International Workshop
Indian Agriculture: Improving Competition,
Markets and the Efficiency of Supply Chains
Assessing the Impacts of Regulatory Constraints to Food Chain Competition
Presented by:
Rajesh Chadha, Anjali Tandon, Sisira Jayasuriya and Scott Davenport
February 16, 2011
The Claridges, New Delhi, India
Outline of Presentation
 State Intervention: Current Issues
• Yield and TFP
• Horticulture: West Bengal
• Wheat & Rice: Punjab
• Moving Forward
Sustainability of Agricultural Yield
and Productivity
• Issues of MSP – Crops, States, Farmers
• Input subsidies vs public investment
• Diminishing returns to input use
• Deceleration in TFP growth
• Water table and soil salinity
• Environmental Concerns
Policy Intervention
•
Steady procurement of foodgrains: Wheat and Rice
•
2006-07 and 2007-08: years of low inflation in rice and
wheat
•
No evidence of extra procurement in these years: wheat
procurement actually declined
•
2009-10 was inflationary year: MSP not reflected lower
procurement
•
December 2009: wheat put on sale at MSP-plus – no
takers
Myths of Indian economic policy
“Higher minimum support prices for food grains are good
for farmers. Not so.
Yes, they are good for a powerful minority of farmers who
have sizable marketable surpluses and ready access to
government procurement programmes. But the majority of
Indian farmers (especially poorer marginal farmers) are
hurt by higher food prices for the simple reason that they
are net buyers of food grains. And when you add in tens of
millions of landless labour, it is quite clear that inexorably
higher MSPs for wheat and rice are often quite damaging
for rural households.”
Source: Shankar Acharya, Financial Times, 1 February 2011
Myths of Indian economic policy
“Subsidies on food, fuel and electricity help mainly the poor.
Not so. The food subsidy mainly helps better off farmers
and consumers in only four or five states where the public
distribution system has effective coverage. The great
majority of India’s poor do not have effective access to
subsidized food grains.”
Source: Shankar Acharya, Financial Times, 1 February 2011
From Food Security to Food Deprivation
“Government intervention in foodgrains markets meant
primarily for promoting food security has reached a stage
where consumers are being deprived of basic food, when a
large proportion of output is diverted from market to
government warehouses.”
Ramesh Chand, EPW, March 12, 2005
“Produce sold below MSP much larger than that sold at
MSP”
Source: Ramesh Chand, Presentation to Competition Commission of India, 2010
Month wise stock position
(Jan-00 to April-03)
700
600
Lakh tonnes
500
400
300
200
100
0
Jan-00
May-00
Sep-00
Jan-01
May-01
Buf f er norm
Sep-01
Jan-02
Total Stock
May-02
Sep-02
Jan-03
Month wise stock position
(May-03 to April-08)
450
400
Buffer norm
Total Stock
350
Lakh tonnes
300
250
200
150
100
50
0
May- S Jan- May- S Jan- May- S Jan- May- S Jan- May- S Jan03 ep- 04
04 ep- 05
05 ep- 06
06 ep- 07
07 ep- 08
03
04
05
06
07
Month wise stock position
(May-08 to July-10)
700
Lakh tonnes
600
500
400
300
200
100
0
Jul-08
Jan-09
Jul-09
Jan-10
Strategic Reserve Wheat
Strategic Reserve Rice
Buffer norm
Total Stock
Jul-10
Outline of Presentation
• State Intervention: Current Issues
 Yield and TFP
• Horticulture: West Bengal
• Wheat & Rice: Punjab
• Moving Forward
Rice Statistics, 5 Year Moving Average:
Yield (Kg/Hectare)
2400
2200
2000
1800
1600
1400
1200
1000
1970-71
1976-77
1982-83
1988-89
1994-95
2000-01
2006-07
Growth in Rice Statistics, 5 Year
Moving Average: Yield (Kg/Hectare)
7
6
5
4
3
2
1
0
-1
-2
1970-71 1973-74 1976-77 1979-80 1982-83 1985-86 1988-89 1991-92 1994-95 1997-98 2000-01 2003-04 2006-07
Wheat: Five Year Moving average:
Yield (Kg/Hectare)
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
1970-71 1973-74 1976-77 1979-80 1982-83 1985-86 1988-89 1991-92 1994-95 1997-98 2000-01 2003-04 2006-07
Wheat: Five Year Moving average
Growth Rate: Yield (Kg/Hectare)
15
13
11
9
7
5
3
1
-1
-3
1953- 1956- 1959- 1962- 1965- 1968- 1971- 1974- 1977- 1980- 1983- 1986- 1989- 1992- 1995- 1998- 2001- 200454
57
60
63
66
69
72
75
78
81
84
87
90
93
96
99
02
05
Total Factor Productivity
Average Annual Growth % (1971-2000)
Paddy
Wheat
1971-1986
North*
2.31
All India
0.64
1986-2000
0.11
1.08
1971-1986
2.29
1.28
1986-2000
0.66
0.68
East **
Vegetables
1971-1986
0.8
2.59
1986-2000
-7.13
-0.19
* Includes Punjab, Haryana and UP
** Includes West Bengal
Source: Kumar and Mittal (2006)
Outline of Presentation
• State Intervention: Current Issues
• Yield and TFP
 Horticulture: West Bengal
• Wheat & Rice: Punjab
• Moving Forward
States / Markets Analysed
Crop
1st market
2nd state, market
Cabbage
Kolkata, West Bengal
Bhubaneshwar, Orissa
Cauliflower
Kolkata, West Bengal
Bhubaneshwar, Orissa
Brinjal
Kolkata, West Bengal
Bhubaneshwar, Orissa
Pineapple
Kolkata, West Bengal
Bangalore, Karnataka
Banana
Kolkata, West Bengal
Chennai, Tamil Nadu
Retailer Margin
Cabbage
Cauliflower
Brinjal
Pineapple
January
35.4
31.3
45.0
46.7
February
39.6
51.9
40.7
47.4
March
52.3
49.0
35.5
46.3
April
51.9
52.4
32.5
49.4
May
68.4
57.5
30.3
51.6
June
77.6
51.9
32.0
63.9
July
74.8
46.4
29.8
62.1
August
90.8
41.4
29.3
50.6
September
92.4
45.2
22.8
44.2
October
80.1
41.0
22.3
44.2
November
55.8
45.2
32.9
55.4
December
49.0
32.4
30.3
50.1
Average
66.3
46.7
31.9
50.9
Note: The months in bold indicate the peak season
Estimated Margins
Gross
margins*
Accounting
for wastage
Net margins after
accounting for
transportation &
handling
Retailer
60%
45%
25%
Wholesaler
108%
80%
50%
*assuming that farmer gets 30% of the retail price
Issues of competition
• Excess net margins
• Excessive slicing of the chain due to its unorganised nature
(organised retail is about 3-5%)
Farmer’s Remuneration: West Bengal
Produce
Farm gate price Retail price
(Rs. Kg-1)
(Rs. Kg-1)
Retail to
Farm gate
ratio
Banana
5.00
12.00
2.4
Mango
Guava
8.00
10.00
20.00
25.00
2.5
2.5
Litchi
25.00
50.00
2.0
Pineapple
4.00
12.00
3.0
One of the highest in the world!
Source: S.K Mitra, Bidhan Chandra Krishi Viswavidyalaya
Constraints in implementing post harvest practices
•
Numerous intermediaries
•
High level of wastage (30- 40%)
•
Lack of transparency – prices, availability, demand,
customer preferences
•
Poor infrastructure – storage, packaging,
transportation/ no cold chain
•
Poor linkage in the marketing channel
Outline of Presentation
• State Intervention: Current Issues
• Yield and TFP
• Horticulture: West Bengal
 Wheat & Rice: Punjab
• Moving Forward
Field Visit
Field Visit
Field Visit
Field Visit
Objectives of the Food Corporation of India
(Set up under Food Corporation Act 1964)
Main Functions of Paddy Branch
•
Formulation / Implementation of policy for custom
milling of rice (CMR)
•
Paddy is issued to rice mills against cash guarantee
•
Paddy procured by FCI and state agencies stored with
rice mills as per their milling capacity under joint
supervision
•
The Branch also takes care of Levy Rice procurement
as well
Marketed Surplus Ratio (MSR) of
Wheat in Various States
TE 2007-08
Punjab
Haryana
Madhya Pradesh
Rajasthan
Uttar Pradesh
82.79
73.41
65.43
58.75
39.51
All-India
60.95
Note: All India figures are weighted average of states listed above.
Source: Agriculture Statistics at a Glance, 2010, Table 8.4
Marketed Surplus Ratio (MSR) of Rice
in Various States
TE 2007-08
Punjab
98.28
Haryana
97.02
Andhra Pradesh
85.48
Madhya Pradesh
70.38
Uttar Pradesh
51.62
Note: All India figures are weighted average of states listed above.
Source: Agriculture Statistics at a Glance, 2010, Table 8.4
Mandi Tax Structure (%)
Market
Fee
Commission
charges
Sales Tax
Total
Others (Comments)
Punjab
4.00
2.50
4.00
10.5
1.0 (on purchase tax)
Haryana
2.00
2.50
4.00
8.5
Wheat
development cess from
traders only
MP
2.00
0.00
0.00
2.0
Uttar Pradesh
1.50
0.00
4.00
5.5
Rajasthan
1.60
0.00
4.00
5.6
15.0 (surcharge on sales
tax)
Punjab
4.00
2.50
4.00
10.5
1.0 (on purchase tax)
Andhra Pradesh
1.00
2.00
4.00
7.0
Rice
Chhasttisgarh/
MP
2.00
0.00
0.00
2.0
Uttar Pradesh
1.50
0.00
4.00
5.5
Haryana
2.00
2.50
4.00
8.5
development cess from
traders only
Note: These exclude market charges on account of weighing, unloading, cleaning,
stitching, etc. Such charges are specified per unit.
Cost Estimates of Principal Crops:
Rice (MSP, 2007-08: Rs. 750/qtl)
Crop/State
Cost of Production
(Rs/Quintal)
C2
Yield
(Quintal/
Hectare)
MSP/C2
Punjab
505.9
68.0
48.2
Chhattisgarh
552.7
29.1
35.7
Uttar Pradesh
600.7
35.0
24.9
Andhra Pradesh
638.6
55.1
17.5
Haryana
676.9
52.2
10.8
Note: Cost C2 includes all actual expenses in cash and kind incurred in production by owner, interest on
value of owned fixed capital assets (including land), rental value of owned land (net of land revenue),
rent paid for leased in land and imputed value of fixed capital assets.
Source: Agriculture Statistics at a Glance, 2010, Table 8.3
Cost Estimates of Principal Crops
Wheat (MSP, 2007-08: Rs.1000/qtl)
Crop/State
Cost of
Production
(Rs/ Quintal)
Yield
(Quintal/
Hectare)
MSP-C2
Mark-up
Punjab
648.0
46.5
54.3
Rajasthan
649.8
33.4
53.9
Uttar Pradesh
651.1
33.3
53.6
Haryana
673.5
42.0
48.5
Madhya Pradesh
779.4
23.9
28.3
Chhattisgarh
962.6
13.0
3.9
Note: Cost C2 includes all actual expenses in cash and kind incurred in production by owner,
interest on value of owned fixed capital assets (including land), rental value of owned land (net
of land revenue), rent paid for leased in land and imputed value of fixed capital assets.
Source: Agriculture Statistics at a Glance, 2010, Table 8.3
Public Procurement of Wheat: Punjab
(% Share)
Triennium Ending average (TE)
2003-04
2005-07
2008-10
MARKFED
20.95
23.24
23.14
PUNSUP
17.75
19.59
21.77
STATE
9.58
10.9
16.01
FCI
28.74
16.72
11.48
S.W.C
11.38
10.43
11.32
P.A.I.C
9.81
10.42
10.43
Total
100.00
100.00
100.00
Total (lakhs tonnes)
98.57
90.15
99.22
Source: Punjab Mandi Board
Incidence of Marketing Charges and
Taxation in Punjab
Wheat, Farm Harvest Price (Rs/ quintal) (2009-10): 1095.00
S.No
Items
Rate (%)
Amount Rs/ Quintal
A
Statutory charges
1
Purchase Tax
4.00
43.80
2
Surcharge
1.00
10.95
3
Market fees and RDF
4.00
43.80
4
Commission
2.50
27.38
B
Cost of Material
40.00
20.00
Bag filling/ stitching
0.43
4.70
Weighing
0.17
1.88
Labour and Transport Charges to
take produce from mandi to godown
0.69
7.51
Cost of bag
C
Labour Charges
Sum A to C
Based on Chand (2003)
160.02
Margins of the Wheat Retailer, Punjab
M1: (RP Wheat/ WSP Wheat)-1
Trend (M1: (RP Wheat/WSP Wheat)-1)
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
Margins of Wheat Miller, Punjab
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
M2: (RP Flour/ RP Wheat)-1
Trend (M2: (RP Flour/RP Wheat)-1)
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
0.0
Names of Punjab state foodgrain
procurement agencies
PUNGRAIN
Punjab State Procurement Corporation
PUNSUP
Punjab State Civil Supplies Corporation Limited
MARKFED
Punjab Marketing Federation
SWC
State Warehousing Corporation
PAIC
Punjab Agro Industries Corporation Limited
FCI
Food Corporation of India
Public Procurement of Paddy: Punjab
(% Share)
Triennium Ending average (TE)
2003-04
2005-07
2008-10
STATE
15.26
23.7
28.64
PUNSUP
21.25
24.51
23.48
MARKFED
19.97
20.72
22.40
S.W.C
12.92
11.77
12.58
P.A.I.C
8.19
11.66
10.28
FCI
22.41
7.64
2.61
Total
100.00
100.00
100.00
Total (lakhs
tonnes)
96.86
105.71
119.87
Source: Punjab Mandi Board
Levy Percentage: 2003-04
Punjab
75%
Haryana
75%
Uttar Pradesh
60%
(Western UP & 40 % Eastern UP)
Rajasthan
50%
Delhi
75%
Chandigarh
75%
Himachal Pradesh
50%
Uttaranchal khand
60%
Andhra Pradesh
75%
Price/ Margin Issues, Punjab:
WSP not comparable with MSP
3000
2500
Rs oer qtl
2000
1500
1000
500
•
•
•
•
Sep-10
May-10
Jan-10
Sep-09
Jan-09
May-09
Sep-08
Jan-08
May-08
Sep-07
Jan-07
May-07
Sep-06
Jan-06
MSP, Grade A
May-06
Sep-05
Jan-05
May-05
Sep-04
Jan-04
May-04
Sep-03
May-03
Jan-03
Sep-02
Jan-02
May-02
Sep-01
Jan-01
May-01
0
Paddy
Mostly ‘Grade A’ or ‘Fine quality’ grown in Punjab
WSP paddy is available from AGMARKNET, without quality
specification, which rules out a fair comparison
WSP are higher than MSP indicating that this price refers to a
superfine (Basmati) variety that is generally sold in open market
Fluctuations
Issues on Retail price of Fine Rice, Punjab
3000
2500
Rs oer qtl
2000
1500
1000
500
1
ay
n0
M
Ja
S 01
ep
-0
Ja 1
n0
M 2
ay
S 02
ep
-0
Ja 2
n0
M 3
ay
S 03
ep
-0
Ja 3
n0
M 4
ay
-0
S 4
ep
-0
Ja 4
n0
M 5
ay
-0
S 5
ep
-0
Ja 5
n0
M 6
ay
S 06
ep
-0
Ja 6
n0
M 7
ay
S 07
ep
-0
Ja 7
n0
M 8
ay
-0
S 8
ep
-0
Ja 8
n0
M 9
ay
-0
S 9
ep
-0
Ja 9
n1
M 0
ay
-1
S 0
ep
-1
0
0
MSP, Grade A
Paddy
Source: Retail Price Information System (RPIS) at http://dacnet.nic.in/rpms/
•
•
•
•
No single figure for the state is available, market-wise prices are
available
Only three markets: Amritsar, Bhatinda, Ludhiana
Huge price variations
Data gaps
Paddy, Grade 'A' arrivals/ procurement
in Punjab (million tonnes)
Public agencies
(State & FCI)
Private
Total
% of Private to Total
2004-2005
15.26
5.44
20.70
26.28
2005-2006
14.58
3.12
17.70
17.63
2006-2007
13.56
3.13
16.69
18.75
2007-2008
14.20
4.02
18.22
22.06
2008-2009
14.05
2.05
16.10
12.73
2009-2010
14.48
0.70
15.18
4.61
Source: Punjab Mandi Board
Total Arrivals/ Purchases including
‘Other' than Fine Rice (million tonnes)
Private
•
•
•
•
Total
Public
Fine
Other
Total
Fine as % of
Total
2004-2005
15.46
9.82
5.44
0.20
5.64
96.45
2005-2006
14.79
11.45
3.12
0.22
3.34
93.41
2006-2007
13.76
10.44
3.13
0.19
3.32
94.28
2007-2008
14.61
10.18
4.02
0.41
4.43
90.74
2008-2009
15.16
12.01
2.05
1.10
3.15
65.08
2009-2010
16.80
13.78
0.70
2.33
3.03
23.10
Increasing purchases by private millers of the ‘other’ varieties
Shift is attributed to introduction of the PUSA-1121 variety of Basmati which has a high yield
Indications for milling incentives for basmati
Much of Basmati is also be directly procured by millers
Punjab: Rice Millers’ Concerns
Lack of competition in the market
• During 80s till late 90s, private millers purchased as much as
63-75%
• Private purchases have reduced to 18% in 2009-10
• Our field visits have confirmed that not many erstwhile millers
have grown up/upgraded/expanded capacities
• Assured and remunerative price for the FAQ quality prevents
cropping of better qualities that would have higher returns
• New mega milling projects have come up in the recent past
due to fiscal incentives in the form of tax holidays and cheap
credit, mostly into basmati milling
• Exemption of basmati milling from levy further promotes
basmati millers
Competition is not playing its role
Millers’ dis-incentive under Levy system
• Levy route and CMR are two alternate channels for private
purchase of paddy
• Levy system discourages millers
• Low milling charges (revised from Rs.13 per qtl to Rs. 15 per
qtl), against substantial revisions in the MSP
• Shortage of storage capacity at public godowns (state/FCI)
delays milling
• High conversion rates of 67%, adds to moisture content,
reduces the rice milling
• Low returns on gunny bags
• Labour cost
• Stitching charges
• Export restrictions limit the markets for open sales
Ratio of Economic Cost to MSP
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2002- 2003- 2004- 2005- 2006- 2007- 2008- 200903
04
05
06
07
08
09
10
Wheat
Rice
Challenges for Punjab Agriculture
•
Stagnation in area under food grains and their
productivity
•
Additional increments to production are being
achieved at much higher costs
•
Fertility of soil has undergone major deterioration
•
Water table is going down at alarming rate
•
Large number of farmers are facing distress
Source: Ghuman, Rangi and Sidhu (2010): National Food Security –
Strategic Role of Punjab, Journal of Agricultural Development and Policy
20(2), 2010
Outline of Presentation
• State Intervention: current Issues
• Yield and TFP
• Horticulture: West Bengal
• Wheat & Rice: Punjab
 Moving Forward
The Economics of Food management
in India - 1
“In the name of helping the farmer and the consumer, and
likely even with the earnest intention of doing so, we have
ended up creating a foodgrains policy framework that has
not got high marks on either account.”
“Many of India's poor households do not get adequate,
nutritious food and many of our farmers remain
impoverished, especially the small ones with no
marketable surplus.”
Source: Basu, Kaushik: (2010)
The Economics of Food management
in India - 2
“In the name of helping our farming regions we have
intervened and created special incentives which hold
back large segments of the population in agriculture,
who actually deserve to move out to industry and
manufacturing.”
“While India does need to increase agricultural productivity,
creating wrong incentives can stall the natural process
of industrialization and the emergence of labourintensive manufacturing activities in some regions, by
keeping disproportionately large numbers of people
engaged in agricultural activity.”
Source: Basu, Kaushik: (2010)
The Economics of Food management
in India - 3
“First, it is assumed that a modicum of self-sufficiency in
food is desirable. This immediately means that the
state will have the responsibility of maintaining a certain
amount of food stocks.”
“Especially, a big country like ours, it is politically risky to
rely entirely on private traders and international trade to
iron out excessive price fluctuations. Nations can be
held to ransom and at this early stage of India's
development we do not want that to happen at least for
a few vital food items.”
Source: Basu, Kaushik: (2010)
The Economics of Food management
in India - 3
“We will have to have some system of announcing a
minimum support price and acquiring food stocks from
the market. There can be questions on the precise
mechanics of how such a system is to be run but the
need for some system of procurement is treated as an
axiom in this paper.”
Source: Basu, Kaushik: (2010)
Competition Commission of India
The Competition Commission of India endeavours to do the
following:
• Make the markets work for the benefit and welfare of
consumers
• Ensure fair and healthy competition in economic activities in
the country
• Faster and inclusive growth and development of economy
• Implement competition policies with an aim to effectuate the
most efficient utilization of economic resources
• Effective relations and interactions with sectoral regulators
• Effectively carry out competition advocacy
February 2011: CCI has launched a probe into alleged
cartelisation in the sugar industry for fixing minimum price for
sugar to be sold
Progress of Reforms in Agricultural
Markets (APMC Act) as on 15.03.2010
Stage of Reform
Name of States/ Union Territories
States/ U.T.s where reforms to
APMC Act has been done for
Direct Marketing; Contract
Farming and Markets in Private/
Coop Sectors
Andhra Pradesh, Arunachal Pradesh,
Assam, Chattisgarh, Goa, Gujarat,
Himachal Pradesh, Jharkhand, Karnataka,
Madhya Pradesh, Maharashtra, Nagaland,
Orissa, Rajasthan, Sikkim and Tripura.
States/ U.T.s where reforms to
APMC Act has been done partially
a)Direct Marketing:
NCT of Delhi.
b) Contract Farming:
Haryana, Punjab and Chandigarh.
c) Private markets :
a)Punjab and Chandigarh
States/ U.T.s where there is no
APMC Act and hence not
requiring reforms
Bihar*, Kerala, Manipur, Andaman &
Nicobar Islands, Dadra & Nagar
States/ U.T.s where APMC
Act already provides for the
reforms
Tamil Nadu
States/ U.T.s where administrative
action is initiated for the reforms
Mizoram, Meghalaya, Haryana, J&K,
Uttarakhand, West Bengal, Puducherry,
NCT of Delhi and Uttar Pradesh.
* APMC Act is repealed w.e.f. 1.9.2006.
Thank You