government recognizes the importance of assuring
reasonable prices to farmers to motivate them to adopt improved technology and to promote
investment by them in farm enterprises for increasing agricultural production. The basic
objective of agricultural pricing policy in India is to evolve a balanced and stable price
structure to meet the overall needs of the economy while protecting, in particular, the
interests of the producers’ and the consumers’’. The policy is aimed towards facilitating the
desirable path of attaining the objectives of growth and equity in the process of economic
development.
Incentive prices in the form of minimum support prices are essential to the success of
agricultural production programs based on high-yielding-varieties technology. At the same
time, undue reliance cannot be placed on environment of high prices alone as an incentive for
increasing production of food grains. Effective implementation of price support policies
requires adequate institutional arrangements for the purchase of quantities offered for sale at
that price.

7.1 Role of FCI (Food Corporation of India)

The broad objective of food policy in India has been to make food available to the people at
reasonable prices. Specific objectives include providing remunerative prices to cultivators;
supplying food at subsidized prices to the undernourished; controlling inflationary pressures;
stabilizing prices for consumers’ and producers; reducing fluctuations in food availability and
achieving self sufficiency in food grains production.

On behalf of the Central Government, Food Corporation of India (FCI) along with State
Governments and their agencies procure a sizeable quantity, of the total grain that is
harvested in a season. Since production is concentrated in a few states of India, there is a
large regional mismatch between supply and demand of food grains, which is relieved by the
transfer of grains from surplus to deficit states.

In order to facilitate the farmers to bring their produce to the procuring agencies, purchase
Centers (Mandies) are supposed to be opened in all corners of the country. However
procurement of wheat and rice are usually being done in selected states only. The FCI/
Government Agencies purchase all the grains offered at the minimum support price (MSP).
The main areas for procurement of wheat and rice are the surplus states like Punjab, Haryana,
and some parts of Uttar Pradesh for both crops and Andhra Pradesh for rice.

The Food Corporation of India (FCI) was set up under the Food Corporations Act of 1964 to
be the nodal central government agency responsible for the purchase, storage, inter- state
movement, transport, distribution and sale of food grain and other food items. In short, the
FCI is responsible for implementing central government policies on procurement, storage,
and distribution. In certain operations such as the maintenance of national buffer stocks, the
FCI has sole responsibility whereas in certain other operations such as procurement, the FCI
has to work with State government organizations (such as State marketing federations) and
within the purview of State government policies.

The role of the Food Corporation of India (FCI) has evolved over time, from being an agency
to procure food grains and distribute to states for the operation of the public distribution
system (PDS), in recent years it has become a device of maintaining the Minimum Support
Prices by procuring whatever is offered. FCI’s procurement operations are concentrated in
only a few states. This has led to problems of two kinds, one, growing buffer stock with FCI
as the MSPs have been set above the market clearing price. In the year 2001 buffer stock
accumulated in FCI’s go-down had toughed to the historical high. There was a huge debate
going at that time among policy maker’s academician and planners about the proper
utilization of this buffer stock. Irony of the situation was that our go-down was reporting
overflowing stocks of food grains, but, at the same time some parts of the country reported
death due to starvation. This shows inefficiency of distribution system in delivering food
grains to needy. This buffer stock situation continues till recent past. But now the situation
has changed rather than having over flowing buffer stocks countries has resorted to import of
food grains. Second farmers of those states where FCI price support operations are not well
organized do not fully get the benefit of the support price.
7.2 Problem Statement:

The government sets a minimum support price for the purchase of grain. In theory, this is the
price at which FCI would buy the grain from the farmers, but because farmers cannot
aggregate, traders provide this function, paying farmers less than the minimum support price
and delivering to FCI.

Another facet of the Corporation's manifold activities is the provision of scientific storage for
the millions of tonnes of food grains procured by it. In order to provide easy physical access
in deficit, remote and inaccessible areas, the FCI has a network of storage depots strategically
located all over India. These depots include silos, godowns and an indigenous method
developed by FCI, called Cover and Plinth (CAP). But government policies of high support
prices and targeted public distribution have led to increased procurement on the one hand and
fall in offtake on the other. As a result, stocks of wheat & rice with the Centre during the past
three years have been grossly above the norms. This has led to acute storage problems and an
inordinately large quantity is at present in the open in cover and plinth storage.

Hence the present study is proposed to be conducted in Bareilly district with following
specified objectives.

7.3 Objectives:
1. To describe structure of public sector wheat procurement model.
2. To analyze infrastructure and logistics available with FCI in the study area and its
utilization and to find out viability of operation.
3. To seek farmers opinion about the wheat procurement practices of FCI and know
problems and risk faced by them.
4. To propose wheat procurement model including best practices of both Public and
Private Players in PPP mode.
8. Review of literature

Ramaswami and Balakrishnan (2002)1 have shown in their study that public intervention
has a pervasive influence on food prices. In the context of the wheat subsidy scheme in India
the implications of quality differences between public and private grain supply are seen as
both are procured at similar prices, the lower quality of public grain marks the inefficiency of
government operations. The paper proposes and empirically validates a method to test for
demand switches that occur as a result of quality preference. As a result, a reduction in food
subsidies increases food prices and hurts the poor even when they are not major recipients of
the subsidy. This seeming paradox is contingent on the inefficiency of public interventions.
Thus, the outcome will be different if the reduction in food subsidy were to be accompanied
by reforms in the associated state agencies.

Sharma (2005)2 has shown in his research that procurement prices are largely influenced by
movements in cost of production and lagged open market prices with occasional bonanzas
emanating from non-economic considerations; procurement prices have a decisive influence
on current market price formation with other factors like stocks with government and zoning
playing only marginal roles; the volume of procurement is significantly affected by level of
output and difference between procurement and open market prices weakly supported by
administrative measures; the supply of wheat and rice is influenced by their open market
prices, suitably deflated, and non-price variables like irrigation. The elasticity with respect to
shifter variables is much greater than price elasticity. Results for wheat are more robust than
for rice. In all cases state-level results reveal greater diversity. The study contemplates a
supportive role for prices which becomes critical when non-price factors are in place.

Money Life, (March 01, 2011)4 found that Food Corporation of India (FCI) is estimated to
have incurred a financial loss of Rs484.76 crore in 2010-11 due to damage to foodgrains and
storage and transit loss.

Economic Times Intelligence Group, (2003)6 studied that agriculture is plagued by

multitude of problems which hinder its efficient operation. In the Indian agriculture sector,
the grain supply chain has remained unchanged: over 90 percent of food is sold in
unorganized markets, with organized business accounting for just 2 percent of the market.
Investment Information and Credit Rating Agency, (2001) estimated that approximately
20 percent of food produced in India is wasted. It further detailed the weaknesses and
problems present in the Indian grain chain.

9. Research Methodology:
The methodology to be applied is described below.
9.1 Research Design:
Research would be exploratory in nature.
9.2 Data Sources:
Information would be required on Public sector wheat procurement model. The present study
will use both primary and secondary data.
(a) Secondary data sources:
Secondary data would be acquired from published material and website of:
• APMC
• FCI
(b) Primary data sources:
Primary data would be collected from farmers.
9.3 Area of study: The study will be conducted in Bareilly district of Uttar Pradesh.
9.4 Research method:
Interviews of Farmers would be conducted to generate necessary information for the study.
9.5 Sampling plan:
Universe: Bareilly district of Uttar Pradesh.
Sampling Units: Farmers selling their produce to FCI centre and Mandi will be taken as
sampling units.
Sample size:
25 farmers selling the produce at FCI centre and 25 farmers selling to Mandi will be selected.
Total sample size will comprise of 50 farmers.
9.6 Sampling technique:
Convenient sampling technique would be used to choose the farmers. A sample of 25 farmers
visiting to FCI centre and 25 farmers visiting to Mandi for delivering the produce on the dates
of interview will be interviewed.
9.7 Research Instrument:
A well structured questionnaires containing both open & close ended question shall be
prepared for taking in-depth information from the farmers.
9.8 Analytical tools:
For analyzing the data, simple statistical tools (average, percentage, graphical presentations)
will be employed and the results will be presented in tabular form implicable for meaningful
discussion.

10. Duration of study:

The period of study shall be from 7th March to 1st May, 2010.

References:
1. Ramaswami,B. and P.Balakrishnan (2002). Food Prices and the efficiency of public
intervention. Retrieved from
http://www.pulaprebalakrishnan.in/Articles/food_policy.pdf
2. www.tribuneindia.com/2005/20051127/punjab1.htm
3. http://fciweb.nic.in/
4. Money Life, March 15,2011
5. www.specialtest.in/fci/
6. www.igidr.ac.in/pdf/publication/PP-056.pdf
7. https://www.ifama.org/events/conferences/2010/cmsdocs/18_paper.pdf
8. Kothari C. R., (2004), Research Methodology: Methods and Techniques, New Age
International Publishers, New Delhi, 2nd edition.