EXECUTIVE SUMMARY

CONSTITUTION OF CENTRAL VIGILANCE COMMITTEE ON PUBLIC

DISTRIBUTION SYSTEM AND ITS CHARTER

The Hon’ble Supreme Court of India, in a Writ Petition No. (C). 196 of 2001,
passed an order constituting a Committee to be headed by Hon’ble Mr. Justice D.
P. Wadhwa, Former Judge, Supreme Court of India, to look into the maladies
affecting the proper functioning of the public distribution system (“PDS") and to
suggest remedial measures. In particular, the Committee was directed to focus
on:

(a) The mode of appointment of dealers;

(b) The ideal commission or the rates payable to the dealers;

(c) Modalities as to how the Committees already in place, can function better;
and

(d) Modes as to how there can be transparency in allotment of the food stock
to be sold at the shops.

The Hon’ble Court further directed that while dealing with the question of the
mode of appointment, the Committee shall also suggest a transparent mode of
selection of the dealers. The Committee was also directed to indicate as to how
more effective action can be taken on the report of the vigilance committees
already appointed.

The Hon’ble Court’s direction was initially given for the Government of Delhi to
be followed on an all India basis.

The constitution of the Committee was notified on 01/12/2006. The Committee,

pursuant to the Hon’ble Court’s order commenced its work in right earnest. It
held a series of meetings with all the stake holders, invited
representations/petitions from members of the public, visited fair price shops
godowns of the Food Corporation of India (“FCI”) to examine their functioning,
held consultations with the officers of the Department of Food, Civil Supplies and
Consumer Affairs (“Department”), Food Corporation of India, Delhi State Civil
Supplies Corporation (“DSCSC”), National Informatics Centre (NIC), Delhi State
Election Commission, individuals connected with NGO’s, and representatives of
FPS dealers associations. The Committee also examined official records
connected with the items falling within the mandate given to it. By a further
order dated 17/04/2007, the Hon’ble Court was pleased to extend the time for
submission of the report till 31/08/2007.

Based on the work done by the Committee and in compliance with the Hon’ble
Court’s order, a detailed report covering all issues tasked to the Committee is
being submitted. The Report is divided into three parts. Part I is an executive
summary of the Report. Part II contains the main body of the Report and
examines each of the issues, duly chapterized at length, identifying the
weaknesses in the existing PDS and makes detailed recommendations for toning
up and streamlining its functioning in Delhi. Part III contains relevant documents
annexed to the Report.

The full forms of certain abbreviations, which have been used repeatedly
throughout the Report are given below for the sake of convenience:

1. APL : Above Poverty Line

2. BPL : Below Poverty Line

3. AAY : Antodaya Anna Yojana

4. TPDS : Targeted Public Distribution System

5. FPS : Fair Price Shop

6. SFA’s : Specified Food Articles (issued under the PDS)

The important recommendations under each of the chapters contained in Part II
of the Report are summarized herein under:

1. LEGAL REGIME

1.1. In the chapter dealing with the Legal Regime the existing provisions governing the
PDS, that is to say, the Essential Commodities Act, 1955, the Delhi Specified Articles
(Regulation of Distribution) Order 1981,the PDS (Control) Order 2001 (as amended in
2004), , and the relevant notifications and circulars which govern the implementation of
the said Act and the PDS (Control) Order, 2001 in Delhi are detailed. This chapter is
intended to be a ready reckoner which would help in appreciating the other chapters
wherein relevant clauses of the PDS (Control) Order 2001, notifications and circulars are
dealt with in detail.

2. APPOINTMENT OF DEALERS OF FAIR PRICE SHOPS (FPS)

2.1. This chapter discusses at length the existing guidelines for allotment of
FPS licenses and the modifications introduced in these guidelines from
time to time, inter-alia, highlighting eligibility conditions in respect of
applicants, shop premises, time frame prescribed for completion of the
selection process and the procedure for renewal of FPS. This chapter also
incorporates the Committee’s findings on how the existing instructions and
provisions of the PDS (Control) Order, 2001 are being violated with
impunity by FPS licencees due to laxity or complicity on the part of the
officials who are required to monitor the functioning of the FPSs. This
chapter also deals with the Committee’s findings that were arrived at
pursuant to the perusal of some of the files pertaining to allotment of
licencees of FPS. The chapter provides instances of blatant violation of
norms in allotment of FPS and reveals extraneous considerations come
into play in such cases, resulting in some FPS having ration cards in
 excess of the norm of 1000 ration cards per FPS and some FPS having
ration cards much less than the said norm, which in turn, affects their
viability.

2.2. The broad recommendations of the Committee include:

(a) consolidation of the existing guidelines and giving them due publicity
through press and on the web site of the Department for information of
general public;

(b) compression of the time involved in completion of the selection process

from the existing 56 days to 42 days;

(c) requirement of being a resident of the concerned circle where the FPS
vacancy has arisen should be substituted with the requirement of being
resident of the locality for which vacancy is notified;

(d) adherence to the Department’s guidelines dated 29.8.1997 stipulating

creation of a vacancy only when there are 1000 cards available to be
attached to an FPS;

(e) allotting of new vacancies for a FPS to cooperative societies or women

self help groups.

3. VIABILITY OF FAIR PRICE SHOPS

3.1. The Committee examined in depth the question of viability of FPS’s, which
is closely linked with the issue of the rate of commission to be paid to FPS
dealers. The Committee discussed this issue threadbare with the licencees
of FPS, their associations, representatives of NGOs, government officials
and also invited suggestions from various sections of society. The findings
and recommendations of the Committee are contained in this Chapter 3
are summarized as under:
3.2. The following table graphically shows the commission rates earned by FPS
licencees under the extant orders governing the sale of wheat and rice to
the Above Poverty Line (APL), Below Poverty Line (BPL) and Antyodaya
Anna Yojana (AAY) beneficiaries.

Category Cost Selling Difference Cartage paid Commission

Price Price B/w Cost to DSCSC per per Quintal
per per Price and Quintal paid to FPS
Quintal Quintal Selling
Price
APL Rs. 610/- Rs. 680 Rs. 70/- Rs. 35/- Rs. 35/-
Wheat
APL Rice Rs. 830/- RS. 900 Rs. 70/- Rs. 35/- Rs. 35/-
BPL Rs. 415/- Rs. 465 Rs. 50/- Rs. 15/- Rs 35/-
Wheat
BPL Rice Rs. 565/- Rs. 615/- Rs. 50/- Rs 15/- Rs. 35/-
AAY Rs. 200/- Rs. 200/- Nil Rs. 15/- paid Rs. 35/-
Wheat to DSCSC by
Delhi paid to FPS by
Government Delhi
Government
AAY Rice Rs. 300/- Rs. 300/- Nil Rs. 15/- paid Rs. 35/-
to DSCSC by
Delhi paid to FPS by
Government Delhi
Government

3.3. Keeping in view the existing guidelines of the Department requiring 1000
food cards to be attached to an FPS unit and assuming full off take of
wheat and rice as per entitlement (25 kgs of wheat and 10 kgs of rice per
month) of each category of card holder subject to the condition of the FPS
unit getting its full allocation, a FPS owner would earn Rs. 15,750/- per
month. This amount includes income derived from the sale of gunny bags
at the rate of Rs. 5 per bag. However, this income projection changes to
 the FPS owner’s disadvantage if there is a reduced allocation as is
currently the position. While there is 100 per cent allocation in BPL
category, allocation under APL category works out to 35 per cent of the
entitlement. Assuming that the BPL and APL card holders are evenly
distributed in an FPS and assuming the current rate of reduced allocation
in respect of the APL category, the income of a FPS comes down to Rs.
7,369/- per month. The situation is worsened if the number of food cards
attached to a FPS unit is much less than 1000 cards. The table provided in
para 5.6 of the chapter dealing with viability shows at a glance, the
unequal distribution of ration cards in Delhi.

3.4. The estimated average expenditure of a FPS on a conservative scale

including expenditure on rent, commission payable to banks on demand
drafts, stationery items, salary paid to helpers, labour and electricity
charges etc. works out to approximately Rs. 6,000/- per month. The
absence of a steady income over and above the monthly expenditure
incurred in running the FPS erodes its viability. Hence, the representatives
of FPS dealers associations raised the demand for increasing the rate of
commission. It was also suggested that the commission of the FPS should
be increased to Rs. 70/- per Quintal. Other views touched on entrusting
PDS work to a person already in business, making the PDS attractive
enough for more persons to avail of this facility and ensuring that a FPS
dealer earns at least Rs. 10,000/- over and above expenses incurred by
him in running the shop. One NGO representative suggested that an
option should be given to cardholders for purchasing SFAs from any FPS
and the competition generated through this process will improve the
viability of FPS.
3.5. The Committee has observed that there are other factors impacting on
the viability of a FPS. Some of these are:

i) Delay in supply of SFAs;

ii) Losses suffered by FPS dealers due to blockage of working capital

invested for the stock and transport, for long periods;

iii) Losses suffered on account of short supply of goods;

iv) Unequal distribution of ration cards;

v) High transportation costs;

vi) Commission being too low to generate moderate

income.

3.6. Keeping in view the Committee’s wide ranging interaction with stake
holders, knowledgeable individuals, government officials and its own
findings and also with a view to avoid any significant additional burden on
the system, the Committee has explored other available options for
improving the viability of the FPS instead of increasing the rate of
commission. The main recommendations of the Committee are as follows:

a) There will be substantial gain for FPS dealers if the cost involved in
transportation of SFAs is based on actual cost in terms of tender floated
by the Government. Elsewhere in the Report, it has been recommended
that the responsibility for transport arrangement through open tendering
process be taken over by the Department in place of the DSCSC.
b) The Department should take urgent action to rationalize the ration card
position of the FPS and ensure that the present anomaly of unequal
distribution of cards is reduced to the minimum.

c) End to end automated system in the PDS chain should be introduced to

plug leakages and improve viability of the FPS. Further, recourse to E-
banking is a favoured option for cutting down delays in depositing money
with FCI/ DSCSC. This will be a substantial improvement on the existing
practice.

d) Incentive should be given to FPS dealers for selling other commodities in

conjunction with SFAs. Other commodities should, however, not include
SFAs i.e. wheat and rice available in open market. This will improve the
viability of FPS.

e) Accountability should be fixed for any delay in delivery of SFAs.

f) The question of amalgamating Kerosene Oil Depots (though an equally

discredited and corrupt system) and FPS on the Maharashtra model and
providing both the facilities to consumers through the FPS window needs
to be examined to further improve the viability of FPS.

g) The Committee would also like to emphasize the need to provide a

dedicated place on the lines of milk depots, post offices, multi-purpose
kiosks for the FPS at a very nominal rent. The State Government of Delhi
should take the initiative in this regard.

h) As far as the BPL category is concerned the State Government must bear
the responsibility to provide door delivery of SFAs to the FPS at its own
cost. This obligation arises from the PDS (Control) Order, 2001 itself
where Clause 6(3) read with Clause 4(6) of the Annexe to the PDS
(Control) Order 2001, casts a duty on the authorities to ensure physical
 deliveries of SFA’s to the FPS. Further, in the 9-point action plan
formulated by the Government of India, doorstep delivery has been
highlighted as one of the urgent measures to prevent diversion. Once the
State Government undertakes this obligation the FPS owner is relieved of
the burden of paying a sum of Rs. 15/- per Quintal towards transport of
BPL stock which amount automatically increases his profit.

4. VIGILANCE COMMITTEES AND GRIEVANCE REDRESSAL MECHANISMS IN

THE NATIONAL CAPITAL TERRITORY OF DELHI

4.1. The PDS (Control) Order, 2001 provides for monitoring and vigilance including
constitution of vigilance committees. There are extensive provisions in the said Control
Order regarding the role of these committees, followed by detailed instructions issued
from time to time by the Department for operationalizing the vigilance initiative. Some of
these initiatives include setting up of Circle Advisory Committees to advise on
streamlining the functioning of PDS, holding of public audit, public hearings for
resolution of public complaints, constitution of Citizens’ Watch Committees for
monitoring distribution of SFAs and matters relating to availability of SFAs, their quality
and quantity etc. and reconstitution of FPS vigilance committees to attend to complaints
regarding non-availability or short supply of SFAs. Provisions/ instructions exist which
describe their role, functions and responsibilities of the vigilance committees and have
been discussed at length in the main body of Report dealing with the subject.

4.2. In addition, there is an Enforcement Branch of the Department to enforce

various control orders and the circulars issued by the Department. There
is also an Anti – Hoarding Cell that is a part of the Enforcement Branch, to
check malpractices and initiate action against guilty persons. The
Enforcement Branch and the Anti – Hoarding Cell, in the Committee’s view
have miserably failed in discharging their assigned responsibilities. Their
role has been discussed in detail in the main Report. A Task Force for
each revenue district under Deputy Commissioner (Revenue) has also
been constituted to conduct surprise checks/ raids. There is also a model
 Citizens’ Charter on TPDS defining particularly the role and functions of
vigilance committees to which the Central Government has drawn
attention of State Governments for necessary compliance.

4.3. In furtherance of the Model Citizens’ Charter on TPDS, the Delhi

Government has also constituted a State vigilance committee, with the
objective of preventing black marketing and diversion of SFAs, attending
to complaints regarding non- availability of wheat, rice, sugar etc. and
other related deficiencies in the operation of the PDS in Delhi.

4.4. The Committee has observed that while there are numerous entities
involved in smoothly steering the course of the PDS in Delhi, their impact
is virtually non-existent on the ground and as a result, malpractices
abound to the great discomfiture of the common man. It has been
squarely admitted by Commissioner: Food Supplies and Consumer Affairs
that vigilance committees in Delhi are defunct and ineffective. Meetings of
FPS vigilance committee are not being held separately and instead
whatever meetings are held go under the name of joint meetings of Circle
Advisory Committees and FPS vigilance committees. The Committee has
found that these meetings, apart not from being held on a regular basis,
do not serve the intended purpose and have degenerated into a routine
affair without focus.

4.5. The multiplicity of entities entrusted with more or less similar tasks with
none of them performing their assigned functions has gravely undermined
the credibility of these bodies and contributed in no less measure to
existing deficiencies in PDS.

4.6. The Committee, therefore, has made detailed recommendations in the

main chapter for revamping the vigilance machinery. Some of the
important recommendations are as follows:
a) The Circle Advisory Committees and Citizens’ Watch Committees, in their
present form, may be scrapped and in their place, district-wise vigilance
committees may be constituted, vesting them with appropriate powers,
functions and responsibilities.

b) No meeting of a vigilance committee should be postponed on account of

non-availability of the area M.L.A. to chair the meeting. In the absence of
an area M.L.A., the meeting may be chaired by the Assistant
Commissioner of the concerned district.

c) The State level vigilance committee should be reconstituted by retaining

the existing composition with the only change that the Commissioner,
Food Supplies and Consumer Affairs be made the member/convenor of
such reconstituted committee. This Committee should meet once in a
quarter to review the functioning of the district level vigilance committees.

d) The process of selection and appointment of members of the vigilance

committees be made more transparent with greater involvement of the
public, stakeholders and household women. The majority of members of
the committee should be women who are ration card holders of the
concerned FPS. As far as possible, the member from SC/ST should also be
a woman.

e) There are other recommendations given in the main chapter on this

subject which detail the modalities of the functioning of vigilance
committees, such as, periodicity of holding of these meetings, what
should constitute the agenda for such meetings and nature of follow – up
action to be taken in respect of such meetings.
f) The Committee has recommended a toll free Help Line for attending to
consumer complaints relating to the PDS.

4.7. The Committee has also focused on the need to set up an independent
monitoring mechanism for addressing consumer complaints along with a
host of other related issues. This mechanism may be in the form of an
“Ombudsman/ Regulator” to be created under para 6(1) of the Annexe to
Clause 8 of the PDS (Control) Order, 2001. The PDS (Control) Order, 2001
may be further amended to give greater clarity to the role and
responsibilities of the Ombudsman/ Regulator. The structural framework
of this institution along with powers, functions and responsibilities and
other related issues have been discussed in detail in the chapter dealing
with vigilance committees.

4.8. The complaints received by the Ombudsman/ Regulator may be referred

by him for a report from the district vigilance committee or FPS vigilance
committees, as the case may be. It is clarified that this power of the
Ombudsman/ Regulator to make a reference shall be in addition to and
not in derogation of the powers of the Ombudsman/ Regulator to conduct
an independent enquiry into the complaints. While, the reports so
received, will assist the Ombudsman/Regulator in providing solution, these
reports will not be binding upon the Ombudsman/ Regulator.

4.9. The Anti – Hoarding Cell should be independent of the Enforcement

Branch. The Anti Hoarding Cell should be headed by an officer holding the
rank of not less than a Deputy Commissioner of Police who will also select
the other personnel of the Cell. A “Special Flying Squad” would also be
constituted into the Anti – Hoarding Cell for taking prompt and immediate
action, as and when the need arises. This Squad shall be functional round
the clock without exception. The Anti – Hoarding Cell should directly
report to the Commissioner, Food Supplies & Consumer Affairs.
5. TRANSPORTATION OF SPECIFIED FOOD ARTICLES UNDER THE
PUBLIC DISTRIBUTION SYSTEM

5.1. The Delhi State Civil Supplies Corporation (DSCSC), a public sector
company under the administrative control of Food and Civil Supplies
Department, Delhi Government, has been entrusted with the responsibility
of transportation of SFAs from the six FCI godowns to 2772 functional FPS
spread over in 70 circles located in 9 districts in Delhi. This responsiblity is
discharged by the DSCSC by engaging trucks through an open tendering
process on an annual contractual basis.

5.2. The Delhi Government fixes the cartage rates pursuant to which DSCSC
receives the charges @ Rs. 35/- per quintal for the APL category and Rs.
15/- per quintal for the BPL category from FPS dealers. Cartage charges in
respect of the AAY and the APS is paid to the DSCSC by the Delhi
Government. The Committee is of the view that the cartages charges
recovered from the FPS dealers are excessive and disproportionate to the
actual cost incurred by the DSCSC in engaging trucks for transportation of
SFAs. This will be apparent from the fact that the DSCSC made a net gain
of Rs. 1.59 crores during the financial year 2005-2006 out of PDS
operations after meeting administrative expenses.

5.3. The Committee has further observed that the transportation rates fixed as
a result of the tendering process vary in the range of Rs. 6.22 to Rs. 25.50
per Quintal. Such a large variation in the rates is a sad commentary on
the tendering process and leads to the inescapable conclusion that losses
suffered in quoting unrealistic rates for transportation by transporters are
 sought to be made good by indulging in diversion of SFAs on a large
scale.

5.4. The Committee has noted that there is a plethora of

instructions/guidelines issued by the DSCSC to streamline the
transportation system, ensuring timely delivery of SFAs and for preventing
diversion of SFAs. But the very fact that various malpractices connected
with these activities are being committed in a blatant manner go to show
that there is utter laxity in supervision, lack of accountability at all levels
and that there is a deep-rooted and flourishing nexus between
transporters, officials and FPS dealers to defeat the objective behind the
PDS and derive pecuniary gains by subverting the PDS operations.

5.5. The main body of the Report makes references about sting operations
carried out by different TV channels, which among other things, is a
pointer towards the prevalence of a benami tender practice for contracting
trucks for transportation of SFAs.

5.6. The Committee has further noted in its findings that the DSCSC is not
adequately discharging its responsibility of supervising/monitoring the
transportation of SFAs from FCI godowns to FPS. Lack of strict supervision
over transporters and truck movements virtually derails the PDS in as
much as this adversely impacts timely delivery of SFAs at the FPS and
leads to the diversion of SFAs. No doubt, DSCSC has introduced PDS ON
LINE to keep an eye on the status of transportation and lifting of food
grains from FCI godowns as also availability of ration items at various
FPSs and other relevant information but this software alone would not
suffice to ascertain the actual movement of PDS trucks and the direction
in which they are going. Hence, in so far as transportation of SFAs from
FCI godowns to the FPS is concerned, it would not be an exaggeration to
say that vigilance and supervision are nil.
5.7. The Committee has examined at length the Mumbai model of
transportation of SFAs in the main body of the Report along with its merits
and demerits. The Committee, however, is not convinced whether it can
be adopted mutatis mutandis in Delhi.

5.8. Important recommendations of the Committee emerging from a close

study of system being followed in Delhi for transportation of SFAs are as
follows:

a) The present system of entrusting the responsibility for transportation to

the DSCSC is flawed and it would be appropriate for the Department/Delhi
Government to take over this responsibility. The Department should work
out detailed modalities for discharging this responsibility without
apportioning administrative expenses in the transport charges to be paid
by FPS dealers. The Committee has discussed the role that the Assistant
Commissioners of Department have to play in this context.

b) The net gain on the transportation account currently being made by

DSCSC could very well go to FPS dealers, which will improve the viability
of FPS.

c) E-banking should be introduced for payment of cartage charges and cost

of SFAs by the FPS.

d) The Committee also recommends availing of funds provided by the

Planning Commission for strengthening the PDS operations by providing a
mobile FPS for areas where the number of food cards/ration cards does
not justify opening of a FPS as per norms.
e) The Committee further recommends zero tolerance in cases of breach of
contract by transporters and imposition of deterrent monetary penalty for
infraction of contract.

f) The GPS should be used on trucks carrying SFAs to track their movement
and installation of the GPS should be made a part of tender conditions.
Any tampering of GPS should be severely dealt with and for this purpose
the PDS (Control) Order, 2001 if necessary may be amended. The
Ombudsman should also be given a role in monitoring the functioning of
the GPS.

6. COMPUTERISATION

6.1. The core objective of the TPDS, which was introduced by the Government
in the year 1997, is to ensure that the underprivileged/needy segment of
the population, which depends on the supplies of SFAs for its day to day
sustenance, is provided its full-allotted quota on time. The Committee is of
the view that there is rampant corruption at every level of the distribution
chain and the most effective way to deal with this cancerous and all
pervading corruption in the system is to introduce a completely automated
system based on information technology with minimal or no human
intervention.

6.2. Para 6(6) of the Annexure read with Clause 8 of the PDS (Control) Order,
2001, the State Government is obliged to monitor the functioning of the
FPS through the computer network installed in the district NIC centres.
The clause further states that computer codes would be provided to each
FPS. However, the Committee has found that the Delhi Government has
not setup any system for monitoring the working of the FPS through the
network of NIC or otherwise.

6.3. The Committee invited various organisations and also studied models
currently being implemented by different state governments. Various
presentations were made before the Committee and the Committee had
wide range of discussions with experts in this respect. The various
systems studied by the Committee are:

i. Existing computerisation in the FCI.

ii. Coupon System/ Food Stamps.

iii. Card System

a) Machine Readable Cards

b) Biometric Cards

c) Visual Crypto Cards (Grid Cards)

iv. Iris Technology.

v. Automated System using Online Technology.

vi. Automated System using Smart Cards.

6.4. The Committee studied many types of technologies that were demonstrated and
suggested by different agencies. Some of them have been implemented by some State
Governments. On the basis of the above-suggested technologies the Committee
recommends the following:

a) An automated computerisation model has been suggested for the TPDS. It is

submitted that the proposed model has been prepared after consulting various technical
professionals in the field of information technology. It is recommended that this model
may be introduced initially on a pilot basis in one circle in Delhi.

b) The only solution to the ills plaguing the PDS is to introduce a completely
automated system based on information technology, which would result in minimum
human intervention.

c) A database of genuine beneficiaries rectifying all inclusion and exclusion errors

must be created by door-to-door verification entrusted to a credible independent agency.
This will result in elimination of bogus cards.

d) A complete automation of the PDS has to be achieved in a time bound manner.

e) A pilot study in terms of the suggested model of automation may be implemented

in a few circles.

f) Further, till full automation is achieved, the system of coupons as suggested in

para no. 3.4.1(c)(iii) of the chapter may be implemented. The system of coupons may
also, in the first instance, be tested in a few circles.

7. MAKING TARGETED PUBLIC DISTRIBUTION SYSTEM MORE

REALISTIC
7.1. The PDS has evolved as an intrinsic part of Government policy for management of
scarcity of SFAs and for ensuring distribution of SFAs to the vulnerable sections of the
society at subsidized prices. The responsibility for managing, operating and
implementing the PDS rests jointly with the Central and State Governments.

7.2. Responding to the need of vulnerable sections of the society in regard to

availability of SFAs at affordable prices, the PDS has graduated from being
a general entitlement scheme till 1992 to the Revamped Public
Distribution System (RPDS) and now to TPDS which was launched by the
Government of India in June 1997, with a special focus on the poor.

7.3. The three schemes that are being operated currently under TPDS are:

(i). Antodaya Anna Yojana (AAY): This covers the poorest families
from amongst the below poverty line families entitling them to 35
Kgs. SFAs per month i.e. rice @ Rs. 3/kg. and wheat @ Rs. 2/kg.
As on 31/12/2006, there are in all 57,336 AAY card holders in
Delhi.

(ii). Below Poverty Line category (BPL): This covers those poor families
whose income is below Rs. 24,200/- per annum. BPL card holders
are entitled to 25 Kgs. of wheat @ Rs. 4.65/kg. and 10 Kgs. of rice
@ Rs. 6.15/ kg. per month. As on 31.12.2006, there are 3,78,947
BPL ration card holders in Delhi.

(iii). Above Poverty Line category (APL): This covers families whose
annual income is in excess of Rs. 24,000/-. Each APL cardholder is
entitled to 25 Kgs. of wheat @ Rs. 6.80/kg. and 10 Kgs. of rice @
Rs. 9.00 /kg. As on 31/12/2006, there are 22,85,513 APL
cardholders in Delhi.
7.4. The functioning of the TPDS and in particular the above three schemes
has been discussed in depth in this chapter of the Report. It will suffice
here to say that gaps abound and the functioning of the TPDS leaves
much to be desired. Some deficiencies identified by the Committee are as
follows:

a) There are serious gaps in coverage of people below poverty line and the existing
number of beneficiaries under the AAY/ BPL categories does not seem to relate to the
number who should have been covered.

b) There is a large number of bogus ration cards in BPL category which distorts the
BPL matrix and places avoidable burden on the system. There is a lackadaisical approach
towards weeding out ineligible persons.

c) APL is the most sought after category and the biggest leakage in the system is in
this category as the beneficiaries under this category do not avail of PDS facility, by and
large.

d) Data furnished in respect of lifting of SFAs under different categories by the

Delhi Government between April 2006 and March 2007 itself shows that large scale
diversion takes place in respect of SFAs meant for APL category. The lifting of SFAs
during this period under APL constitutes almost 72 per cent of total quantities of SFAs
lifted.

e) Targeting is not serving its real purpose as the beneficiaries do not get SFAs in
accordance with their entitlements.

f) The system lacks proper accountability at each stage of operation, otherwise how
does one explain continued commission of malpractices with impunity and flourishing
nexus between officials, transporters and FPS owners to milk the system to their
advantage.

g) The existence of the APL category in an open ended manner has diluted the
euphemism “Targeted” and made the system virtually universal, detracting from its main
focus of catering to the poor and destitute.

7.5. The Committee has made several recommendations in the main body of
its Report, the important ones being:
a) launching a time-bound door-to-door drive to identify genuine
beneficiaries under AAY/BPL categories and provide due coverage to
them.

b) There would be an amnesty period of four weeks where persons holding

bogus cards could surrender them without liability. However on the expiry
of this period the above mentioned intensive door-to-door verification
would be conducted and during that verification if any bogus card is
detected both the holder as well as the concerned officers who had
recommended the card would be prosecuted under Section 7 and other
Sections of the Essential Commodities Act, 1955 without exception.

c) Revisit the income criterion for the BPL category keeping in view
improvement in the poverty scale.

d) Do away with the APL category and restrict TPDS to the poor namely
persons below the poverty line i.e. BPL and poorest of the poor i.e. AAY.
It is needless to say that it is this category of persons who need food
security. While doing away with the APL category the Committee also
recommends increase in the income threshold of the BPL from the present
Rs. 24,200/- to Rs. 49,284/-. This based on the minimum wage payable to
an unskilled workman in Delhi as per the order No. F.12
(142)/02/MW/LAB/1016 dated 13.3.07. The break up of the said amount
is as follows:

Minimum wage = Rs. 3470/-

per month

Add: 13.6% EPF = Rs. 472.26

Add: 4.75% ESI = Rs. 164.82
Total: = Rs. 4107/-
e) The Committee is aware of the fact that there is going to be a great deal
of opposition from the FPS dealers and other vested groups against the
abolition of the APL category. If the Court is of the view that it may not be
possible or desirable to abolish the APL category altogether, it may
consider limiting the APL category to households whose annual income is
Rs. 1,00,000/-. This is based on the fact that a class IV employee of the
Central Government in Delhi gets a consolidated salary of about Rs.
8,000/- per month making it Rs 96,000/- per annum. This category may
be called “Marginally Above Poverty Line (MAPL)”.

f) Clear delineation of responsibilities and functions of each position

connected with PDS; provide benchmarks for performance levels, and
introduce the concept of personal liability in case of lapses.

g) Introduce an end-to-end automated system in the PDS chain as

discussed in the Computerization Chapter to minimize human intervention
in the PDS operations and reduce the scope for manipulation.

8. INTRODUCTION OF FORTIFIED ATTA (WHEAT FLOUR) IN THE PUBLIC

DISTRIBUTION SYSTEM

8.1. The Committee is of the considered view that fortified Atta along with
wheat should be made available through PDS outlets which would
immensely benefit the vulnerable sections of society and increase off take
by consumers of PDS foodgrains. Even today, persons without BPL ration
cards, despite being eligible for the same, and other persons with BPL
ration cards are purchasing wheat flour from the open market as a matter
of convenience and to save on the time and cost involved in grinding of
wheat into flour. The system of distribution of wheat flour is in vogue in
the district of Darjeeling where enriched wheat flour is given @ Rs. 6.80
per kg. In the open market, packaged wheat flour weighing 10 kg costs
anything up to Rs. 150/- and therefore, it should be possible to price a
 packet of fortified 5 kg or 10 kg wheat flour at a much lower price which
may be any price between Rs. 7/- and Rs. 8/- per kg. This will definitely
be much less than what may be available through the open market. The
advantages would far outweigh a somewhat increased price that may
have to be paid. At least, providing this option to the vulnerable sections
of the society through the PDS network will be a step in the right
direction.

8.2. The Committee has also suggested modalities for operationalising this
innovative step in the main chapter dealing with this subject.

8.3. Fortified Atta would also improve the general health of the vulnerable
sections and reduce instances of Vitamin A deficiency and iron deficiency
Anaemia. It has also been suggested that general instructions may be
given to sell only fortified Atta both under the PDS as well as the open
market as this will make implementation easier and prevent diversion.

9. IMPEDIMENTS IN EFFECTIVE ENFORCEMENT OF PROVISIONS OF

ESSENTIAL COMMODITIES ACT, 1955, PDS (CONTROL) ORDER, 2001
AND DELHI SPECIFIED ARTICLES (REGULATION OF DISTRIBUTION)
ORDER, 1981—ANALYSIS AND RECOMMENDATIONS.

9.1. Impediments in the enforcement of provisions of the above Act/ Orders

have been identified as follows:

i. Insistence of police authorities to act only on complaints made by the

Department;

ii. Disinclination of police authorities to conduct investigation against

violators of the above Act/Orders;

iii. Failure of the Department to launch timely prosecutions against the

violators including the errant FPS dealers;

iv. Failure to hold delinquent officials accountable for their acts of omission
and commission; and
v. Delay in Court proceedings.

9.2. All the above factors have been discussed in detail citing instances in the
chapter on the subject in the main body of Report. The Department vide
Letter No. F. 10(393)/Misc/F&S/Vig./681 dated 20/04/2007, has furnished
a list of 42 pending disciplinary proceedings as on 19/04/2007. Most of
these cases are pending since the last six to seven years with oldest
pendency back to the year 1987. The list, which is annexed, is an eye-
opener. None of these cases relate to complicity in diversion of SFAs,
fudging of FPS records regarding stocking and sale of SFAs etc., which
have today become an intrinsic facet of PDS operations.

9.3. The Department has also furnished a list of 37 disciplinary proceedings

that have been disposed off during the years 2005 – 2007. Most of the
disposed off cases relate to unauthorised absence, malpractices in sale
and receipt of BPL ration card application forms, preparing non – genuine
ration cards, unauthorised absence from duty etc. It is seen from the list
that even in a case of a serious offence like preparation of non – genuine
ration cards, a meagre penalty of censure or reduction by one stage in
time scale has been imposed.

9.4. It has been observed by the Committee from an analysis of court files
that there are inordinate delays in trials under the Essential Commodities
Act, 1955, defeating the very object and purpose of Section 12A(2) of the
Essential Commodities Act, 1955 which provides for a summary trial.

9.5. After in-depth analysis made in the chapter on this subject, the
Committee has made the following recommendations:

a) The police department should be directed to act on complaints in

consonance with Section 11 of Essential Commodities Act, 1955.
b) The police department should be directed to exercise their powers of
search and seizure without exception.

c) Prosecutions should be instituted against persons involved in

contravention of statutory provisions.

d) Action should be taken without loss of time to seal the FPS if found
contravening statutory provisions and the license of such FPS should be
revoked if enquiry in the matter confirms commission of offence unless a
superior court stays the proceedings.

e) A fast track Court should be constituted in respect of cases pertaining to

violations of Essential Commodities Act, 1955. There should be a special
prosecutor for handling such cases.

=========================

As amended by the Public Distribution System (Control)(Amendment) Order, 2004

134 Eleventh Five Year Plan

between the economic cost so fixed and the central
issue prices (CIP) is passed on to the State as food
subsidy.
4.1.28 The Decentralized Procurement Scheme, which
is presently in operation in 11 States, has been very
successful in increasing procurement of rice in
many non-traditional States, as can be seen below in
Table 4.1.6.
4.1.29 There is a need for States to increase procure-
ment to reduce their requirement of foodgrains from
the Central Pool. There is also a need for more States
with large production, such as Bihar for wheat and rice
and Assam for rice, to adopt the Decentralized Procure-
ment scheme. If this were to happen, there could be a
considerable saving in terms of transportation costs.
with higher MSPs declared more recently, there is a
danger that the subsidy is likely to rise (see Table 4.1.7)
due to increase in MSP, announcement of bonus, and
carrying cost of FCI. The Table 4.1.7 gives the figures
of food subsidy of the GoI.
Public Distribution System
4.1.32 The PDS is a major State intervention in the
country aimed at ensuring food security to all the
people, especially the poor. The PDS operates through
a large distribution network of around 4.89 lakh
fair price shops (FPS), and is supplemental in nature.
Under the PDS, the Central Government is respon-
sible for the procurement and transportation of
foodgrains up to the principal distribution centres
of the FCI while the State Governments are respon-
sible for the identification of families living below the

TABLE 4.1.6
Procurement of Rice in DCP States during Kharif Marketing Season
(Figures in lakh tonnes)
S. No. State 2002–03 2003–04 2004–05 2005–06 2006–07*
1 WB 1.26 9.25 9.44 12.75 5.19
2 UP 13.60 25.54 29.71 31.51 21.01
3 Chhattisgarh 12.91 23.74 28.37 32.65 25.20
4 Uttaranchal 2.32 3.23 3.61 3.36 1.74
5 A&N Islands - Neg. 0.01 - -
6 Orissa 8.90 13.73 15.90 17.85 14.18
7 Tamil Nadu 1.07 2.07 6.52 9.26 10.38
7 Kerala - - 0.33 0.94 1.05
8 Karnataka - - 0.21 0.48 0.12
Total (a) 40.06 77.56 94.10 108.80 78.86
Note: *Position as on 19.04.07.

Food Subsidy TABLE 4.1.7

4.1.30 Food subsidy is provided in the Budget of the Food Subsidy
Department of Food and Public Distribution to meet Year Food Subsidy (Rs in crore)
the difference between the economic cost of foodgrains 1996–97 5166
procured by FCI and their sales realization at CIP for 1997–98 7500
TPDS and other welfare schemes. In addition, the 1998–99 8700
Central Government also procures foodgrains for 1999–2000 9200
meeting the requirements of buffer stock. Hence, part 2000–01 12010
2001–02 17494
of the food subsidy also goes towards meeting the
2002–03 24176
carrying cost of buffer stock. 2003–04 25160
2004–05 25746
4.1.31 The food subsidy bill of the GoI peaked in 2005–06 23071
2004–05 and declined as stocks declined. However, 2006–07 23827
 Nutrition and Social Safety Net 135

poverty line, the issue of ration cards, and the distri-
bution of foodgrains to the vulnerable sections
through FPSs. PDS seems to have failed in serving the
second objective of making foodgrains available to the
poor. If it had, the consumption levels of cereals should
not have fallen on average—as it has consistently over
the last two decades.
4.1.33 With a view to improving its efficiency, the
PDS was redesigned as TDPS with effect from
June 1997. The TPDS envisages identifying the poor
households and giving them a fixed entitlement of
foodgrains at subsidized prices. Under the TPDS,
higher rates of subsidies are being given to the poor
and the poorest among the poor. The APL families
are also being given foodgrains under TPDS but
with lower subsidy. The scale of issue under TDPS
for Antyodaya cardholders began with 10 kg per
family per month, which has been progressively
increased to 35 kg per family per month with effect
from April 2002.
4.1.34 Under the TPDS, the identification of BPL
families was to be carried out by the State Governments
based on criteria adopted by the Ministry of Rural
Development (MoRD). However, the total number of
beneficiaries was to be limited to the State-wise pov-
erty estimates (1993–94) of the Planning Commission
projected to the population as on 1.03.2000. Against a
total ceiling of 6.52 crore BPL households (as per the
poverty estimates of the Planning Commission for
1993–94 and population projection of the Registrar
General as on 01.03.2000), more than 8 crore BPL
ration cards have been issued. Similarly against the
figure of 18.03 crore households in the country (as
per the population projections as on 1.03.2000 of the
Registrar General of India), the total number of
ration cards issued is around 22.32 crore. This does
raise problems at the field level.
Major Deficiencies of TPDS
4.1.35 As identified by various studies, the major de-
ficiencies of the TPDS include: (i) high exclusion and
inclusion errors, (ii) non-viability of FPSs, (iii) failure
in fulfilling the price stabilization objective, and
(iv) leakages.
(I) HIGH EXCLUSION AND INCLUSION ERRORS
4.1.36 The Programme Evaluation Organization’s
(PEO’s) Study (2005) establishes large-scale exclusion
and inclusion errors in most States (see Box 4.1.1).
It also questions the BPL methodology used for

Box 4.1.1
Performance Evaluation of TPDS
• Only 22.7% FPSs are viable in terms of earning a return of 12% on capital.
• The offtake by APL cardholders was negligible except in Himachal Pradesh, Tamil Nadu, and West Bengal.
• The offtake per BPL card was high in WB, Kerala, Himachal Pradesh, and Tamil Nadu.
• The offtake by the poor under TPDS was substantially higher than under universal PDS.
• There are large errors of exclusion and inclusion and ghost cards are common.
• High exclusion errors mean a low coverage of BPL households. The survey estimated that TPDS covers only 57% BPL
families.
• Errors of inclusion are high in Andhra Pradesh, Karnataka, and Tamil Nadu. This implies that the APL households receive
an unacceptably large proportion of subsidized grains.
• Leakages vary enormously between States. In Bihar and Punjab, the total leakage exceeds 75% while in Haryana and UP,
it is between 50 and 75%.
• Leakage and diversion imply a low share of the genuine BPL households of the distribution of the subsidized grains.
During 2003–04, it is estimated that out of 14.1 million tonnes of BPL quota from the Central Pool, only 6.1 million
tonnes reached the BPL families and 8 million tonnes did not reach the target families.
• Leakage and diversion raised the cost of delivery. For every 1 kg that was delivered to the poor, GoI had to issue 2.32 kg
from the Central Pool.
• During 2003–04, out of an estimated subsidy of Rs 7258 crore under TPDS, Rs 4123 crore did not reach BPL families.
Moreover, Rs 2579 crore did not reach any consumer but was shared by agencies involved in the supply chain.
136 Eleventh Five Year Plan
identification of households at State level. There are
two problems here. One is the criterion used for allo-
cation of foodgrains by the Central Government to
States. The Central Government allocates foodgrains
to States based on a narrow official poverty line. There
is a need to look at this allocation criterion to States. If
we go by the official poverty ratio criterion, only 28%
of the population is eligible under PDS at all-India level
in 2004–05. However, food-insecure households may
be much higher than the official poverty ratios. For
example, undernutrition among children and house-
holds is much higher than this figure. The use of BPL
estimates to determine Central allocations should be
revisited because there is a significant mass of house-
holds just above the poverty line.
4.1.37 A second problem is the use of BPL method
for identifying households by the States. This identifi-
cation differs from State to State. For example, some
of the south Indian States do not follow the official
poverty ratio for limiting the ration cards. In Andhra
Pradesh, more than 70% of the households have
ration cards. This is one of the reasons for high
inclusion errors in Andhra Pradesh.
(II) VIABILITY OF FPSs
4.1.38 An important institutional concern is that of
the economic viability of FPSs, which appears to
have been badly affected by the exclusion of APL popu-
lation from the PDS (which happened after PDS
became TPDS in 1997). The virtual exclusion of the
APL population has led to a big decline in offtake. With
fewer ration cards to serve, lower turnover, and upper
bounds on the margins that can be charged to BPL
consumers, the net profits of FPS owners and dealers
are lower under the TPDS than before. Since there are
economies of scale here, for instance, with respect to
transport, the distribution of smaller quantities is
likely to make many shops unviable. When FPSs are
economically viable, there are fewer incentives to cheat.
4.1.39 Some of the steps suggested by the High-level
Committee (HLC) on Long Term Grain Policy to
revive the retail network were the following:
‘Relax restriction on eligibility to be a licensed FPS;
make NGOs and village-level retailers eligible to
undertake licensed PDS distribution, and in particu-
lar, encourage women; remove restrictions on the
range of commodities that can be sold in a FPS; and
allow registered associations of FPS dealers to purchase
the grain allocated directly from the FCI’.
(III) REGIONAL ALLOCATION AND PRICE
STABILIZATION OBJECTIVE
4.1.40 One of the objectives of the PDS has always
been to ensure price stabilization in the country by
transferring grain from cereals-surplus to cereals-
deficit regions. Targeted PDS has reduced the effec-
tiveness of this objective. This is because under TPDS,
the demand for cereals is no longer determined by
State Governments (based on their requirements and
in practical terms on past utilization) but on alloca-
tions decided by the Central Government (based on
poverty estimates prepared by the Planning Commis-
sion). The new system of allocation, as pointed out by
the HLC, has led to imbalances between actual alloca-
tions and ‘allocations necessary to meet the difference
between cereals production and requirement’.
(IV) LEAKAGES AND DIVERSION
4.1.41 Undoubtedly, in many parts of India, the cur-
rent system of delivery has weaknesses resulting in leak-
ages at different stages. As the Programme Evaluation
Organization, PEO Study (2005) points out, ‘the share
of leakages in offtake from the Central Pool is abnor-
mally high, except in the States of West Bengal and
Tamil Nadu’. Further, ‘in terms of leakages through
ghost BPL cards, there are fewer problems in Andhra
Pradesh, Haryana, Kerala, Punjab, Rajasthan and Tamil
Nadu than in other States’. At the FPS level, leakages
were found to be high in Bihar, Punjab, and Haryana.
4.1.42 The study goes on to identify the factors asso-
ciated with relatively low leakages at the FPS level and
concludes that ‘general awareness of the beneficiaries,
high literacy and strong grass root-level organizations
(particularly PRIs) have helped States like West
Bengal and Himachal Pradesh in minimising FPS
level leakage, while in the case of Tamil Nadu, it is
the elimination of private retail outlets’. It has been
documented that strong political commitment and
careful monitoring by the bureaucracy are the key
elements of the success of PDS in Tamil Nadu.

4.1.43 Leakages cannot be lowered by finer targeting
using official poverty criterion. They require political
commitment and participation of the people in the
delivery process. The nexus between officials, the mafia,
and ration shop dealers must be broken in order to
reduce leakages. Monitoring and accountability of
TPDS (food security watch) should be improved in a
significant way. The TPDS needs to be strengthened
by means of the effective use of IT including intro-
duction of a unique ID-based smart card system.
Coverage of Commodities Supplied
through TPDS
4.1.44 If nutrition security is one of the considerations
of TPDS, the government may explore the possibility
of including more commodities under TPDS. For ex-
ample, cereals such as jowar, bajra, and also pulses
could be introduced in TPDS because of nutritional
considerations. The consumption of pulses is low
for the poor. Operational details of supplying these
commodities, particularly, pulses have to be worked
out. It is true that presently the country has a shortage
of these commodities. However, the introduction of
these commodities may encourage production of
these crops especially in dry land areas. The National
Food Security Mission has identified pulses as an
area of focus.
Steps Taken to Strengthen the TPDS and
Plan Schemes
4.1.45 The GoI has taken following measures to
strengthen TPDS and check diversion of foodgrains
meant for TPDS:
CITIZEN’S CHARTER
• A Citizens’ Charter has been issued in November
1997 for adoption by the State Governments to
provide services in a transparent and accountable
manner under PDS. Instructions have been issued
for involvement of PRIs in identifications of BPL
families and in Vigilance Committee.
PDS (CONTROL) ORDER, 2001
• The Order, inter alia, covers a range of areas relat-
ing to correct identification of BPL families, issue
of ration cards, proper distribution, and monitor-
ing of PDS-related operations. Contraventions
Nutrition and Social Safety Net 137
of the provisions of the Order are punishable
under the Essential Commodities Act, 1955.
Clearly, these do not seem to have had much
impact, since the NSSO estimates of 2006 suggest
that the extent of leakage and diversion of grain has
only increased.
4.1.46 In addition, a number of Plan Schemes have
been introduced.
(I) CONSTRUCTION OF GODOWNS
4.1.47 The Scheme was conceived during the Fifth Five
Year Plan to build and increase the storage capacity
available with FCI for storage of foodgrains.
(II) INTEGRATED INFORMATION SYSTEM FOR
FOODGRAINS MANAGEMENT (IISFM)
4.1.48 The main objective of the IISFM project in the
FCI, initiated in 2003–04, is to put in place an online
MIS that would give the stock position in any depot at
any given point of time.
(III) STRENGTHENING OF PDS
Food Credit Cards/Computerization of
PDS Operations
4.1.49 A new scheme ‘Computerization of PDS
Operations’ with a token provision of Rs 5 crore was
introduced in 2006–07. The computerization of PDS
operations would be an improvement on the existing
system of ration cards, that is, the present manual
system of making entries, etc. The new system will have
personal details of all members of the family includ-
ing their entitlement and the entire network of PDS
from taluk to State level will be linked. With this
kind of system in place, the objectives of Food Credit
Card Scheme of checking diversion of foodgrains
and eliminating the problem of bogus ration cards are
expected to be met.
Curbing Leakages/Diversion of Foodgrains
Meant for TPDS
4.1.50 This is a new scheme introduced during the
Eleventh Five Year Plan to strengthen the PDS. The
scheme aims at taking effective measures to curb
diversion and leakages through Global Positioning
System, Radio Frequency Identification Device, etc.
138 Eleventh Five Year Plan

Generating Awareness amongst TPDS Beneficiaries (as we noted earlier). For instance, Table 4.1.8 shows
about their Entitlement and Redressal Mechanism that, according to NSS, over 1993–94, 1999–2000, and
and Monitoring 2004–05, consumption of PDS grains rose. It also
4.1.51 A mass awareness campaign on the rights shows that offtake of PDS grain from FCI by States
and entitlements of TPDS beneficiaries is proposed increased much more than consumption over the same
through newspaper advertisements, bill boards, post- decade. The difference between the two shows the
ers, printing of annual calendar on the themes of extent of leakage of PDS wheat and rice. This leakage
TPDS, and audio-visual publicity measures such as [defined as 1—{ratio of (a) to (b)}] was 28% for wheat
short spots/quickies, audio jingles/radio spots, TV and rice together in 1993–94, but it had risen to 54%
serials/documentaries. by 2004–05—a very significant increase in leakage.
These facts clearly show that TPDS is in urgent need
Training and Awareness of Negotiable of reform.
Warehouse Receipt System
4.1.52 This is a new scheme for the Eleventh Five Year TABLE 4.1.8
Plan. The warehousing receipts at present do not PDS Implied Leakage—Offtake vs Consumption
enjoy the fiduciary trust of depositors and banks, as 1993–94 1999–2000 2004–05
there is fear of not being able to recover the loans in (a) NSS PDS consumption (m. tons)
events such as fraud or mismanagement on behalf of Rice 7.20 9.30 9.98
the warehouse or insolvency of depositor. The legal Wheat 3.44 2.99 3.55
remedies are also time consuming and inadequate. Total 10.64 12.29 13.53
In this context, it is proposed to develop a negotiable (b) PDS offtake (m. tons)
warehouse receipt system for commodities including Rice 8.84 11.35 16.62
agricultural commodities. The negotiable warehouse Wheat 5.86 5.76 13.02
Total 14.70 17.11 29.65
receipt system will result in increase in the liquidity in
Ratio of (a) to (b)
the rural areas, encouragement of scientific warehous-
Rice 0.81 0.82 0.60
ing of goods, lower cost of financing, etc. Wheat 0.59 0.52 0.27

(IV) VILLAGE GRAIN BANK SCHEME Total 0.72 0.72 0.46

4.1.53 The Village Grain Bank Scheme, which was
hitherto with the Ministry of Tribal Affairs, has been
transferred to the Department of Food and Public
Distribution w.e.f. The objective of the scheme is to
establish Grain Banks in chronically food-scarce area
and to provide safeguard against starvation during the
lean period. The scheme is also to mitigate drought-
induced migration and food shortages by making
foodgrains available within the village during such
calamities. During 2006–07, there was a budget provi-
sion of Rs 50 crore for setting up 8591 Village Grain
Banks in food-scarce areas.
Further Innovations Needed to Strengthen
TPDS and the Way Forward
4.1.54 One of the long-standing criticisms of the
TPDS has been that offtake of PDS cereals (rice and
wheat) by States from FCI does not match with NSS
estimates of PDS consumption of those same grains
Source: NSS.
4.1.55 These facts are further underlined by Annex-
ure 4.1.4, which demonstrates the massive leakage of
the fiscal subsidy to the non-poor on the one hand
and the ineffective targeting of the poor by the
cardholder-based TPDS system.
4.1.56 Annexure 4.1.5 drives home the point about
the poor targeting by TPDS benefits. It estimates the
benefits in rupees per household of PDS grain benefi-
ciaries [calculated as PDS quantity consumed* (PDS
Price—Average Market Price)]. It shows that the ben-
efits to the household are dependent upon whether
you have a card or not (and which card you have—
APL, BPL, or Antyodaya), and not on whether you
are poor or non-poor. In fact, it demonstrates that
there is very little difference between the benefits (in
Rs/household) of poor and non-poor households

when one compares poor BPL cardholders with non-
poor BPL cardholders, or when comparing poor AAY
cardholders with non-poor AAY cardholders.
4.1.57 The TPDS in its current form as a anti-poverty
programme clearly is not doing very well. Given these
facts, a restructuring of the TPDS has been suggested.
4.1.58 In this context, a recommendation of the HLC
on Long Term Grain Policy (2000) was that instead of
the current distinction between APL, BPL, and
Antyodaya in terms of issue pricing for rice and wheat,
there should be a single issue price for grain issued by
the FCI from its warehouses. This recommendation,
sometimes identified with the return to universal PDS
from TPDS adopted in 1997, has been criticized on a
number of grounds. First, that if the same price for
BPL and APL households was charged, this would not
be financially viable for the BPL. If existing AAY
and BPL cardholders were charged a higher price,
there would be a diversion of benefits from the
relatively poor to the relatively rich. Second, there
might be pressure to keep the uniform CIP low as high
common price for BPL and APL would have adverse
consequences for the poor. On the other hand, a low
CIP would increase even further the fiscal subsidy.
Third, any widening in the effective reach of PDS due
to its universalization would put unbearable pressures
for the supply of grain into the PDS.
4.1.59 It needs, however, to be noted that the HLC
had not altogether ruled out the continuation TPDS
in States where this might be the best option. Its
recommendation was that there should be a single CIP
as far as FCI is concerned for each grain fixed at FCI’s
acquisition cost and that the existing subsidy beyond
this should be passed on to the States on the condition
that this be used for food based schemes.
4.1.60 The key issue here is whether or not the exist-
ing subsidies that the HLC recommended should
be given to the States as cash or best targeted to the
intended beneficiaries by means of the existing differ-
ential pricing system with lowest prices for Antyodaya,
slightly higher price for BPL, and higher still for APL
cardholders. The view of the HLC was that although
this differential pricing system may work well for some
Nutrition and Social Safety Net 139
States, it was not necessarily the case in most others
and that removing the price differentials in PDS would
enable FCI to concentrate on its proper role of price
stabilization rather than get involved, as it has, with
the complexities of an anti-poverty programme. Also,
the HLC had pointed out that differential pricing of
the same grain is an invitation to corruption and, there-
fore, to leakages and other deadweight losses—as
already shown by the PEO study cited above as well as
more recent evidence emerging from the NSSO. The
HLC had suggested that large savings were possible if
the subsidy on FCI account could be used to expand
other food-based schemes like ICDS, Mid Day Meals,
and food entitlement in employment programmes.
However, as already mentioned, the HLC left this
choice to the States allowing them to continue with
the existing TPDS if they so wish to do, by having their
own differential prices rather than differential price at
the FCI stage.
4.1.61 As we have noted in the tables above, data avail-
able from the 61st Round of NSS supports some of
the concerns expressed by the HLC. NSS 61st Round
also enables an assessment of how effectively PDS and
other food based schemes such as MDM, ICDS,
and Food for Work are able to reach the poor. This
shows that: (i) only about 36% of the poor have either
BPL or Antyodaya cards, and also that about 40% of
such cards are with the non-poor (Annexure 4.1.4);
(ii) possession of appropriate cards (e.g. BPL or
Antyodaya) rather than actual poverty status is the
determinant of the benefits derived from targeted
TPDS (Annexure 4.1.5); (iii) in more self-selecting
schemes such as MDM, ICDS, and Food for Work, the
total number of beneficiaries is similar to the number
currently benefiting from a BPL or AAY status and
indeed these self-targeted schemes are somewhat
better reaching the poor than the assignment of BPL
cards (Annexure 4.1.6). Although not conclusive, this
observation taken together suggests that the leakages
of physical grain could be reduced without greater fiscal
cost and with somewhat better targeting towards the poor
by redirecting subsidies currently in the PDS to better
funding of the other schemes (i.e. the MDM, the ICDS).
However, it was noted by the HLC that the incident
of leakages and the effectiveness of PDS targeting
varies considerably from State to State, suggesting that
140 Eleventh Five Year Plan
a one-size-fits-all approach to food and nutrition man-
agement is highly mistaken.
Other Measures Needed to Reform TPDS
INTRODUCTION OF FOOD STAMPS
4.1.62 If markets are integrated, food stamps system
may be introduced, which is supposed to be more
effective than the present system. On food stamps/
coupons, the HLC has observed as follows: ‘In the long
run, as markets get better in tegrated, the PDS func-
tion need not remain restricted to designated FPS and
a food coupon system valid even outside PDS outlets
may become possible. Food coupons may allow wider
choice of consumers in terms of commodities and
outlets. In the Committee’s view, this is a course which
should be followed with considerable caution in view
of the experience of other countries, and the possibil-
ity of counterfeiting. However, the more important
reason food stamps have not been successful elsewhere
has been the erosion in the value of the coupons where
it was fixed in nominal terms. If the coupon system is
to succeed the PDS suggested above, the value of
the coupon should be indexed to food inflation. The
coupon system should not lead to a dilution of the
Central Government commitment to food security’.
Cash for food subsidies (sometimes known as food
stamps) eliminate the need for dual retail marketing
mechanisms. This can resolve the endemic problem
of uneconomic viability of FPS. As a way of restoring
economic viability, the HLC on Grain Policy recom-
mended that FPS should be allowed to sell other
commodities. This recommendation of the HLC
needs to be considered by the States.
MULTI-APPLICATION SMART CARDS (MASCS)
4.1.63 MASCs is one of the technological break-
throughs of recent times. MASCs facilitate simplifica-
tion of procedures and enhancing the efficiency in
administering various schemes. The National e-Gov-
ernance Policy fully recognizes the significance of this
technological revolution. On-the-spot availability of
proof of identity, authentic transaction history, and
entitlement details are required at the point of service
delivery. It will also allow other innovations/experi-
ments such as the division of the PDS food entitle-
ment between the Head of household and his/her
(non-earning) spouse or transfer of entire household
entitlement to the housewife/mother. Similarly, differ-
ent models can be used for kerosene supply and fertil-
izer supply to farmers. In other words, the precise
model for delivery of the subsidy or income transfer
to individuals/households can be decided separately
and/or modified overtime.
WEB-ENABLED SYSTEMS
4.1.64 Many departments of the Central Government,
notably the MoRD, are in the process of developing
web-enabled systems that provide information about
government programmes to beneficiaries and also
details of the benefits received by the targeted benefi-
ciaries. Easy access to such information is the most
effective means to empower the beneficiaries and their
well-wishers/representatives. Such web-enabled
systems can be created for the PDS.
Way Forward
• NSS 61st Round enables an assessment of how
effectively PDS and other food based schemes such
as MDM, ICDS, and Food for Work are able to reach
the poor. This shows that in more self-selecting
schemes such as MDM, ICDS, and Food for Work,
the total number of beneficiaries is similar to the
number currently benefiting BPL or AAY status
and indeed these self-targeted schemes are some-
what better reaching the poor than the assignment
of BPL cards. Thus the leakages of physical grain
could be reduced without greater fiscal cost and with
somewhat better targeting towards the poor by
redirecting subsidies currently in the PDS to better
funding of the other schemes (i.e. the MDM, the
ICDS).
• However, a one-size-fits-all approach to food and
nutrition management is mistaken. As there are
large differences in the efficiency of implementa-
tion of the PDS among the States, it may be
desirable to introduce State-specific designs and
implementation strategies rather than continuing
with a uniform design. Separate designs and imple-
mentation strategies may be thought of for areas
with high concentration of the poor.
• Since some distinction needs to remain between the
‘poor’ and ‘non-poor’, the nature of exclusion/
inclusion errors suggests that it is much better to

define ‘poor’ for PDS purposes as much larger than
current Planning Commission estimates of the
number of poor, and exclude altogether the residual
‘non-poor’. If the current allocation of 35 kg per
household per month continues, the present PDS
offtake (rice + wheat) of about 40 million tonnes
would meet PDS requirements of nearly 10 crore
households, that is, roughly 60% more households
than those defined to be poor by current official
poverty estimates.
• The effectiveness of the system can also be improved
by better management with the help of IT. Comput-
erization of PDS operations and introduction of a
unique ID-based Smart Card System would help
in addressing the issues related to bogus ration cards,
diversion of foodgrains, etc. The Eleventh Plan
will therefore focus on improving the delivery
mechanisms and the monitoring arrangements
based on IT.
• There is also a need to make concerted efforts for
minimizing the operational costs of the FCI from
the present high levels through better management
practices so that major part of the food subsidy
actually accrues to the beneficiaries.
• Attention should also be given to streamlining and
standardizing the State level taxes on procurement
of foodgrains. Decentralized procurement will be
further encouraged and extended to other States
with potential for procurement. It is also necessary
to strengthen both domestic and international trade
in foodgrains by means of appropriate changes in
trade policies.
4.1.65 The centralized system involving FCI’s stabili-
zation operations would need to be strengthened. This
would be helped if FCI is relieved of having to operate
the system involving differential prices (i.e. between
BPL and APL prices). The total projected GBS for the
Eleventh Plan for the Department of Food and Public
Distribution is Rs 614 crore (at 2006–07 prices) and
Rs 694 crore (at current prices).
MALNUTRITION: ADDRESSING IT THROUGH A
REVAMPED ICDS
4.1.66 The ICDS, which has been in existence for over
three decades, was intended to address the problem
of child and maternal malnutrition, but has clearly had
Nutrition and Social Safety Net 141
limited impact. Child malnutrition has barely declined
at all in a decade and a half, anaemia among women
and children has actually risen (see Annexure 4.1.3)
and a third of all adult women were undernourished
at the end of 1990s and also in 2005–06. It has also had
limited coverage. Therefore, the answers are increas-
ing coverage to ensure rapid universalization; chang-
ing the design; and planning the implementation
in sufficient detail that the objectives are not vitiated
by the design of implementation. Besides, all its
original six services have to be delivered fully for
the programme to be effective: (i) supplementary
nutrition programme (SNP), (ii) immunization,
(iii) health check-up, (iv) health and nutrition educa-
tion, (v) referral services, and (vi) PSE.
4.1.67 First, the ICDS has to be universalized. Second,
the current scheme does not focus on 0–3 year chil-
dren. But malnutrition sets in in utero and is likely
to intensify during the 0–3 year period, if not ad-
dressed. In fact, this window of opportunity never
returns in the lifetime of the child. A child malnour-
ished during 0–3 years will be marred physically
and mentally for life. The design of the scheme has
to address this problem frontally. This has several
implications:
• Mother’s malnutrition and its knock-on effects on
child malnutrition: Malnutrition begins in utero, as
Indian mothers on average put on barely 5 kg of
weight during pregnancy. This is a fundamental
reason underlying the LBW problem. They should
put on at least 10 kg of weight, which is the average
for a typical African woman. Middle class Indian
women tend to put on well over 10 kg weight dur-
ing pregnancy. But this is not the only problem;
LBW is also partly explained by low BMI of women
in general, prior to their becoming pregnant. Small
women (who are small before they become preg-
nant) give birth to small babies. In 1998–99 as much
as 36% of all Indian women (48% in Orissa and
Chhattisgarh) had a below normal BMI; the share
had barely dropped to 33% in 2005–06 (according
to NFHS-3).
• Breastfeeding in the first hour: Within the first hour
of birth, the infant must be breastfed. Only 23% of
Indian babies were breastfed within the first hour
 30

4. Climate Change, Food Security and Nutrition

Overview of Climate Change - Evidence for and Potential Effects

According to the Fourth Assessment Report of the Intergovernmental Panel on Climate

Change (IPCC),3 climate change and variability will have significant impacts on food security
and malnutrition.

Climate change will lead to more intense and longer droughts than have been observed over
wider areas since the 1970s, particularly in the tropics and subtropics (Trenberth et al., 2007).
In addition, the frequency of heavy precipitation events has increased over most land areas. It
is very likely that heat waves and heavy precipitation events will continue to become more
frequent and that future tropical cyclones (typhoons and hurricanes) will become more intense
(Meehl et al., 2007; Trenberth et al., 2007). It is primarily via these impacts that climate
change will have negative effects on food security and nutrition.

Droughts and water scarcity diminish dietary diversity and reduce overall food consumption
and this may lead to malnutrition problems including undernutrition, protein-energy
malnutrition and/or micronutrient deficiencies. The risk of flooding of human settlements may
increase, from both sea-level rise and increased heavy precipitation in coastal areas. This is
likely to result in an increase in the number of people exposed to diarrhoeal and other
infectious diseases, thus lowering their capacity to utilise food effectively.

Global atmospheric concentrations of greenhouse gases (GHGs), carbon dioxide (CO2),

methane and nitrous oxide have increased markedly since 1750 as a result of human activities.
By 2005, the global atmospheric concentration of CO2 far exceeded the natural range of the
preceding 650,000 years (Forster et al., 2007). Total temperature increases during the
20th century have been 0.76°C (Trenberth et al., 2007). Average arctic temperatures increased
at almost twice the global average rate during the past 100 years.

Continued GHG emissions at or above current rates would cause further warming and induce
many changes in the global climate system during the 21st century that would very likely be
larger than those observed during the 20th century (Meehl et al., 2007). The best estimate for
the low scenario, among the Special Report on Emissions Scenarios (SRES)4 projected by the
4th IPCC assessment, is an increase of 1.8°C and the best estimate for the high SRES scenario
is 4.0°C (Meehl et al., 2007).

Mountain glaciers and snow cover have declined on average in both hemispheres (Lemke,
2007). During the course of the century, water supplies stored in glaciers and snow cover are
projected to decline, reducing water availability in regions supplied by meltwater from major
mountain ranges; these regions are home to more than one-sixth of the world’s population
(Kundzewicz, 2007).

Widespread decreases in glaciers and ice caps have contributed to sea-level rise (Lemke,
2007). According to the 4th IPCC report’s estimations for unmitigated emissions, the sea-level

3 IPCC is a scientific intergovernmental body set up by the UN World Meteorological Organization and the UN
Environment Programme to provide decision-makers and others with objective information about climate
change. The scientific community generally regards its reports as authoritative (Sample 2007).
4 See Appendix 1 for details on these scenarios.
 31

will rise by 40 centimetres by the 2080s, with 60 percent of this increase occurring in South
Asia and 20 percent in South East Asia (Meehl et al., 2007).

Climate Change Impacts on the Human and the Global Environment

Global environmental hazards to human health, environment and sustainability include

climate change, stratospheric ozone depletion, loss of biodiversity, changes in hydrological
systems and the supplies of freshwater, land degradation and stresses on food-producing
systems (WHO, 2005a). These factors are closely interrelated. For example deforestation,
agriculture and livestock production systems further accelerate climate change. Vulnerability
to adverse effects from climate change differs by region, ecosystem, population group and
gender.

Vulnerable Regions

The regions likely to be adversely affected by climate change are those already most
vulnerable to food insecurity and malnutrition, notably Sub-Saharan Africa, which may lose
substantial agricultural land. The numbers of people affected will be largest in the mega-deltas
of Asia and Africa, while small islands are especially vulnerable (Nicholls et al., 2007). It
should be noted that IPCC assessments do not provide much information on a regional or
national basis.

In seasonally dry and tropical regions, crop productivity is projected to decrease with even
small local temperature increases (1-2°C), which would increase the risk of hunger due to
reduced food availability (Easterling et al., 2007). In Africa, by 2020, between 75 million and
250 million people are projected to be exposed to increased water stress due to climate
change. If coupled with increased demand, this will adversely affect livelihoods and
exacerbate water-related problems (Boko et al., 2007; Kundzewicz et al., 2007). In much of
Africa, agricultural production and access to food are projected to be severely compromised
by climate variability and change. This would further adversely affect food security and
exacerbate malnutrition on the continent.

Coastal areas, especially heavily-populated mega-delta regions in South, East and South-east
Asia, will be at greatest risk due to increased flooding from the sea and, in some mega-deltas,
flooding from the rivers (Cruz et al., 2007). Sea-level rise will extend areas of salination of
groundwater and estuaries, resulting in a decrease in coastal freshwater availability for
humans and ecosystems (Kundzewicz et al., 2007). Small islands, whether located in the
tropics or higher latitudes, are especially vulnerable to the effects of climate change, sea-level
rise and extreme events (Mimura et al. 2007). Deterioration in coastal conditions, for
example through erosion of beaches and coral bleaching, is expected to affect local resources,
e.g., fisheries and reduce the value of these destinations for tourism (Mimura et al., 2007).

In the Polar Regions, the main projected biophysical effects are reductions in thickness and
extent of glaciers and ice sheets and changes in natural ecosystems with detrimental effects on
many organisms including migratory birds, mammals and higher predators (Anisimov et al.,
2007).
 32

Vulnerable Ecosystems

The resilience of many ecosystems is likely to be exceeded this century by an unprecedented

combination of climate change, associated disturbances (e.g., flooding, drought, wildfire,
insects, ocean acidification) and other global change drivers (e.g., land use change, pollution,
overexploitation of resources) (Fischlin et al., 2007). Examples of delicate ecosystems that are
already being affected include the tundra, boreal forests, mountains and the Mediterranean
region. Approximately 20-30 percent of plant and animal species assessed so far are likely to
be at increased risk of extinction if increases in global average temperature exceed 1.5-2.5°C
(Fischlin et al., 2006).

Vulnerable Populations

The most vulnerable people will suffer earliest and most from climate change. Climate change
therefore should be addressed in a way that is fair and just, cognizant of the needs and risks
faced by the vulnerable groups and adherent to the human rights principles of non-
discrimination and equality. Any sustainable solution to climate change must take into
account its human impact and the needs of all communities in a holistic manner.

Humans are exposed to climate change directly through changing weather patterns and
indirectly through changes in water, air, food quality and quantity, ecosystems, agriculture
and economies. Climate change during 1970-2000 is estimated to have caused at least 160,000
deaths and 5 million disability-adjusted life years from only four factors: malaria, diarrhoea,
malnutrition and flooding (McMichael, 2004). Projected climate-change related exposures are
likely to affect the health status of millions of people, particularly those with low adaptive
capacity, through:

• increased deaths, disease and injury due to heat-waves, floods, storms, fires and
droughts;
• increases in malnutrition and consequent disorders, with implications for child growth
and development;
• increased frequency of cardio-respiratory diseases due to higher concentrations of
ground-level ozone related to climate change;
• altered spatial distribution of some infectious-disease vectors; and
• increased burden of diarrhoeal diseases, which will affect nutrient absorption and food
utilization.

Due to the very large number of people that may be affected, malnutrition, linked to extreme
climatic events, may be one of the most important consequences of climate change
Confalonieri et al., 2007).

Populations at greater risk from food insecurity, including smallholder and subsistence
farmers, pastoralists, traditional societies, indigenous people, coastal populations and artisanal
fisherfolk, will suffer complex, localized impacts of climate change. These groups, whose
adaptive capacity is constrained, will experience the negative effects on yields of low-latitude
crops, combined with a high vulnerability to extreme events. Indigenous people who rely on
their natural resources for the provision of traditional foods will be particularly affected.
Box 4.1 presents an example of the impacts of climate change in the ecosystems and the
traditional food systems of indigenous peoples of the circumpolar regions.
 33

In the longer term, there will be additional negative impacts of other climate-related processes
such as snow-pack decrease, sea-level rise and spread in prevalence of human diseases
affecting agricultural labour supply such as malaria, tick-borne diseases, cholera and other
diarrhoeal diseases.

Gender Vulnerability

Men and women are affected differently in all phases of climate-related extreme weather
events, from exposure to risk and risk perception; to preparedness behaviour, warning
communication and response; physical, psychological, social and economic impacts;
emergency response; and ultimately to recovery and reconstruction (Fothergill, 1998). Many
of the world’s poorest people are women living in rural areas in developing countries who are
currently dependent on subsistence agriculture to feed their families and who are
disproportionately affected by the lack of modern fuels and power sources for farming,
household maintenance and productive enterprises (Lambrou and Piana, 2006). Climate
change could add to water and food insecurity and increase these women’s work levels,
particularly in Africa and Asia (Parikh and Denton, 2002).

Box 4.1: Impacts on traditional food systems of indigenous peoples in polar regions

Indigenous peoples rely on their natural resources for the provision of traditional foods, fuel
and medicines and will be particularly affected by the impacts of climate change on
ecosystems and the environment. Traditional food systems are also threatened because of
increasing loss of indigenous peoples’ traditional territories due to climate change mitigation
measures such as carbon sinks and renewable energy projects.

Indigenous peoples are often the most marginalized and disadvantaged groups in terms of
receiving the resources needed for wellbeing, including food and health care. Extreme poverty
and food insecurity often characterizes these groups, who rely on the intact environment for
harvesting their traditional foods and medicines (Kuhnlein, 2003). The traditional food
systems of indigenous peoples contain a wealth of micronutrients.

The approximately 10 percent of the circumpolar population that is indigenous is particularly

vulnerable to climate change (ACIA, 2005). The traditional diet of populations in circumpolar
regions is likely to be negatively affected by changes in animal migrations and distribution
and human access to them (Confalonieri, 2007). Persistent contaminants are present in Inuit
Arctic traditional food species in areas very distant from industrial emissions, with dietary
exposure of some contaminants exceeding federal tolerance levels in Canada (Kuhnlein et al.,
2002). Further, increasing temperatures may indirectly influence human exposure to
environmental contaminants in some foods (e.g. fish and marine mammal fats).

Impacts on the Four Food Security Dimensions: Availability, Stability, Access and
Utilization

Climate change will affect all four dimensions of food security, namely food availability
(i.e., production and trade), stability of food supplies, access to food and food utilization
(FAO, 2003a). Food security depends not only on climate and socio-economic impacts, but
also and crucially so, on changes to trade flows, stocks and food-aid policy.
 34

Climate Change Impacts on Food Availability – Production and Trade

Pasture, Crops, Livestock Production

Agricultural output in developing countries is expected to decline by 10-20 percent by 2080,

depending on whether there are beneficial effects from CO2 fertilization. Technological
change over the next decade is unlikely to be sufficient, which underlines the need for the
wider utilization of effective and efficient existing technologies to alleviate the losses or to
increase yields enough to keep pace with growing food demand (Cline, 2007).

Climate change and variability impacts on food production (food availability) will be mixed
and vary regionally (FAO, 2003b, 2005b). Recurrent severe droughts in several countries in
Africa over the past three decades illustrate the potentially large effects of local and/or
regional climate variability on crops and livestock. A reduction in the production potential of
tropical developing countries, many of which have poor land and water resources and are
already faced with serious food insecurity, may add to the burden of these countries (Hitz and
Smith, 2004; Fischer et al., 2005; Parry et al., 2005).

Globally, the potential for food production is projected to increase with increases in local
average temperature over a range of 1-3°C, but above this it is projected to decrease.

Evidence from models from the 4th IPCC assessment suggests that moderate local increases in
temperature (1-3ºC), along with associated CO2 increase and rainfall changes, can have small
beneficial impacts on major rain-fed crops (maize, wheat, rice) and pastures in mid- to high-
latitude regions. In seasonally dry and tropical regions, even slight warming (1-2ºC) reduces
yield. Further warming (above a range of 1-3ºC) has increasingly negative impacts on global
food production in all regions.

Fisheries and Aquaculture Production

Increases in temperature are leading to changes in the distribution of marine fisheries and
community interactions (Parry et al., 2005). Brackish water species from delicate estuarine
eco-systems are particularly sensitive to temperature and salinity changes. Water temperature
increases lead to mortalities of crustacean and shrimp postlarvae (Tirado et al., 1993).
Regional changes in the distribution and productivity of particular fish species are expected
due to continued warming and local extinctions will occur at the edges of ranges, particularly
in freshwater and diadromous species such as salmon or sturgeon (Easterling et al., 2007).
Increases in atmospheric CO2 are raising ocean acidity (The Royal Society, 2005), which
affects calcification processes, coral reefs’ bleaching and the balance of the food web.

In relation to aquaculture production, increases in seawater temperature have been associated

with increased densities of Vibrio spp in shellfish and algal blooms in the aquaculture
industry, which are major causes of diarrhoea and food toxicity, respectively.

Global warming will confound the impact of natural variation on fishing activity and
complicate management. The sustainability of the fishing industries of many countries will
depend on increasing flexibility in bilateral and multilateral fishing agreements, coupled with
international stock assessments and management plans (Easterling et al., 2007).
 35

Trade of Crops, Livestock and Forestry

Trade in cereal crops, livestock and forestry products is projected to increase in response to
climate change, with increased dependence on food imports for most developing countries.
Exports of temperate zone food products to tropical countries will rise, while the reverse may
take place in forestry in the short-term (Easterling et al., 2007).

Climate Change Impacts on Food Availability, Stability, and Access

Changes in the patterns of extreme weather events will affect the stability of, as well as access
to, food supplies. Recent modelling studies suggest that increasing frequency of crop loss due
to these extreme events may overcome positive effects of moderate temperature increases
(Easterling et al., 2007). For forests, elevated risks of fires, insect outbreaks, wind damage
and other forest-disturbance events are projected. This change in frequency of extreme events
is likely to disproportionately impact smallholder farmers and artisanal fishers (Easterling et
al., 2007). Food insecurity and loss of livelihood would be further exacerbated by the loss of
cultivated land and nursery areas for fisheries through inundation and coastal erosion in low-
lying areas (FAO, 2003c).

Climate-related animal and plant pests and diseases and alien invasive aquatic species will
reduce the availability of quantities of food, influence the stability of the production system
and reduce food access through reduction of income from animal production, reduction of
yields of food and cash crops, lowered forest productivity and changes in aquatic populations,
as well as increased costs of control (FAO, 2008c).

Food prices may have an impact on food access of households, by limiting the acquisition of
appropriate foods for a nutritious diet and the purchasing power of food aid programmes.
Climate variability and change will likely contribute substantially to rising food prices (Cline,
2007; von Braun, 2007a). Temperature increases of more than 3oC may cause prices to
increase by up to 40 percent (Easterling et al., 2007).

Climate Change Impacts on Health and Food Utilization

Climate change may affect health outcomes and food utilization with additional malnutrition
consequences. For example, populations in water-scarce regions are likely to face decreased
water availability, particularly in the sub-tropics, with implications for the consumption of
safe food and drinking water. Flooding and increased precipitation are likely to contribute to
increased incidence of infectious and diarrhoeal diseases. The risk of emerging zoonosis may
increase due to changes in the survival of pathogens in the environment, changes in migration
pathways, carriers and vectors and changes in the natural ecosystems. The increased livestock
population in new areas with concomitant disease threats need to be addressed.

Vector-borne Diseases

Climate change plays an important role in the spatial and temporal distribution of vector-
borne diseases such as malaria. Climate change will have mixed effects on malaria
distribution. In the long term, in some areas the geographical range will contract due to the
lack of the necessary humidity and water for mosquito breeding.5 Elsewhere, the geographical

5 The northern limit of Plasmodium falciparum malaria in Africa is the Sahel, where rainfall is an important
limiting factor in disease transmission
 36

range of malaria will expand and the transmission season may be changed. It is estimated that
in Africa climate change will increase the number of person-months of exposure to malaria by
16-28 percent by 2100 (McMichael, 2004). Malaria affects food availability, access and
utilization of humans as well as of livestock.

Diarrhoeal Diseases

Most of the projected climate-related disease burden will result from increases in diarrhoeal
diseases and malnutrition. Diarrhoeal diseases particularly affect nutrient absorption and food
utilization. Associations between monthly temperature and diarrhoeal episodes and between
extreme rainfall events and monthly reports of outbreaks of water-borne disease have been
reported worldwide. Higher temperatures have been associated with increased episodes of
diarrhoeal disease in adults and children in Peru, where diarrhoeal reports increased 8 percent
for each degree of temperature increase (Checkley et al., 2000). Diarrhoeal food-borne
diseases such as Salmonellosis have been found to increase by 12 percent for each degree
increase in weekly or monthly temperature above 6ºC ambient temperature (Kovats et al.,
2004). Increased ocean temperatures are leading to increased densities of Vibrio spp.
(diarrhoeal agent) in shellfish (Zimmerman et al., 2007).

Climate change is projected to increase the burden of diarrhoeal diseases in low-income

regions by approximately 2-5 percent in 2020 and will impact low-income populations
already experiencing a large burden of disease (Campbell-Lendrum et al., 2003; McMichael,
2004). Countries with an annual GDP per capita of US$6,000 or more are assumed to have no
additional risk of diarrhoea.

Food Contamination

Climate change and variability influences food contamination with non-infectious hazards
such as biotoxins (e.g. mycotoxins or marine toxins) and chemicals, which may have an
impact on food and animal feed stability, access and/or utilization.

Chemical food contamination may lead to recommendations to limit consumption of locally

produced food in order to protect human health, thus reducing the dietary options of rural
communities and indigenous peoples and compromising their traditional diets. For example,
high contamination with dioxins associated with severe droughts in Central Asia have led to
recommendations that poor rural communities limit the consumption of locally produced
foods (Mountean et al., 2003). Higher ocean temperatures are leading to increased levels of
methyl mercury in fish and marine mammals, prompting recommendations to limit the intake
of fish and marine fats by pregnant women and indigenous people in the polar regions
(Kuhnlein et al., 2002; Booth and Zeller, 2005).

Global Climate Change Impacts on Food and Water Security, Hunger and Nutrition

The impacts of global climate change on food and water security and safety and on nutrition
are a great concern, particularly for developing countries. These changes, in sum, will have a
profound impact on the fulfilment of human rights, in particular on the right to water which is
closely linked to the right to food. By 2080, it is estimated that 1.1 to 3.2 billion people will be
experiencing water scarcity (depending on the Special Report on Emissions Scenarios of
 37

socio-economic development); 200 to 600 million, hunger; and 2 to 7 million more per year,
coastal flooding (Yohe et al., 2007).

There are many pathways through which global climate change and variability may impact
food and water security and safety and nutrition, including:

• increased frequency of extreme climatic events;

• sea-level rise and flooding of coastal lands, leading to salination and/or contamination
of water and agricultural lands;
• impacts of temperature increase and water scarcity on plant or animal physiology;
• beneficial effects to crop production through CO2 “fertilization;”
• influence on plant diseases and pest species and livestock diseases including zoonosis,
leading to crop and animal losses;
• damage to forestry, livestock, fisheries and aquaculture; and
• impaired sustainability: socio-economic, political/armed conflict and demographic
impacts.

Multiple socio-economic and environmental stresses, such as globalization, limited

availability of water resources, loss of biodiversity, the HIV/AIDS pandemic and social and
armed conflicts, are further increasing sensitivity to climate change and reducing resilience in
the agricultural sector (FAO, 2003a). For example, health stressors such as HIV/AIDS,
particularly in Southern Africa, are impacting agriculture through mass deaths of prime-age
adults, which divert labour resources to caring, erode household assets, disrupt
intergenerational transmission of agricultural knowledge and weaken the capacity of
agricultural service providers, reducing resilience of smallholder agriculture to climate
change.

Water Insecurity

Access to safe water remains an extremely important global health issue. More than 2 billion
people live in the dry regions of the world and suffer disproportionately from malnutrition,
infant mortality and diseases related to contaminated or insufficient water (WHO, 2005a).

The impacts of climate change on freshwater systems and their management are mainly due to
observed and projected increases in temperature, sea-level and precipitation variability.
Climate change is likely to exacerbate declining reliability of irrigation water supplies leading
to increased competition for water for industrial, household, agricultural and ecosystem uses.
In coastal areas, sea-level rise will extend areas of salination of groundwater, resulting in a
decrease in freshwater availability (Kundzewicz et al., 2007).

Water insecurity constitutes a serious constraint to sustainable development, particularly in

savannah regions which cover approximately 40 percent of the world’s land area (Rockstrom,
2003). Water scarcity may lead to multiple adverse health outcomes, including water-borne
diseases, exposure to chemicals, vector-borne diseases associated with water-storage systems
and malnutrition.
 38

Links to Malnutrition

Attribution of current and future climate-change-related malnutrition burdens is problematic

because the determinants of malnutrition are complex. Both acute and chronic nutritional
problems are associated with climate variability and change.

Research and information on the links between climate-change-related food and water
insecurity and malnutrition are necessary. There is also a need for methodologies to convert
estimated losses in regional yields into estimates of changes in numbers of malnourished
people. This has been recognized as one of the critical research needs by the 4th IPCC
assessment report.

Drought and water scarcity can lead to negative effects on nutrition through increased
infections, mortality and reduced food availability (in terms of both quantity and quality). In
Gujarat, India, during the 2000 drought, diets were found to be deficient in energy and several
vitamins. In this population, serious effects of drought on anthropometric indices may have
been prevented by public-health measures (Hari Kumar et al., 2005). The HIV/AIDS
epidemic may have further amplified the effect of drought on nutrition in countries such as
those in Southern Africa (Mason et al., 2005). On the other hand, malnutrition increases the
risk both of acquiring and of dying from an infectious disease. For example in Bangladesh
both the impacts of drought and lack of food are associated with an increased risk of mortality
from a diarrhoeal illness (Aziz et al., 1990).

Children in poor rural and urban slum areas are at high risk of diarrhoeal disease mortality and
morbidity. Childhood mortality due to diarrhoea in low-income countries, especially in sub-
Saharan Africa, remains high and child malnutrition is projected to persist in regions of low-
income countries. Children may survive the acute illness but may later die due to persistent
diarrhoea or malnutrition.

People at Risk of Hunger

Overall, climate change is projected to increase the number of people at risk of hunger (FAO,
2005a). For example, climate change is projected to increase the percentage of the Malian
population at risk of hunger from 34 percent to between 64 and 72 percent by the 2050s,
although this could be substantially reduced by the effective implementation of a range of
adaptive strategies (Butt et al., 2005).

The increase in the number of people at risk of hunger due to climate change must be viewed
within the overall large reductions due to socio-economic development. Compared to 820
million undernourished today, the IPCC Special Report on Emissions Scenarios (SRES)
scenarios of socio-economic development without climate change project a reduction to 100-
230 million (range is over A1, B1, B2 SRES scenarios6) undernourished by 2080 (or 770
million under the A2 SRES scenario) (Easterling et al., 2007).

IPCC SRES scenarios with climate change project 100-380 million (range includes with and
without CO2 effects and A1, B1, B2 SRES scenarios) undernourished by 2080 (740-1,300
million under A2). Climate and socio-economic changes combine to alter the regional

6 See Appendix 1 for an explanation of these IPCC scenarios.

 39

distribution of hunger, with large negative effects on Sub-Saharan Africa (Easterling et al.,
2007).

Climate Change and Sustainable Development

Sustainable development can reduce vulnerability to climate change by enhancing adaptive

capacity and increasing resilience. On the other hand, climate change can slow the pace of
progress towards sustainable development, either directly through increased exposure to
adverse impact or indirectly through erosion of the capacity to adapt (Yohe et. al., 2007).
Degradation of ecosystem services poses a barrier to achieving sustainable development and
to meeting the MDGs (Millennium Ecosystem Assessment, 2005).

In order to meet the MDGs, it would be necessary to balance competition for land for
agriculture, livestock, forestry and biofuels production. The expansion of livestock and
biofuel sectors has a major role in deforestation and land degradation and thereby contributes
to climate change.

Livestock’s Long Shadow

The Livestock, Environment and Development (LEAD) Initiative has identified the livestock
sector as a major player in climate change, responsible for 18 percent of GHG emissions
measured in CO2 equivalent. The livestock sector is a key player in increasing water use,
accounting for over 8 percent of global human water use, mostly for the irrigation of
feedcrops. It is probably the largest sectoral source of water pollution, contributing to
eutrophication, human health problems, emergence of antibiotic resistance and many other
problems. This sector may be the leading player in the reduction of biodiversity, since it is the
major driver of deforestation, as well as one of the leading drivers of land degradation,
pollution, climate change, sedimentation of coastal areas and facilitation of invasions by alien
species (LEAD, 2006).

There are measures that can help reduce the overall impact of livestock production. Among
them, sustainable intensification can reduce effects on deforestation, pasture degradation,
wildlife biodiversity and resource use. Intensification should be addressed through
technologies and policies that can enhance the overall sustainability of livestock production
(Delgado et al., 1999). Emissions can be reduced through improved diets to reduce
fermentation in ruminants’ digestive systems and improved manure and biogas management.
Water pollution and land degradation can be tackled through better irrigation systems, better
management of waste and improved diets that increase nutrient absorption.

The LEAD Initiative emphasizes the need to approach these problems using economic tools
such as removing damaging subsidies and establishing correct pricing of water, grazing and
waste, as well as payment for environmental services. LEAD proposes using the Kyoto
Protocol’s Clean Development Mechanism to finance the spread of biogas and silvopastoral
(mixed herding and tree cultivation) initiatives involving afforestation and reforestation. In
order to properly address all these issues, there is a need to develop suitable institutional and
policy frameworks at the local, national and international levels (LEAD, 2006).
 40

Social Impacts of Climate Change

Implications for Rural and Urban Populations

Climate change could adversely impact rural populations’ food security through reduced crop
yields, geographical shifts in optimum crop-growing conditions, reduced water resources for
agriculture and human consumption, loss of cropping land and yields through floods, droughts
and sea-level rise and increased rates of adverse health outcomes, including diarrhoeal
diseases and malnutrition (Confalonieri et al., 2007).

Smallholder and subsistence farming households in the dryland tropics are particularly
vulnerable to increasing frequency and severity of droughts. These may lead to a higher
likelihood of crop failure; increased diseases and mortality of livestock, indebtedness, out-
migration and dependency on food relief; and impacts on human development indicators such
as health, nutrition and education (Easterling et al., 2007).

Drought and the consequent loss of livelihoods is also a major trigger for population
movements, particularly rural to urban migration. Population displacement to urban slums can
lead to increases in diarrhoeal and other communicable diseases and poor nutritional status
resulting from overcrowding and a lack of safe water, food and shelter. Recently, rural to
urban migration has been implicated as a driver of HIV transmission and unplanned
urbanization has contributed to the spread of Plasmodium vivax malaria and dengue fever in
urban slums (Confalonieri et al., 2007).

Environmental Refugees and Social Conflict

The UN projects that there will be up to 50 million people escaping the effects of
environmental deterioration by 2020. The spectrum of associated health risks includes food
and water emergencies and infectious, nutritional and mental diseases. By increasing the
scarcity of basic food and water resources, environmental degradation increases the likelihood
of violent conflict (LEAD, 2006). The Southern African Millennium Ecosystem Assessment
suggests a bidirectional causal link between ecological stress and social conflict: conflict may
cause environmental degradation but the latter may also trigger conflict (Biggs et al., 2004).
Conflict could emerge as a result of climate change environmentally induced migration.
Political refugees from violent regions are more likely to become involved in militant
activities. (Gleditsch et al., 2007).

In sub-Saharan Africa, where cropping and grazing are often practised by different ethnic
groups, the advance of crops into pasture land often results in conflict, as shown by major
disturbances in the Senegal river basin between Mauritania and Senegal and in North-east
Kenya, between the Boran and the Somalis (Nori et al,. 2005). According to UNEP, the
conflict in Darfur has been driven in part by climate change and environmental degradation,
which threaten to trigger a succession of new wars across Africa (UNEP, 2007) (see Box 4.2).
 41

Adaptation and Mitigation Strategies

Adaptation Strategies

Adaptation strategies to climate change for food security could be autonomous or planned.
Autonomous adaptation is the ongoing implementation of existing knowledge and technology
in response to the changes in climate experienced. Planned adaptation is the increase in
adaptive capacity by mobilizing institutions and policies to establish or strengthen conditions
favourable for effective adaptation and investment in new technologies and infrastructure.

Autonomous Adaptation

Many of the autonomous adaptation options are extensions or intensifications of existing risk-
management or production-enhancement activities for cropping systems, livestock, forestry
and fisheries production (Easterling et al., 2007).

While autonomous adaptations have the potential for limiting damage from climate changes,
there has been little evaluation of how effective and widely adopted these adaptations may
actually be, given the complex nature of agriculture decision-making, the diversity of
responses within regions and the possible interactions between different adaptation options
and economic, institutional, human and environmental health and cultural barriers to change
among others (Easterling et al., 2007).

Box 4.2: Climate Change and Conflict in Sudan (UNEP 2007)

Environmental issues and competition over agricultural land use are important causative
factors in the instigation and perpetuation of conflict in Sudan. Resource-based conflicts
between traditional farmers and nomadic herders have been present in Sudan throughout
recorded history. The introduction of mechanized rain-fed agriculture systems that compete
for resources has been found to exacerbate and trigger conflict.

A UNEP post-conflict environmental assessment indicates that there is a very strong link
between land degradation, desertification and the conflict in Darfur. Tensions between
farmers and herders over disappearing pasture and evaporating water holes threaten to
reignite other long-standing conflicts within Sudan. The southern Nuba tribe, for example,
has warned it could re-start the war as Arab nomads, pushed southwards into their territory
by drought, are cutting down trees to feed their camels.

The assessment reveals that in the past 30 years, rainfall has dropped by 16 percent in
southern Darfur and 34 percent in northern Darfur; the desert climate in Sudan has
advanced southwards by 100 km over 40 years; deforestation has been accelerated while
underground aquifers are being drained; and yields of the local staple, sorghum, could drop
by 70 percent by 2060.

At the same time the Darfur conflict has exacerbated Sudan’s environmental degradation,
forcing more than two million people into refugee camps. Currently, Sudan has the world’s
largest population of displaced persons, with over five million internally displaced persons
and international refugees. This massive population displacement has led to human rights
abuses, conflicts over resources, food insecurity and a high prevalence of severe
malnutrition.
 42

Adaptation strategies to climate change for food security and nutrition are particularly
complex and often have limitations. For example, shifts to drought-resistant and less labour-
intensive crops such as cassava or sweet potatoes in African countries that are severely
affected by droughts or HIV/AIDS should take into consideration that these crops could be
less nutritious. Efforts to breed micronutrient-dense staple crops should be integrated with
climate change adaptations such as breeding drought- and water-tolerant varieties. Similarly,
more heat-tolerant native livestock breeds often have lower levels of productivity.

Planned Adaptation

Autonomous adaptations may not be fully adequate for coping with climate change, thus
necessitating deliberate, planned measures. Many options for policy-based adaptation to
climate change have been identified for agriculture, forests and fisheries. These can either
involve adaptation activities such as developing infrastructure or building the capacity to
adapt in the broader user community and institutions, often by changing the decision-making
environment under which management-level, autonomous adaptation activities occur. Policy-
based adaptations to climate change will interact with, depend on, or perhaps even be just a
subset of policies on natural resource management, human and animal health, governance and
human rights, among many others (Yohe et al., 2007).

Mitigation Strategies

Agriculture, land use and waste account for some 35 percent of the GHG emissions that
contribute to climate change (Stern, 2006). At the same time, improved agricultural practices
can make a significant contribution at low cost to increasing soil carbon sinks and to GHG
emission reductions (Metz et al., 2007). Key mitigation strategies in the agriculture sector
include: improved crop and grazing land management to increase soil carbon sequestration,
restoration of degraded lands, improved rice cultivation and livestock and manure
management to reduce methane emissions and improved nitrogen fertilizer management to
reduce nitrous oxide emissions in some agricultural systems (Metz et al., 2007). 7

Improved management of tropical land offers a promising agriculture-based mitigation

strategy. Reduced deforestation, more sustainable forest management and adoption of
agroforestry (integration of tree and crop cultivation) have particularly good potential to
capture significant amounts of carbon and other GHGs and, at the same time, to contribute to
poverty reduction (CGIAR, 2008). Cultivation of productive forage grasses that sequester
carbon can be combined with tree planting in silvopastoral systems of cultivation.
Agroforestry not only captures carbon and helps maintain soil health through nitrogen fixation
and use of cuttings as fertilizer and mulch, but it also provides fodder, fruit, timber, fuel,
medicines and resins. This can help improve nutrition in cultivator households through higher
incomes and by directly adding diversity to diets (CGIAR, 2008).

Agricultural research can help create new technologies that will facilitate agriculture-based
mitigation strategies. For example, research is underway at CGIAR-supported international
agricultural research centres to breed new, drought-tolerant varieties of sorghum that will
provide food, feed and fuel all from a single plant, without current tradeoffs among uses.

7 Ordinarily, nitrogen fertilizer tends to break down into nitrous oxide, a greenhouse gas that also contributes to ozone

depletion and nitrate, which aids crop growth, but also contaminates streams and groundwater, thereby threatening health and
nutrition.
 43

In the waste management sector, existing technologies for mitigation are available that can
contribute to improved public health as an input into good nutrition. These include waste
incineration with energy recovery, composting of organic waste, controlled waste water
treatment and recycling to minimize waste (Metz et al., 2007).
 EDITORIAL
DELHI

14 THE HINDU WEDNESDAY, SEPTEMBER 14, 2011

Land rush and sustainable food security

M.S. Swaminathan
Managing our soil and water resources land for long-term advantage rather than

O
n the basis of a proposal I had
made three years ago, the Food
WEDNESDAY, SEPTEMBER 14, 2011
and Agriculture Organisation
(FAO) launched a Global Soil
Partnership for Food Security and Climate
Lessons from
Change Adaptation and Mitigation at a mul-
ti-stakeholder conference, held in Rome
from September 7 to 9. Even with all the
short-term expediency.
in a sustainable and equitable manner needs International interest in the conservation
and management of soil resources for food
a new political vision, which can be security and climate change adaptation and
mitigation has grown in recent years, be-
cause of increasing diversion of land for non-
expressed through the proposed Land
farm uses. In May 2011, at a conference at the
Institute for Advanced Sustainability Stud-
Acquisition Bill and the recently formed ies e.V., Potsdam, Germany, a Global Soil

Paramakudi
advances made in capture and culture fisher- Forum (GSF) was formed for enhancing in-
ies, nearly 90 per cent of food requirements
will have to come from the soil. Land is
Global Soil Partnership. vestment in soil resources assessment and
management. The forum, with financial sup-
becoming a diminishing resource for agri- and protecting land rights, in particular of guidelines on the responsible governance of port from Germany and a few other donors,

I
n any society with a history of caste oppression
and conflict, the slightest provocation can some-
times set off a sequence of deadly attacks and
reprisals. Law enforcement officers cannot pre-
vent all acts of provocation, but what they can do is to
anticipate and contain the resultant social tensions
before they explode. Failure to do this at Paramakudi in
Tamil Nadu proved tragic, with the protest by support-
ers of a Dalit party turning violent and the police
opening fire and killing six persons. When a remark
scribbled on a wall about Pasumpon Muthuramalinga
Thevar, who is revered as a reformer and saint by the
intermediate caste grouping of Thevars, led to the
murder of a Dalit schoolboy, it was clear there was
going to be trouble. John Pandian, the leader of the
Tamizhaga Makkal Munnetra Kazhagam, was under-
standably stopped from entering Paramakudi, but the
police were unprepared for the consequences of their
action. Opening fire reflexively on an angry group of
people armed with nothing more than stones and crude
petrol bombs was condemnable. Top police officers will
have a lot to answer for before the Inquiry Commission
constituted by the State government to inquire into the
firing and related incidents.
For decades, certain rural areas in southern Tamil
Nadu have been the battleground for ‘caste clashes’ in
which Dalits have been cruelly targeted by elements
within the intermediate caste groupings. Dalits have
certainly been at the receiving end of caste oppression
— and have had to struggle and sacrifice to win rights to
access public spaces, participate in temple rituals, and
be free from humiliating casteist practices, which have
survived from the feudal era notwithstanding Article 17
of the Constitution outlawing untouchability in all
forms. With some heartening exceptions, the police
and public officials have been far from even-handed in
handling these grievances and demands. Thevars, sec-
tions of whom are as economically deprived as Dalits,
carry their own resentments. From the time of the
Mudukulathur riots in 1957, the triggers of violence
have varied but the underlying reason has remained
the same — entrenched caste oppression and the revolt
against it, particularly by Dalit youth who are becoming
increasingly organised by political groups. After a se-
ries of clashes in the 1990s, there was a lull for about a
decade. The key lesson from the Paramakudi tragedy is
that it was wholly avoidable. There would have been no
loss of life had the early warning signals been heeded
and well-thought-out and proportionate action been
taken by the administration. The law enforcers need to
be re-educated to change their ways of handling public
agitations.
culture, in spite of a growing understanding
that the future of food security will depend
upon the sustainable management of land
resources as well as the conservation of
prime farmland for agriculture. In its report
submitted in 2006, the National Commis-
sion on Farmers has emphasised the need
for replacing the 1894 Land Acquisition Law
with a 21st century legislation that safe-
guards the interests of farmers and farming.
Union Minister for Rural Development, and
Drinking Water and Sanitation Jairam Ra-
mesh is to be complimented for introducing
in Parliament a National Land Acquisition
and Rehabilitation and Resettlement Bill
2011, which pays attention not only to acqui-
sition but also to the rehabilitation and re-
settlement of affected families.
A high-level panel of experts set up under
my chairmanship in 2010 by the U.N. Com-
mittee on Food Security (CFS) has recently
submitted to the CFS a report on Land Ten-
ure and International Investments in Agri-
culture. It analyses the potential impact of
acquisitions, particularly in Africa, on food
security. It has been estimated that 50 mil-
lion to 80 million hectares of farmland in
developing countries has been the subject of
negotiations by international investors in
recent years, two-thirds of them in sub-Sah-
aran Africa, widely recognised as a “hot spot”
for endemic hunger. We found little evi-
dence that such large-scale acquisitions have
helped to provide food and jobs to the local
population. More than three quarters of the
deals are yet to demonstrate improvements
in agricultural output. The panel identified
several steps that governments should take
towards more effective and equitable land
tenure systems, starting with creating more
transparent systems for registering, tracking
CARTOONSCAPE
women, tribal families and other vulnerable
groups who depend on common property
resources for the security of their liveli-
hoods. Satellite and aerial imagery used in
biophysical surveys is blind to the rights and
institutions that govern how land is actually
used on the ground. According to the World
Bank, the “land rush” is not likely to slow. As
a result, the landless labour population will
grow, leading to greater unrest in the rural
areas of developing countries.
The loss of land for food security has to be
measured not only in quantitative terms but
also in respect of land use. According to the
U.S. Department of Agriculture, American
farmers will, for the first time, harvest dur-
ing 2011 more maize for ethanol production
than for food or feed. In Europe, about 50 per
cent of rapeseed is likely to be used for bio-
fuel production. The plant-animal-man food
chain (particularly beef and poultry prod-
ucts) will need several times more land for
producing a calorie of meat, as compared to a
calorie of cereal or vegetable.
The sudden escalation in the price of rice
and wheat observed in 2008 was largely due
to a steep increase in the price of fossil fuels,
leading to a rise in input costs. The growing
diversion of farmland for fuel production in
industrialised countries, increasing con-
sumption of meat on the part of the affluent,
and loss of land to roads, houses and indus-
tries are likely to lead to acute food scarcity,
severe price volatility and high food inflation
by the end of this decade. Experts have
pointed out that “the Arab Spring” had its
genesis in food inflation. This is why I have
been stressing that the future belongs to
nations with grains, and not guns.
On the basis of widespread consultations,
the FAO has recently prepared “voluntary
tenure of land, fisheries and forests in the
context of national food security.” These will
be considered at the next meeting of the CFS
in October 2011. There are elements here
worthy of consideration by the committee of
Parliament, which will go into the provisions
of the Land Bill. For example, one of them
states, “subject to their national law and
legislations and in accordance with national
context, States should expropriate only
where rights to land (including associated
buildings and other structures), fisheries or
forests are required for a public purpose. In
no way should expropriation or forced evic-
tion be made for private purposes.” The gui-
delines also recommend that “States should
ensure that women and girls have equal ten-
ure rights and access to land, fisheries and
forests, independent of their civil or marital
status.” Business models should involve
steps which will help to generate employ-
ment opportunities and strengthen the live-
lihood security of the poor. “Food security
first” should be the motto of the Land Bill.
Large-scale investment in biofuels is a risk
and must be avoided, unless there are sit-
uations, as for example in Brazil, where such
investments provide a win-win situation for
both food and energy security. Land tenure
is key to protecting land rights. The Central
and State governments should have acces-
sible systems for registering, tracking and
protecting land rights, including customary
rights and common property resources.
In 1981, member-states of the FAO adopt-
ed a world soil charter, containing a set of
principles for the optimum use of land re-
sources and for the improvement of their
productivity as well as conservation. The
charter called for a commitment on the part
of governments and land users to manage
was to help identify key technological op-
tions to enhance and sustain soil-based eco-
system services, to safeguard food security in
the long-term. To emphasise the need to
conserve soil biodiversity, the European
Union has prepared a comprehensive Eu-
ropean soil biodiversity atlas.
Over 15 years ago, a Global Water Part-
nership (GWP) was formed to stimulate at-
tention and action at the national, regional
and global levels on sustainable water secu-
rity. It was conferred the status of an in-
ternational organisation by the government
of Sweden in 2002. India is a partner. Land
use decisions are also water use decisions
and hence the organisation of a GSP to work
closely with the GWP is timely. The GSP will
specifically address soil degradation, conser-
vation of soil biodiversity, gender and social
equity, climate change and soil health man-
agement for an evergreen revolution in agri-
culture. It will provide multi-disciplinary
and multi-institutional platforms for mobi-
lising the power of partnership in managing
threats to food security arising from climate
change and “land rush.”
Soil anaemia also breeds human anaemia.
Micronutrient deficiency in the soil results
in micronutrient malnutrition in people,
since crops grown on such soils tend to be
deficient in the nutrients needed to fight
hidden hunger. With the addition of the GSP
to the GWP, and with the likely adoption of
the guidelines on the Responsible Govern-
ance of Tenure of Land and other Natural
Resources, we have the global instruments
which can assist nations to safeguard and
strengthen the ecological foundations of
sustainable agriculture and for overcoming
endemic, hidden and transient hunger. What
is needed is the conversion of global instru-
ments and guidelines into socially sustain-
able and equitable national regulations, on
the lines recommended in the experts report
on land tenure. The Land Bill has a much
wider significance than just preventing land-
grab. The critical role soil plays in food secu-
rity and climate change adaptation and miti-
gation has to be widely understood.
Along with oceans, soils offer opportuni-
ties for storing carbon. For example, it is
estimated that global net primary produc-
tivity (NPP) may be about 120 Gt C/year.
Most of it is returned to the atmosphere
through plant and soil respiration. If 10 per
cent of NPP is retained in the terrestrial
biosphere like wetlands and mangrove eco-
systems, 12 Gt C/year can become a part of a
terrestrial carbon bank. Increasing soil ‘C’
pool by 1 t/c/ha/year in the root zone can
increase food production by 30-50 million
tonnes. Thus, soil carbon banks represent a
win-win situation for both food security and
climate change mitigation.
Managing our soil and water resources in a
sustainable and equitable manner needs a

Not
new political vision, which can be expressed
through the proposed Land Bill. The year
2012 marks the 20th anniversary of the Rio

Djoking
Earth Summit and the 40th anniversary of
the Stockholm Conference on the Human
Environment. This will be an appropriate
occasion to launch a soil and water security

T
he stunning feat of winning at least three of movement through education, social mobil-
the four Grand Slam titles in a calendar year isation through gram sabhas, and legislation
like the Land Bill.
has now been accomplished five times in eight
years; it was achieved only thrice in men’s (M.S. Swaminathan is Chairman, MSSRF,
tennis during the first 36 years of the Open Era. It was and Member of Parliament, Rajya Sabha.)
fitting that Novak Djokovic, who won his maiden U.S.
Open title on Monday to complete the deed, defeated,
in succession, the men who had preceded him: Roger
Federer (2004, 2006, and 2007) and Rafael Nadal
LETTERS TO THE EDITOR Letters emailed to letters@thehindu.co.in must carry the full
postal address and the full name or the name with initials.

(2010). Djokovic’s magical 2011, in which he has lost

only two of 66 matches, has seen him rise to the top of
Court’s directive needless disappointment in the
opposite camp. Both defy logic.
is farm based. Its members are the
backbone of the rural economy, in
Agriculture is a significant, and
incorruptible, vocation and
by adverse effects if governments
are stripped of the power to acquire
men’s tennis and set up a three-way dynamic. Federer, This is with reference to the report K.D. Viswanaathan, particular, and the national therefore, the sentimental land?
who was widely considered the best ever, has a clear “Trial court must hear riot charge Coimbatore economy, in general. It would be a attachment to land, particularly by P.R.V. Raja,
against Modi: Supreme Court” criminal waste to convert fertile the marginalised and tribals, Pandalam
problem against Nadal; and just as Nadal began to (Sept.13). Though it is being Considering the political agricultural land for industrial cannot be set aside. The
fashion a case for his being considered for the honour
instead of the Swiss master, along came Djokovic. In
construed as a breather for the
Gujarat Chief Minister, it is
developments, the theme of
“Cartoonscape” (Sept. 13) was
purposes without adequate
compensation to all concerned.
terminology that has words like
“minimum, acquisition,
N-plant incident
the course of six straight victories over Rafa this year, something that has brought interesting. One can only think of a Any decision on land has to be pro- rehabilitation, resettlement, In a developing country like India,
the Serb has found his way into the Spaniard’s head. neither him nor the victims quotation by Nigerian poet and farmer and pro-rural. urbanisation, transfer, public where there is a huge gap between
Sport evolves in iteration. But perhaps never before in closure. This political purgatory novelist Ben Okri: “The magician Comdt G.V. Mathew (retd), purpose and infrastructure power generation and demand, the
has far-reaching implications both and the politician have much in Thiruvananthapuram development” has enormous scope need for sustainable generation is
men’s tennis have three of the finest, most dominant for Mr. Modi and the BJP. While common: they both have to draw for interpretation by the essential. We thought nuclear
champions succeeded each other with such rapidity. Mr. Modi has tried unceasingly to our attention away from what they Law-making is serious business. implementers of legislation and energy was the answer to this, but
It’s now apparent that Djokovic has elevated his reinvent himself as being pro- are really doing.” The views of those who are going to offers potential for perpetual it is becoming increasingly clear
game to a level only a few in the history of the sport, development, one needs to wait K.M. Abdul Salim, be affected by any law should litigation. that there have to be stringent
Federer and Nadal among them, have reached. Asked and watch. Perhaps, it is advantage Edavanakad receive close attention and Yerram Raju, safety measures (“Explosion at
Modi but deuce for the BJP. consideration. The proposed Bill is Hyderabad French nuclear reprocessing
about his transformation from being a very good tennis Meghana A., There is no need for either the BJP not evictee-friendly, creating plant,” Sept. 13). India might now
player into one of the greats of the game, the 24-year- Newcastle upon Tyne, U.K. or the Congress to interpret the disharmony and unrest by denying The new draft Bill may prove to be have to rethink its decision in this
old said a change in attitude was key. He said he didn’t decision as being an endorsement fair compensation and depriving draconian for the agriculture area. We need to learn from
believe he could consistently defeat Federer and Nadal Although the court did not make of their respective stands. livelihoods. The government sector. Trends indicate that Germany’s decision not to extend
in the past. But the loss in last year’s U.S. Open final to any observations on the merits of Considering the slow pace at which should revert to the earlier draft urbanisation and industrialisation the life of its ageing reactors and to
Nadal and Serbia’s subsequent triumph in the Davis the case (Gujarat riot charges), the the wheels of the legal machinery bill. have led to a rapid shrinking of invest in other energy sources.
BJP has claimed victory and set in move in the country, it could well V.N. Mukundarajan, fertile land, with a significant fall in S.R. Patri,
Cup liberated him from the cares of failure. He also motion manoeuvres that appear to be a decade before the truth behind Thiruvananthapuram the production of foodgrains. Now Hyderabad
realised that a more aggressive style was needed to have been driven by an assumption what happened, post-Godhra, The article “A Bill that facilitates is the time to think about food
scale these heights. He made significant advancements that Mr. Modi will now unveil his
prime ministerial aspirations (“If
becomes known.
Arun Malankar,
displacement?” (Sept. 13) has
exposed the corporate leanings of
security. The government should
instead support the farming sector.
Forensic science
in technique and fitness; the early success confirmed
that the enhancements were working: the physical and exonerated, Modi likely to shift to Mumbai the Draft National Land Hari Mohan Sharma, Most medical forensic
mental aspects of his game drew from each other, national stage,” Sept.13). There If the Congress could redeem the Acquisition and Rehabilitation and New Delhi departments are without qualified
could be a churning within the goodwill of the Sikh community Resettlement Bill-2011. The staff and students are suffering
creating the perfect storm. He knew he could stay with party. after the gruesome 1984 riots, policies of the Indian state, since It is time now to mobilise public (“Why is forensic science stunted
Nadal in the long rally: not only could he cover court as J. Akshay, perhaps Mr. Modi can also do the 1991, have helped private and opinion and redefine the term and static in India?” Open Page,
well, he could also hit with similar intensity in the later Secunderabad same. What people are looking for corporate enterprises to flourish. “land acquisition.” At present, the Sept. 11). Often, even the faculty are
stages of the point. This protected him against the are sustained development and As a result, the tentacles of the processes are being managed by a unable to teach as staff are
pressure to do too much too soon — a pressure every One hopes that it will be the growth in a transparent manner. corporate sector have spread, set of politicians and bureaucrats required to go to court to deposit
foremost duty of the judiciary as a E. Krishnadas, affecting natural resources and who act, not often, in a fair manner. evidence. It is a vicious circle. It is
opponent of Nadal feels severely. Djokovic’s relatively whole to provide a just verdict Palakkad depriving the rural population of Truth, law and justice are time the government started
flat strokes, when compared with the topspin prevalent devoid of malice. its livelihood. In her article “The bypassed. The poor and small land- forensic science courses with an
on courts around the world, have furthered his cause: Kumar Varun,
New Delhi
Land Bill & acquisition Greater Common Good,”
Arundhati Roy has described the
holders are the sufferers. emphasis on specialised training. If
People are attached to land for a necessary, retired faculty can be
they are not so much a unique challenge as a different
one, but in a game of wafer-thin margins, change is The editorial “Do not dilute the horror of being displaced and variety of reasons, emotional asked to help. The advantage India
often a determinant. Djokovic might have first come to There is absolutely no scope in the Bill,” on the draft Land eliminated in the name of public included. The acquisition has in this subject are good
decision either for excessive Acquisition, Rehabilitation and purpose. The good has always been processes should be reduced to one resources and teaching material,
attention as a prankster and a joker, but he has shown rejoicing or for a shocked reaction. Resettlement Bill 2011 was apt for a few greater elite. of a simple sale and purchase, and we can be experts.
this year that his commitment to the business of win- But, surprisingly, there is baseless (Sept. 13). We are a country where C.V. Sukumaran, invariably negotiated between the Dr. N. Mohandas,
ning is dead serious. optimism in the BJP camp and 80 per cent of the rural population Palakkad seller and the purchaser. Will there Thanjavur
...ND-X

National Policy on Handling and Storage of
Foodgrains
5.45 Post harvest losses of foodgrains are a
serious problem. A 5 per cent loss would imply
loss of 10 million tonnes of foodgrains annually.
In order to reduce storage and transit losses at
farm and commercial level, and to modernise
the system of handling, storage and
transportation of foodgrains in India, a National
Policy on Handling and Storage of Foodgrains
has been announced this year.
The main thrust of the policy is :—
(i) declaration of foodgrains storage as
infrastructure,
97
(ii) encouragement of mechanical harvesting,
cleaning and drying at farm and market
level,
(iii) transportation of grains from farm to silos
by specially designed trucks,
(iv) construction of chain silos at receipt as
well as distribution points,
(v) encouraging private sector for building
storage capacities in which grains
procured by Government agencies would
be stored on payment of storage charges,
(vi) encouraging private sector for development
of infrastructure for the integrated bulk
handling, storage and transportation of
foodgrains.
 PUBLIC DISTRIBUTION SYSTEM (PDS)
GOVT OF INDIA VS NATIONAL SAMPLE SURVEYS (NSS)
UNIT 2004-05 2009-10
Distribution of Food Mn tonnes 41.5 48.9
via PDS Ration Shops
PDS Food Received by Mn tonnes 13.2 25.3
the population, NSS
% Leakage of Food via 68.2 48.3
PDS ration shops
Food Subsidy – Rs crores 24479 59621
Ministry of Finance
Food Subsidy Rs crores 8474 38875
according to NSS
PDS corruption Rs crores 16005 20746
estimate
Notes: NSS subsidy has been calculated by using NSS PDS price and NSS market price differen-
tial and multiplying it by NSS PDS consumption.
Source: RBI Handbook of Statistics, Ministry of Finance, budget statements, different years.
APMC Reforms Scenario in various States

Stage of Reforms State / UT

States/U.T. s where
reforms to APMC Act has
been done for Direct
Marketing; Contract
Farming and Markets in
Private/Coop Sectors
States/U. T. s where
reforms to APMC Act has
been done partially
States/UTs where there is
no APMC Act and hence not
requiring reforms
States/UTs where APMC Tamil Nadu
Act already provides for
the reforms
Andhra Pradesh, Arunachal Pradesh, Assam,
Goa, Gujarat, Himachal Pradesh, Jharkhand,
Karnataka, , Maharashtra, Mizoram, Nagaland,
Orissa, Rajasthan, Sikkim, Uttarakhand and
Tripura
a) Direct Marketing NCT of Delhi, MP.
Chhattisgarh,
b) Contract Farming
Haryana, Punjab
Chandigarh, Madhya
Pradesh, Chhattisgarh,
c) Private markets
Punjab and Chandigarh
*Bihar, Kerala, Manipur, A&N Islands, Dadra &
Nagar haveli, Daman & Diu, and Lakshadweep

States/UTs where Meghalaya, Haryana, J&K, West Bengal,

administrative action has Puducherry, NCT of Delhi and Uttar Pradesh
been initiated for the
reforms
*APMC ACT is repealed w.e.f 1.9.2006

Status of APMC Rules

a) States where Rules have been framed completely :
Andhra Pradesh, Rajasthan, Maharashtra, Orissa, Himachal Pradesh,
Karnataka
b) States where Rules have been framed partially, Mizoram only for
single point levy of market fee. Madhya Pradesh for Contract Farming
& special license for more than one market. Haryana for contract
farming.
c) As per latest reports available, Uttaranchal, Madhya Pradesh
and West Bengal have already exempted market fees on fruits
and vegetables. States of Bihar, Kerala, Manipur, A&N Islands,
Dadar Nagar haveli, Daman & Diu, Lakshadweep does not have
APMC Act, so there is no market fees. Tamil Nadu has fully
amended the APMC act and no market fee is levied on fruits
and vegetables.

17
 CHAPTER–10
Agricultural Marketing

10.1 The Government has been playing
an important role in developing Agriculture
Marketing System in the country. The
Marketing Division of Department of
Agriculture and Cooperation is concerned with
policy and programme aspects of agricultural
market and its implementation by the three
organizations under its administrative control,
namely, the Directorate of Marketing &
Inspection (DMI) Faridabad, Ch. Charan Singh
National Institute of Agricultural Marketing
(NIAM), Jaipur and Small Farmers Agri-
Business Consortium (SFAC), New Delhi.
10.2 Directorate of Marketing and
Inspection (DMI): The Directorate, set up
in   the   year   1935   as   an   Attached   Office   of   & Marking) Act, 1937 as amended in
the Ministry of Agriculture, is responsible for
bringing about an integrated development of
marketing of agricultural and allied produce
in the country with a view to safeguard
the interests of producer-sellers as well
as the consumers. It maintains a close
liaison between the Central and the State
Governments in implementation of agricultural
marketing policies in the country.
10.3 The Directorate is headed by the
Agricultural Marketing Adviser to the
Government of India (AMA). It has its Head
Office  at  Faridabad  (Haryana);;  Branch  Head   (iv) Strengthening of Agmark Grading
77
10
Agricultural
Marketing
Office  at  Nagpur  (Maharashtra);;  11  Regional  
Offices   located   at   Delhi,   Kolkata,   Mumbai,  
Bhopal, Chennai, Kochi, Hyderabad,
Guwahati, Lucknow, Jaipur and Chandigarh;
26   Sub-­Offices   spread   all   over   the   country,  
the Central Agmark Laboratory at Nagpur;
and 11 Regional Agmark Laboratories (RALs)
at Delhi, Kolkata, Mumbai, Rajkot, Bhopal,
Chennai, Kochi, Guntur, Kanpur, Jaipur and
Amritsar.
10.4 Major functions of DMI:
● Promotion of Standardization and
Grading of agricultural and allied produce
under the Agricultural Produce (Grading
1986.
● Reforms in Agricultural Marketing
and guide/persuade States/UTs for
Agricultural Marketing
development and management of
Agricultural Produce Markets.
● Implementation of Plan Schemes viz.
(i) Agricultural Marketing Research
and Information Network (MRIN); (ii)
Construction of Rural Godowns (RGS);
(iii) Development/ Strengthening of
Agricultural Marketing Infrastructure,
Grading & Standardization (AMIGS); and
 Facilities (SAGF). and 2-3 grades are prescribed for each
commodity. Grades help farmers/traders get
● Marketing Extension.
prices for agricultural commodities as per the
● Training of personnel in Agricultural quality produced by them and consumers get
Marketing. the desired quality.

10.5 Standardization and Grading: The 10.6 As on date, 105 Grading and Marking
Agricultural Produce (Grading & Marking) Rules, covering 213 commodities, have been
Act, 1937 provides for grading and marking notified  under  the  provisions  of  AP  (G&M)  Act,  
of agricultural and other produce. The Act 1937. These include fruits and vegetables,
empowers Central government to make Rules cereals, pulses, oilseeds, vegetable oils, ghee,
for   (a)   fixing   grade   designation   to   indicate   spices, honey, etc. Grading and marking of
quality   of   any   scheduled   article   (b)   defining   agricultural commodities is voluntary as per
quality indicated by every grade designation provisions   of   the   Act.   All   final   notifications  
and (c) specifying grade designation marks have been uploaded on the AGMARKNET
to represent particular grade designations. website www.agmarknet.nic.in  for  benefit  of  
Standards   notified   as   per   provisions   of   the   its   users.   Grading   &   Marking   Rules   notified  
Act are popularly called Agmark Standards. in 2012-13 (1st April, 2012 to 31st October,
These standards differentiate between quality 2012) are given as under:

S. No. Nature of Name of Commodity Gazette  Notification  

Notification Extraordinary Part II
Preliminary Saffron Grading and Marking Rules, 2012 (In GSR No. 417(E) dt. 05/06/2012
supersession of the Saffron Grading and Marking
Rules, 1973)
Preliminary Gum Karaya Grading and Marking Rules, 2012 GSR No. 604(E) dt. 01/08/2012
(In supersession of the Gum Karaya Grading and
Marking Rules, 1982)
Final Spices Grading and Marking Rules, 2012 (In GSR No. 711(E) dt. 24/09/2012
supersession of the Spices Grading and Marking
Rules, 2005)

10.7 The Central Agmark Laboratory at Governments on the agricultural markets,

Nagpur and Regional Agmark Laboratory
at Mumbai have been accredited with
National Accreditation Board for Testing
and Calibration Laboratories as per the
International Standard ISO 17025. The
Annual Report 2012-13
reduce the intermediaries in supply chain
and enhance the private sector investment
in post-harvest marketing infrastructure
development so as to reduce the wastages
and thereby strengthen the supply side and

number   of   ‘Certificate   of   Authorization’   also  to  benefit  the  cultivators  through  access
holders under Agmark for domestic trade
was 4679 and for export it was 282 at the
end of March, 2012.
10.8 Agriculture Marketing Reforms:
Agriculture Sector needs competitive and
well-functioning markets with alternative
choices to the farmers. Reforms in agricultural
marketing were initiated to ease out restrictive
and monopolistic approach of State
 
to global markets. Accordingly, the Ministry
of Agriculture framed a Model APMC Act in
consultation with States / UTs and circulated
the same during 2003 and its Rules in 2007
for making necessary amendments in the
present APMC laws of the States.
10.9 The States of Andhra Pradesh,
Arunachal Pradesh, Assam, Goa, Gujarat,
Himachal Pradesh, Jharkhand, Karnataka,

78
Maharashtra, Mizoram, Nagaland, Odisha, launched as Central Sector Scheme in
Rajasthan, Sikkim, Tripura and Uttarakhand March 2000 with the objective to collect
have amended their APMC Act on the lines and disseminate price, arrival and other
of the Model Act. Bihar has repealed their market  related  data  for  the  benefit  of  farmers  
APMC Act since September, 2006. Other and other market users. DMI has been
States are in the process of amending their implementing the scheme in collaboration with
APMC Acts. Nine States have amended their Agricultural Marketing Boards/ Directorates,
APMC Rules so far. APMCs and NIC. Wholesale prices and
arrivals information in respect of more than
10.10 An Empowered Committee was
300 commodities and 3000 varieties are
constituted in 2010 to persuade States
being disseminated through the portal on
to implement the reforms in Agricultural
daily basis. More than 3200 markets have
Marketing. The Committee has been
been linked to the Central AGMARKNET
deliberating with States and other
portal and more than 2000 markets reported
stakeholders including farmers on different
data during the month of October, 2012.
issues related to market reforms, investment
Movement of weekly prices and arrivals are
in development of post-harvest infrastructure,
also being disseminated using the portal.
alternative channels of marketing, barrier
In addition to price, several other market
free   national   markets,   financing   etc.   The  
related information like accepted standards /
Committee   submitted   its   first   report   on  
grades, labeling, sanitary and phyto-sanitary
8.9.2011. The ninth and concluding meeting
requirement, physical infrastructure of
of the Committee was held on 22.01.2013.
storage and warehousing, marketing laws,
10.11 Agricultural Produce Inter-State fees payable, etc. is being provided.
Trade and Commerce (Development and
10.14 Efforts are being made to prepare
Regulation), Bill, 2012 has been prepared
a National Atlas on agricultural markets
with   the   objective   to   promote   free   flow   and  
on a GIS platform that would indicate the
seamless inter-State transfer of agricultural
availability of entire marketing infrastructure
produce across the country; promotion,
in the country. The prices and arrivals
development and regulation of inter-state
information is being disseminated in eleven
trade and commerce of agricultural produce
languages. New innovations have been
for  the  benefit  of  farmers  and  consumers;;  and  
introduced for dissemination of market data
providing a common national level market for
through SMS at grass root level and around
agricultural produce to avoid multiple licensing
25 lakh farmers and other stakeholders are
requirements, remove internal trade barriers
receiving market price information on SMS or
and  bottlenecks.  The  Bill  is  being  finalized  in  
Voice mail mode. An arrangement has also
consultation with concerned Ministries and
Agricultural Marketing

been made for display of arrival and prices

State Governments.
data through Price Ticker Boards set up by
10.12 Implementation of Central Plan the Forward Markets Commission (FMC)
Schemes: All four major schemes of the at different wholesale Markets. The portal
Marketing Division mentioned earlier are also has linkages with various organizations
being implemented through DMI. Details of concerned with agricultural marketing.
these schemes are given in the succeeding Besides spot prices, the portal also provides
paragraphs. access to future prices, MSP, international
commodity prices, weather information,
10.13 Marketing Research and e-directory of markets, CODEX Standards,
Information Network (MRIN): This was etc. During the XI Plan, 590 nodes have
79
 been covered under the scheme against a
target of 360 nodes.
10.15 Construction of Rural Godowns
(RGS): For enabling the farmers to retain the
produce till the market prices are favourable
and also to enable them to meet their credit
requirements, ‘Grameen Bhandaran Yojana’
was launched as a Central Sector Scheme
from 01.04.2001 to create a network of rural
Godowns. The scheme is demand-driven and
not  location  specific  except  for  the  restriction   of 335.61 Lakh MT with a subsidy release of
that it would be outside the limits of Municipal
Corporation limits.
10.16 The project for construction of rural
godowns can be taken up by individuals,
farmers, Group of farmers/growers,
Partnership/   Proprietary   firms,   Non-­
Government Organizations (NGOs), Self Help
Groups (SHGs), Companies, Corporations,
Co-operatives, Local Bodies other than
Municipal Corporations, Federations,
Agricultural Produce Marketing Committees,
Marketing Boards and Agro Processing
Corporations in the entire country. Assistance
for renovation of rural godowns is, however,
restricted to godowns constructed by
cooperatives only. Under the scheme, credit
linked capital investment subsidy @ 25% is
given to all categories of farmers, Agriculture
graduates, Cooperatives and State/ Central
Warehousing Corporations. Individuals,
companies and corporations etc. are given
subsidy @ 15%. For projects located in NE
States/hilly areas and projects belonging to
Women farmers/SC/ST entrepreneurs and
Annual Report 2012-13
their self-help groups/Cooperatives subsidy
is 33.33%. The capital cost for the purpose of
subsidy is (i) Rs.3500/MT for godowns up to
1000 MT; (ii) Rs.3000/MT to those exceeding
1000 MT; (iii) Rs.4000/ MT for NE region/hilly
areas irrespective of godown capacity; and
(iv) Rs.750/MT for renovation of godowns
by cooperatives. The subsidy is restricted
to that admissible for capacity of 30,000 MT
(25,000 MT for NE States, Sikkim and hilly
80
areas) excluding the cases of cooperatives.
The ceiling on maximum subsidy, in case of
33.33% subsidy entitled category, is Rs.3.33
crore for NE States, Sikkim and hilly areas
and Rs.3.00 crore for others. In case of 25%
and 15% subsidy, it would be Rs.2.25 crore
and Rs.1.35 crore, respectively.
10.17 Since inception of the scheme, from
01/04/2001 and up to 30/09/2012, a total
number of 29,067 godowns having a capacity
Rs.921.13 crore have been sanctioned. The
target set for the XI Plan was to create a storage
capacity 90.00 lakh MT and achievement
was 150% higher at 135.01 Lakh MT. There
is an all-time high budget allocation with the
revised estimates at Rs.244.00 crore for
2012-13. During the last 11 years the average
annual capacity creation was 28.83 Lakh MT
whereas  the  achievement  during  the  first  six  
months of current year is 18.43 Lakh MT.
Hence, a record annual capacity creation is
anticipated for 2012-13.
10.18 Development/Strengthening of
Agricultural Marketing Infrastructure,
Grading & Standardization (AMIGS): The
Scheme, launched on 20.10.2004, provides for
credit linked investment subsidy for general or
commodity   specific   marketing   infrastructure  
for agricultural and allied commodities and
for strengthening and modernization of
existing agricultural markets - wholesale,
rural, periodic, or in tribal areas. The scheme
covers all agricultural and allied sectors
including  dairy,  poultry,  fishery,  livestock  and  
minor forest produce. It is reform linked and
is being implemented in those states/ UTs
which have amended their APMC Act to
permit (i) setting up of agricultural markets
in private and cooperative sectors; (ii) allow
direct marketing; and (iii) contract farming.
Presently, 28 States/U.Ts are permitted to
take  benefits  of  the  scheme.
10.19 The eligible beneficiaries   under   the  
Scheme are individuals, Group of farmers/
growers/ consumers, Partnership/ Proprietary
firms,   Non-­Government   Organizations   September, 2012.
(NGOs), Self Help Groups (SHGs),
Companies, Corporations, Autonomous
Bodies of the Government, Cooperatives,
Cooperative Marketing Federations, Local
Bodies, Agricultural Produce Market
Committees and Marketing Boards in the
entire country. Assistance under the scheme
is credit linked and subject to sanction of
the infrastructure project by the banks and
the subsidy is released through NABARD.
For cooperative sector projects, subsidy is
released through NCDC. However, for the
projects promoted by the State Agencies
(APMC etc.), the stipulation of credit linkage
and sanction of the infrastructure project by
Banks is optional and subsidy is released by
DMI directly for own funded projects of State
Agencies. The rates of subsidy for various
categories are as under:
(i) 33.33% with a ceiling of Rs.60 lakh per
project located in North Eastern States,
in the States of Uttarakhand, Himachal
Pradesh, Jammu & Kashmir, hilly and tribal
areas, and to entrepreneurs belonging to
Scheduled Caste (SC)/Scheduled Tribe
(ST) and their cooperatives.
(ii) 25% of the capital cost of the project with
a ceiling of Rs.50 lakh per project for all
other categories.
10.20 Since inception of the Scheme,
NABARD has sanctioned 7903 projects
and released a total subsidy of Rs.590.61
crore. In cooperative sector, NCDC has
sanctioned 1938 projects and subsidy of
Rs.42.68 crore has been released. Besides
this, 385 projects of different State Agencies
have been sanctioned by DMI and subsidy of
Rs.115.58 crore has been released. A sum
of Rs.190.00 crore (Budget Estimates) has
been sanctioned for the Scheme for the year
2012-13, out of which an amount of Rs.150.00
crore has been released to NABARD and
81
Rs.0.78 crore to State Agencies upto 30th
10.21 Strengthening of Agmark Grading
Facilities (SAGF): The Agricultural Produce
(Grading and Marking) Act, 1937 provides
for the grading and marking of agricultural
produce. It involves framing of grades,
standards   and   certification   of   agricultural  
commodities included in the schedule
appended to the Act. This programme
requires analysis of check samples and
research samples in Agmark Laboratories.
SAGF Scheme aims to meet the expenditure
for the purchase of equipment, chemicals,
glassware and apparatus, AMC of the
equipments as well as renovation and repair
works in the Agmark laboratories/ Regional
and  sub  offices.  With  this  support,  11  Regional  
Agmark laboratories and Central Agmark
Laboratory, Nagpur are carrying out analysis
of check samples and research samples
for developing and promoting grading and
standardization of agricultural commodities
under Agmark.
10.22 Marketing Extension: Quality
control programmes under Agmark as well
as different plan schemes of the Directorate
are given wide publicity through mass media.
The information is disseminated through
documentaries, video spots, printed literature,
exhibitions, conferences, seminars and
workshops. DMI has participated in AAHAR-
2012 at New Delhi during 12-16 March, 2012
and Regional Agricultural Fairs at Navsari,
Gujarat; AAU-Jorhat; CRRI, Cuttack; and
Agricultural Marketing
Palampur-Himachal Pradesh. The Directorate
also participated in India-International Trade
Fair, 2011 from 14-27th November, 2011 at
Pragati Maidan, New Delhi. National Agmark
Exhibition was organized on March 5-7,
2012 at Chandigarh. World Consumer Day
was celebrated on 15th March, 2012 at nine
different places to show simple tests for
detection of adulteration in food products
and to make the consumers aware about use
 of Agmark certified  products  and  health  and   10.26 National Institute of Agricultural
safety measures.
10.23 Training of Personnel in
Agricultural Marketing: The Directorate
conducts a number of training courses
relating to agricultural marketing for the
benefit   of   State   Governments/Union  
Territories, Cooperatives, Corporations,
Market Committees, Marketing Boards and
other statutory bodies. Under these training
programs, 12,795 Agricultural Marketing
personnel have been trained since inception.
During the current year (up to 31/10/2012), 90
personnel were trained.
10.24 Small Farmers’ Agribusiness
Consortium (SFAC): SFAC was set up
as a registered society in January, 1994.
Currently, the members of SFAC include
RBI, SBI, IDBI, EXIM Bank, Oriental Bank of
Commerce, NABARD, Canara Bank, NAFED,
United Phosphorous Ltd, etc. The mission of
the society is to support innovative ideas for
generating income and employment in rural
areas by promoting private investment in
agri-business projects.
10.25 SFAC is implementing the Central
Sector Scheme for agri-business development
in association with 21 Commercial Banks for
providing (i) Venture Capital to agribusiness
projects, and (ii) assistance to farmers/
producer groups for preparing quality
Detailed Project Reports (DPR). During
2012-13, till 15.11.2012 SFAC surpassed
the physical target of 100 projects against a
target of 60. Since inception of the Scheme,
Annual Report 2012-13
DAC released an amount of Rs.183.78 crore
till 15.11.2012 against which the expenditure
of Rs.172.81 crore had been incurred. SFAC
has also assisted 582 agribusiness projects
and released Venture Capital Assistance of
Rs.166.28 crore generating private investment
of Rs.1828.56 crore, which will provide an
assured market to 98,551 farmers for their
produce and create direct employment for
40773 persons.
82
Marketing (NIAM), Jaipur: Chaudhary
Charan Singh National Institute of
Agricultural Marketing (NIAM), was set up
by the Government of India in August 1988
to offer specialized Training, Research,
Education   and   Consultancy   in   the   field   of  
Agricultural Marketing to cater to the needs
of agricultural marketing personnel in India
as well as from South East Asian Countries.
NIAM is conducting training programmes in
the   field   of   agricultural   marketing   and   allied  
areas   for   senior   and   middle   level   officers  
from various line Departments of State
Governments, Co-operatives, Marketing
Boards and Agribusiness Entrepreneurs. In
the wake of reforms in agricultural marketing,
the Institute is also playing an active role in
orienting agricultural extension personnel
towards agricultural marketing.
10.27 During 2012-13, the institute has
conducted 45 core training programmes,
40 Farmer Awareness Programmes and 10
Buyer-Seller meets for various commodities.
NIAM has organized training programmes
for the extension workers of various Krishi
Vigyan Kendras to provide knowledge on
new dimensions in agricultural marketing.
A special programme was organized for
Department of Watershed Development and
Soil Conservation, Government of Rajasthan
with focus on the capacity development
of   beneficiaries   of   Watershed   on   organic  
farming, organic product marketing,
documentation   and   certification,   packaging  
and also on marketing opportunities.
10.28 NIAM is also actively engaged in
conducting various programmes in the North-
Eastern States. Training programme and
farmer awareness programmes have been
planned for Nagaland, Tripura and Assam
and   other   States   in   the   current   financial  
year. In Tripura, an organic buyer-seller
meet was planned with a view to explore
the possibilities for developing market for
organic produce and to enhance the returns
to farming communities for their organic
produce. NIAM has also conducted core
training programmes at Central Institute of
Horticulture, Nagaland to orient agricultural
extension personnel towards agricultural
marketing   for   officers   of   line   Departments.   the best of MBA with unique skills required
A training programme focusing on marketing
strategies to strengthen cooperative network
and public distribution system was organized
at   Agartala   for   officers   of   Cooperative   curriculum consists of 38 core courses and
Department and Cooperative Marketing
Federations of State of Tripura.
10.29 NIAM has successfully provided
consultancy in the area of designing markets,
conducting feasibility studies, preparing
detail project reports, creating awareness,
conducting in depth study of marketing of
agri and allied products. During the current
financial   year,   7   such   Consultancy   Projects  
are in progress and two research studies viz.
‘Trends in Marketing and Export of Onion
in India’ and ‘E – Tendering of Agricultural
Commodities in Karnataka’ are proposed.
83
10.30 Post Graduate Diploma Program
in Agribusiness Management (PGDABM):
NIAM also offers two-year PGDABM which
has been accorded AICTE approval. NIAM
has been rated among top sectoral business
schools in the country. The program combines
for a career in Agribusiness. The admission
for total 60 seats of the program is done
through a national level examination. The
over 4 electives comprising 118 credits and
covers agri-business courses like agri-input
marketing, farm production management,
extension management & rural marketing and
core management subjects like marketing
management,   financial   management   and  
strategic management etc. The programme
incorporates case studies, industry
interaction and lectures by visiting faculty
from premier management institutes of the
country and summer programme in leading
agri-business companies. Since inception,
the  final  Placement  of  the  course  has  been  
100%.
Agricultural Marketing
Introduction
Agricultural Marketing includes the movement of agricultural produce from farm where it is
produced to the consumers or manufacturers. This covers:
• physical handling and transport
• initial processing and packing to simplify handling and reduce wastage
• grading and quality control to simplify sales transactions and meet different consumers’
requirements, and
• Holding over time to match concentrated harvest seasons with the continuing demands of
consumers throughout the year
• Also includes the marketing of production inputs and services to the farmers. Some of
these include fertilizers, pesticides and other agricultural chemicals; livestock feed; and
farm machinery, tools and equipment (Haven’t covered input marketing in this doc)
The strategic function of the marketing system is to:
• For farmer, offer him a convenient outlet for his produce at a remunerative price
• To the consumers and the manufacturers of agricultural raw materials, assurance of a
steady supply at a reasonable price is the vital service.
An effective marketing system will be geared toward expanding the range and types of consumer
service, and will thus offer producers expanding outlets.
An efficient marketing system is vital to
• provide an incentive to farmer to produce more
• convey the changing production needs of the economy to producers to enable production
planning; and
• foster true competition among the traders and eliminate the exploitation of farmers
particularly the small and marginal ones, who predominate agrarian sector in our country
• to enhance the share of farmers in the ultimate price of his agricultural produce
Predominant Public Sector: Starting from 1951, the different Five Year Plans laid stress on
development of physical markets, on farm and off farm storage structures, facilities for
standardization and grading, packaging, transportation etc. Development of horticulture
marketing attracted attention of policy makers during the 3rd Five Year Plan. The year 1965
witnessed coming into existence of Central Warehousing Corporation, Food Corporation
of India , Agricultural Prices Commission (later renamed as Commission for Agricultural Costs
and Prices) and several other organizations. Besides number of organizations under the aegis of
Ministry of Agriculture, Consumer Affairs and Commerce were set up in the form of commodity
boards, cooperative federations and export promotion councils for monitoring and boosting the
production, consumption, marketing and export of various agricultural commodities. The
prominent among them included Cotton Corporation of India Limited (CCI), the Jute
Corporation of India Ltd. (JCI), the National Cooperative Development Corporation Ltd.
(NCDC), the National Agricultural Cooperative Marketing Federation Ltd. (NAFED), the
National Tobacco Growers Federation Ltd. (NTGF), the Tribal Cooperative Marketing
Development Federation Ltd. (TRIFED), the National Consumers Cooperative Federation Ltd.
(NCCF), etc for procurement and distribution of commodities; and the Tea Board, Coffee Board,
Coir Board, Rubber Board, Tobacco Board, Spices Board, Coconut Board, Central Silk Board,
the National Dairy Development Board (NDDB), National Horticulture Board (NHB), State
Trading Corporation (STC), Agricultural & Processed Foods Export Development Authority
(APEDA), Marine Products Export Development Authority (MPEDA), the Indian Silk Export
Promotion Council, the Cashewnuts Export Promotion Council of India (CEPC), etc. for
promotion of production and exports of specific commodities.
The increasing trend of agricultural production has brought, in its wake, new challenges in terms
of finding market for the marketed surplus. There is also pressure from all segments of
agricultural economy to respond to the challenges and opportunities that the global markets offer
in the liberalized trade regime. Reforms in the domestic markets for farm products have to
precede trade liberalization. To benefit the farming community from the new global market
access opportunities, the internal agricultural marketing system in the country needs to be
The increasing trend of agricultural production has brought, in its wake, new challenges in terms
of finding market for the marketed surplus. There is also pressure from all segments of
agricultural economy to respond to the challenges and opportunities that the global markets offer
in the liberalized trade regime. Reforms in the domestic markets for farm products have to
precede trade liberalization. To benefit the farming community from the new global market
access opportunities, the internal agricultural marketing system in the country needs to be
integrated and strengthened.
Legal Reforms
At present, though agriculture production is largely free from controls, the same is not true of
marketing and processing of agricultural commodities.
• Under APMC acts, the State Governments alone are empowered to initiate the process of
setting up of markets for agricultural commodities in notified areas.
• Processing industries cannot buy directly from farmers, except through notified markets.
• Processed foods derived from agricultural commodities suffer from multiple taxes at
various stages starting from the harvest till the sale of final processed products.
• Under Essential Commodities Act (EC Act) there are stringent controls on the storage
and movement of several agricultural commodities.
These restrictions are acting a disincentive to farmers, trade and industries.
The State Agricultural Produce Marketing Regulations Act (APMC Act) and are the two
important legislations that have to be amended to remove restrictive provisions coming in the
way of an efficient and competitive marketing system.
Alongside, there is a need to introduce through appropriate legal change, a ‘negotiable
warehousing receipt system’ in the country for agricultural commodities to enhance
institutional lending to the agricultural marketing sector and to improve price-risk
management. Update: Already done through Warehousing (Development and Regulation)
Act, 2007

APMC Act
Govt. promotes organized marketing of agricultural commodities in the country through a
network of regulated markets. To achieve an efficient system of buying and selling of
agricultural commodities, most of the state Governments and Union Territories have enacted
legislations to provide for development of agricultural produce markets. The basic objective of
setting up of network of physical markets has been to ensure reasonable gain to the farmers by
creating environment in markets for fair play of supply and demand forces, regulate market
practices and attain transparency in transactions.
Markets
With a view to coping up with the need to handle increasing agricultural production, the number
of regulated markets has also been increasing in the country. While by the end of 1950, there
were 286 regulated markets in the country, today the number stands at 7157 (2010). The Central
Government advised all the State Governments to enact Marketing Legislation to promote
competitive and transparent transactional methods to protect the interests of the farmers. Barring
a few states, most of the States and Union Territories embarked upon a massive programme of
regulation of markets after enacting the legislation. Most of these regulated markets are
wholesale markets. There are in all 6517 wholesale markets in the country. Besides, the country
has 21221 rural periodical markets, about 15% of which function under the ambit of regulation.
The advent of regulated markets has helped in mitigating the market handicaps of
producers/sellers at the wholesale assembling level. But, the rural periodic markets in general,
and the tribal markets in particular, remained out of its developmental ambit.
The area served by each market across the States reveals large variations. The area
served per regulated market varies from 74 sq km in Punjab to 2257 sq km in Assam. On an
average, a regulated market serves 459 sq km area in the country which is quite high. Farmers
have to travel long distances with their produce to avail the facility of regulated markets. The
National Commission on Agriculture (1976) had recommended that the facility of regulated
market should be available to the farmers with in a radius of 5 km and if this is considered a
bench mark, the command area of a market should not exceed 80 sq km. However, in the
existing scenario, except Delhi, Punjab, Chandigarh and Pondicherry, in no State, the density of
regulated markets is close to the norm.
Agricultural Produce Marketing Committees (APMC)
APMCs are corporate bodies established under the respective State Agricultural Produce
Marketing Regulations Acts. They are either elected or nominated by the Government from
amongst representatives of agriculturists, traders and other functionaries and local
existing scenario, except Delhi, Punjab, Chandigarh and Pondicherry, in no State, the density of
regulated markets is close to the norm.
Agricultural Produce Marketing Committees (APMC)
APMCs are corporate bodies established under the respective State Agricultural Produce
Marketing Regulations Acts. They are either elected or nominated by the Government from
amongst representatives of agriculturists, traders and other functionaries and local
representatives. All the State Acts provide for constitution of separate market committees for
individual market except in Tamil Nadu where it is constituted at the district level to administer
all the regulated markets in the district. The market committees are either controlled by the
Director of Agricultural Marketing or the State Agricultural Marketing Board. States like Delhi,
Uttar Pradesh, Rajasthan, Karnataka, Maharashtra, Gujarat, Madhya Pradesh, West Bengal and
Orissa etc. have separate Marketing Department.
Issues
• There exists wide variation in functioning and role of Marketing departments and
Marketing boards. Both are functionally strong in U.P., M.P. and Rajasthan. Regulatory
functions have been entrusted to the Marketing Departments while developmental
functions are performed by the Marketing Boards. In Andhra Pradesh, Tamil Nadu and
Karnataka, the Marketing Departments are functionally powerful, but the Boards are very
weak and are more or less advisory in nature. In Punjab, Haryana and Bihar , the Boards
are powerful and attend to almost all functions and the Marketing Departments are either
non-existent or weak.
• Roles are not clearly defined and demarcated among the three-Committees, Boards and
Departments. This leads to friction and impediments in progressive marketing
management and development. Also, with changing global environment, their roles need
to be redefined and updated
• Boards are represented by both official and non-official members. The marketing
activities are many-fold and need liaison and collaboration with related organizations
such as Railway Board, Forward Markets Commissions, Department of Posts &
Telegraphs, Doordarshan, All India Radio, State Planning Commission/Board, consumers
and farmers organisations, ports etc.
• Most of the agricultural produce marketing committees and board members are
nominated. Therefore, they lack direct accountability to the users of market, a problem
accentuated by the monopoly role of regulated markets.
Recommendations
• State Agricultural Marketing Departments, Marketing Boards and Market Committees
are like the vertices of a triangle which are vital and important for sustainable growth of
the marketing sector. A ‘Code of Conduct’ should be prepared for the market committees,
as well as the boards and the State governments outlining their responsibilities,
functioning and working conducive to efficient marketing system.
• There is an imperative need to make the Boards administratively viable and managerially
competent in keeping with liberalized trade atmosphere. It is desirable that the State
Agricultural Marketing Board is given appropriate official recognition in these
organizations so as to facilitate presentation of marketing activities and programmes of
the State in their meetings and accelerate the pace of implementation of these
programmes.
• All the market committees including sub-yards should be headed by
professionals. Existing Secretaries need to be trained in professional management of the
markets to facilitate liberalized, competitive and free marketing system.
• Various organizations under APMC Acts have helped in orderly marketing of the farmers
produce. However, there is a need for redefining their role and structure in the context
of emerging economic environment and market reforms. Some of the activities which
should receive increasing attention of APMCs and departments of agricultural marketing
include :
o creating cleaning, grading and packing facilities;
o encouraging the local farmers, traders and processors to market the produce under
their brands and promoting such local brands based on graded produce;
o creating minimum infrastructure in all, around 28 thousand rural periodic market
places (haats) and linking these with other markets through roads; and
o In the event of prices of any commodity, which is covered under the price support
programme, tending to dip below the support level, either ensuring that an agency
is in place to make purchases at the support price, or entering into the market on
behalf of the nodal agency to prevent the prices from falling below the support
level.
 o creating minimum infrastructure in all, around 28 thousand rural periodic market
places (haats) and linking these with other markets through roads; and
o In the event of prices of any commodity, which is covered under the price support
programme, tending to dip below the support level, either ensuring that an agency
is in place to make purchases at the support price, or entering into the market on
behalf of the nodal agency to prevent the prices from falling below the support
level.
The APMC Acts need to be amended by the State Governments to specifically provide for the
following:
Promotion of Agricultural Markets’ in private/cooperative sector:
The institution of regulated markets, set up to strengthen and develop agricultural marketing in
the country has achieved a limited success in providing transparent transactional
methods/marketing practices, need based amenities and services conducive to efficient
marketing.
Issues
• The restrictive legal provisions such as “all agricultural produce brought into or
processed within market area shall pass through the principal market yard or sub market
yard and shall not be bought or sold at any other place within the market area” or “no
such person shall carry on business as trader in agriculture produce into market area
except in accordance with the license issued in this behalf by the Market committee” did
not augur well with competitive market structure. Within an area declared to be a market
area, marketing of agricultural produce specified in the notification is regulated in
accordance with the provisions of this Act. Once a particular area is declared a market
area under Agricultural Produce Marketing Act and falls under jurisdiction of a particular
Market Committee, no other person or association/agency is allowed to carry on any
wholesale marketing activity. Farmer has no liberty to sell his produce in his village or to
the retail chain/processor/bulk buyer directly. He has to take his produce to regulated
market where the sales and deliveries are effected. This has hampered development of
retail supply chain and direct supply to the processing, consuming factories or other bulk
purchasers.
• Processors find it difficult to procure material at the production source and hence have to
go the Mandis for procurement of the material, thus increasing the transportation cost.
• The power of the market committees to suspend and cancel the license granted to traders
has become an impediment to the free structure.
• The licensed traders also have not favored new entrants in the arena to maintain their grip
over trade in market yard.
• The Agricultural Produce Market Committees have often yielded to unethical practices,
which they were supposed to control and have instead become monopoly trading
grounds. Promoting competition in trade and facilitating farmers with supporting services
like grading, standardization, storage with pledge finance and facilities in the market
yards have become secondary activities. Even basic function of regulation, proper
method of sale, correct weighment and prompt payment has eluded the market
authorities. Modernization/ infrastructure development conducive to operational
efficiency of the markets has suffered heavily.
• The state Governments are empowered to initiate the process of setting up of a market for
certain commodities, which are regulated and for certain areas, in which the Regulation is
enforced. As a result of this very process of initiation of a market, the service providers
for agricultural marketing do not have any role. Nobody can take initiatives in assessing
the viability and feasibility for setting up the markets equipped with the best facilities at
competitive cost.
• Functionaries of the market yard such as commission agent, trader, processor, weighman,
surveyor, broker, hamal, warehouse owner, transporters etc. to function in the area, as
well as in the market or sub-market, are required to obtain a license. These licensees have
over a period acquired a monopoly status. New entrants are normally not permitted at the
behest of respective associations and unions. The monopolies in marketing and handling
have added to marketing costs detrimental to both producers and consumers. Transport
charges from Pune Principal Market for a distance of about 3 or 5 km are more than
transport from upcountry areas like Solapur, Nasik , etc. They also disallow latest
systems of handling, like cleaning, grading, packaging, weighing, transporting,
etc. Thus, the element of cost efficiency and competitiveness is lost because of
licensing.
• Trading and marketing structure is traditional consisting of a long chain of
intermediaries. As many as 75% of the farmers sell their produce at the farm level.
 transport from upcountry areas like Solapur, Nasik , etc. They also disallow latest
systems of handling, like cleaning, grading, packaging, weighing, transporting,
etc. Thus, the element of cost efficiency and competitiveness is lost because of
licensing.
• Trading and marketing structure is traditional consisting of a long chain of
intermediaries. As many as 75% of the farmers sell their produce at the farm level.
They cannot afford to go to distant mandis on account of lack of facilities, expensive
transportation and malpractices in the assembling markets. The multiple handling add
costs and increase post-harvest losses, adversely affecting the income of farmers and
making produce comparatively costlier to the consumers.
• In actual operation of the market, farmers lack effective voice and hence marketing
power. A large number of the small farmers is unable to effectively bargain in the
market.
Recommendations:
• High investments with entrepreneurial skills required for creation and managing the
market infrastructures have to come from private sector. Provision should be made for
anybody to set up a market, provided minimum standards, specifications, formalities and
procedures are complied with. The Govt. of Karnataka has taken initiative to provide for
the establishment of an ‘Integrated Produce Market’ to be owned and managed by NDDB
for marketing of fruits, vegetables and flowers in that State
• Role of government in managing markets is on the decline worldwide. The only way to
modernize marketing is to set up an ‘alternative marketing system’ that may operate
parallel to, and in addition to present Mandies.
• Government’s role should be that of a facilitator rather than that of having control over
the management of markets. Central/State Governments need to extend support in the
following areas:-
o Deregulation of areas where new markets will be set up, along with forward and
backward linkages from the purview of the Agricultural Produce Marketing Act.
o Allocation of suitable and sufficient land with necessary approvals to set up
agricultural produce markets;
o Fast approval for services like electricity, water, sewage, telephones etc.;
o Long term credit for initial capital investment, and
o Declaration of the project as an “infrastructure project” for tax breaks
• For the services so provided the owner/ operator of the market should be enabled to
collect service charges from the users.
• The purchaser should not be prevented from buying directly from the farmers (Direct
farming)
• Products which are not locally grown and which have no substantial marketed surplus
need not be included in notified commodities.
• Instead of license, registration with APMC should be enough for any body to
trade/operate in the market.
• The long marketing channel (with several intermediaries) is detrimental to quality and
safety of those perishable products. It is essential to shorten the channels. As has been
suggested earlier these commodities can be taken out of the exclusive purview of State
Agricultural Marketing legislation to facilitate direct sales and other competitive outlet
after proper grading, packing, transportation such as through refer vans to the final
destination. To minimize these losses, improvements are required at various levels, viz.:
harvesting; grading; transport; storage; processing, packing and marketing.
• Establishment of an alternative marketing structure that sustains incentives for quality
and enhanced productivity, improving farmer incomes with improved technology support
and methods.
Alternative Marketing Systems:
Experience throughout the world has shown that markets depend in part on growers having a say
in the marketing of their produce. Growers Cooperatives and Marketing Boards own and operate
markets. In Holland, for instance, all central auctions of fresh produce and flowers are owned
and managed by the grower co-operatives. In countries similar to India like, South
Africa and Brazil the process of government withdrawal from the markets management has
already been initiated.
Requisite features: Central to the new structure are professionally managed ‘alternate markets’
that set prices based on open auction in which all buyers participate. The market will operate
outside the purview of the Agricultural Produce Marketing Act and be owned by professional
agencies in private sector, wholesalers, retail trade associations/corporates, joint ventures and
other investors.
Africa and Brazil the process of government withdrawal from the markets management has
already been initiated.
Requisite features: Central to the new structure are professionally managed ‘alternate markets’
that set prices based on open auction in which all buyers participate. The market will operate
outside the purview of the Agricultural Produce Marketing Act and be owned by professional
agencies in private sector, wholesalers, retail trade associations/corporates, joint ventures and
other investors.
The purpose of the proposed alternate marketing structure is to:
• professional management of the market
• establish modern efficient trade practice as a catalyst for changes in the market
• Improved transparency and efficiency
• Better standardization and quality control, efficiency and hygiene
• coordinating retailer payments to producers and resolution of disputes between users
Forms of Alternative Marketing:
• Direct marketing by producers;
• Marketing through Farmers Interest Groups;
• Setting up of Terminal markets by the private sector;
• Forward markets and futures exchanges;
• Electronic trading – e-commerce;
• Setting up mega markets covering all marketing functions for domestic as well as
export trade; and
• Introduction of negotiable warehouse receipt system
• Contract farming
Direct Marketing:
• Enables farmers to meet the specific requirements of wholesalers from the farmers'
inventory of graded produce and of retail consumers based on consumers' preferences,
thus enabling farmers to dynamically take advantage of favourable prices and improve
their net margin.
• It encourages farmers to undertake grading of farm produce at the farm gate, thus
enabling farmers to improve price realisation considerably.
• Direct marketing obviates the necessity of farmers to haul produce to regulated markets
that are not necessarily spaced on the principles of efficiency derived through cost
analysis based on operations research.
• It will also act as a break to monopoly of regulated market.
• Enables farmers and agro-industrial processors and other bulk buyers (wholesalers) to
economize on transportation costs (by not routing the produce through mandis) and to
considerably improve price realization. In South Korea, for instance, as a consequence of
expansion of direct marketing of agricultural products, consumer prices declined by 20 to
30 percent and producer-received prices rose by 10 to 20 percent.
• It will also provide incentive to largescale marketing companies to increase their
purchases directly from producing areas.
• Eliminate intermediaries- Effectiveness would narrow the spread between producer and
consumer prices and enhance incomes to farmers.
• Reduce dependence on informal credit
• Based on demand and supply-hence, better price discovery
Direct marketing by farmers to the consumers has been experimented in the country through
Apni Mandis in Punjab and Haryana, Rythu Bazars in AP and Uzhavar Santhaigal in
TN. These markets are more popular for retailing of fruit and vegetables grown in the green belt
around metro-polis and have subsequently been able to attract produce from within the radius of
60 to 80 Kms. At present, these markets are being run at the expense of the State exchequer, as a
promotional measure, to encourage marketing by small and marginal producers of fruit and
vegetables without the help of the middlemen. These markets have been established in
Safeguards/Challenges
• There is need to prepare cost effective lay out plans with a minimum of expenses on
market infrastructure so that more and more areas are covered under the direct farming
system.
• A common code of conduct and modalities with regard to ownership, operation and need
based infrastructure will have to be prepared and circulated to spread the concept of
direct retailing by the farmers.
• The development of rural roads will greatly help this process.
• Evaluation of existing direct farming provisions and further building upon it
• The group action strengthens bargaining power of the farmers and the marketing
expenses get distributed resulting into better share in the net returns. Whether self-help
 based infrastructure will have to be prepared and circulated to spread the concept of
direct retailing by the farmers.
• The development of rural roads will greatly help this process.
• Evaluation of existing direct farming provisions and further building upon it
• The group action strengthens bargaining power of the farmers and the marketing
expenses get distributed resulting into better share in the net returns. Whether self-help
groups, co-operatives or NGOs, everybody should be encouraged to market in the interest
of farmers.
• The Government should support these organizations with schemes like providing back
ended subsidy for refrigerated as well as general transport, setting up of grading and
packing houses, credit at low interest etc., till they become financially self-sufficient on
commercial lines, development of communication links.
• Apni mandis have been promoted so far only at the state headquarters and at some district
headquarters. There is an urgent need for expanding the reach for these “farmer markets”
to popularize direct marketing.
As another form of direct marketing, the unemployed youth could be involved in procurement of
orders and supply of graded and packed products to different city dwellers. The youth could be
trained in marketing practices of procuring products and supplying them. They will move into
different localities to obtain door to door orders and procure supplies of needed quality and packs
directly from the producers for onward transmission to the consumers. The financial assistance
from the public sector to such ventures would generate entrepreneurship and provide profitable
employment to the younger generation. They could be given assistance in the form of working
capital to start the enterprise alongwith the necessary agri-business training.
Contract Farming:
The present APMC Acts restrict the farmer from entering into direct contract with any
processor/ manufacturer/ bulk processor as the produce is required to be canalized through
regulated market.
The main feature of contract farming is that farmers grow selected crops under a buy back
agreement with an agency engaged in trading or processing. Contract farming arrangements of
different types have existed in various parts of the country for centuries for both subsistence and
commercial crops. The commercial crops like sugarcane, cotton, tea, coffee etc. Have always
involved some forms of contract farming. Even in the case of some fruit crops and fisheries,
contract farming arrangements, involving mainly the forward trading of commodities have been
observed. The concept has gained importance in recent times in the wake of economic
liberalization.
In our country contract farming has considerable potential where agriculture for small
farmers can no longer be competitive without access to modern technologies and support. Small-
scale farmers are frequently reluctant to adopt new technologies because of the possible risks and
costs involved.
Provisions:
o Agreements are made between the farmer and the company and the latter contributes
directly to the management of the farm through input supply as well as technical
guidance and also markets the produce.
o Selected crops are grown by farmers under a buy back agreement with an agency
engaged in trading or processing.
o In such cases, the centralized processing and marketing agencies supply technology and
resources, including planting materials and occasional crop supervision.
o Under such contracts, the farmer assumes the production related risks, which the price
risk is transferred to the company. If the contract is made at flowering or fruiting stage,
the company bears the production risks also. In any case, the company bears the entire
costs of transaction and marketing.
Advantages:
o Make agriculture viable for small and marginal farmers (Small farmers in India are
generally capital starved and cannot make major investment in land improvement and
modern inputs.)
o Access to production services and credit as well as knowledge of new technology.
o The inputs and services supplied by firms may include seeds, fertilizers, pesticides, credit,
farm machinery, technical advice, extension etc
o By entering into contract, the company reduces the risk of non-availability of raw
material and the farmer reduces the risk of market demand and prices of his produce
o Skills the farmer learns through contract farming may include record keeping, improved
methods of applying chemicals and fertilizers and knowledge of the importance of quality
and of the demands of export markets
 farm machinery, technical advice, extension etc
o By entering into contract, the company reduces the risk of non-availability of raw
material and the farmer reduces the risk of market demand and prices of his produce
o Skills the farmer learns through contract farming may include record keeping, improved
methods of applying chemicals and fertilizers and knowledge of the importance of quality
and of the demands of export markets
o Letting private players share the burden of providing extension support
o small farmers can participate in the production of high value crops like fruits, vegetables,
flowers etc. and benefit from market led growth
o As the produce covered by the agreement would be allowed to move freely from the
farmers’ field to any destination in the country or abroad without the necessity of going
through licensed traders and regulated markets, it will help in savings on transportation
cost
Safeguards/ Challenges
o Government needs to protect the interest of both the farmers as well as the industry
equitably.
o This would require arrangement for registration of sponsoring companies and recording
of contract farming agreements, in order to check unreliable and spurious companies- can
be done by making contract farming legal
o A dispute resolution mechanism need to be set up near to farmers which can quickly
settle issues, if any, arising between the farmers and the company under a quasi-judicial
manner.
o The farmers while raising the contracted crops, run the risk of incurring debt and
consequent displacement from land in the event of crop failure. Farmers need to be
indemnified from such displacement by law.
o The contract farming should have a provision for both forward and backward
linkages. Unless both input supply and market for the produce are assured, small farmers
will not be in a position to participate in contract farming
o There should be a contract farmers association or cooperatives at the plant level which
will improve their bargaining power vis a vis the company and promote equality of
partnership for ensuring smooth functioning of any contract farming arrangement. Also,
it will replace the role of middlemen or commission agents who are involved in
marketing of the contract commodities on behalf of the company.
o The government needs to ensure that contract farming, which is generally commodity
specific and tends to promote monoculture does not grow beyond proportion to destroy
bio-diversity and agricultural ecology. It may be necessary to provide necessary
guidelines for land use planning in each region in order to prevent such eventualities.
o The proposed contract crop should have a distinct advantage in terms of relative yield and
profit, which will provide higher income to the contract farmers on stable basis.
o Legalization of tenancy would be a precondition (banned in many parts of the country)
for enabling the tenant farmers to benefit from contract farming.
o There should be adequate infrastructure facilities of roads, public transport, telephones,
postal services, stable power and water supplies, cold storage facilities etc.
There are few success stories on contract farming such as Pepsico India in respect of potato,
tomato, groundnut and chili in Punjab, Safflower in Madhya Pradesh, oil palm in Andhra
Pradesh, seed production contracts for hybrids seed companies etc. which helped the growers in
realization of better returns for their produce. Other success stories of contract farming
are Amul and NDDB for milk procurement, sugarcane cooperative in Maharashtra, and prawn-
acqua culture in Andhra Pradesh.
Rationalization of market fee: The present system of levy of fee at multiple points for the
same commodity at different stages of transaction needs to be replaced.
• single point levy of market fee in the entire process of marketing in the State
• collection of market fee should be more in the nature of service charge based on the
quality services provided
• levy of fee can be at different slabs in consonance with the type of scale of
services/facilities provided to all market users.
There is also considerable variation in the structure of taxes and fee on the agricultural
produce in various states, which distorts the operation of the domestic market. There is need for
bringing uniformity in the state level tax structure in agricultural commodities for improving the
marketing efficiencies.
Essential Commodities Act, 1955
The Essential Commodities Act is the principal Act which controls the production, supply,
There is also considerable variation in the structure of taxes and fee on the agricultural
produce in various states, which distorts the operation of the domestic market. There is need for
bringing uniformity in the state level tax structure in agricultural commodities for improving the
marketing efficiencies.
Essential Commodities Act, 1955
The Essential Commodities Act is the principal Act which controls the production, supply,
storage and movement of, and trade and commerce in a large number of agricultural
commodities. Powers to issue Control Orders under this Act have been delegated to the State
Governments. Exercising powers delegated under the Act, the State Governments/ UT
Administrations have issued several Control Orders to regulate various aspects of trading in
agricultural commodities such as foodgrains, edible oils, pulses, sugar etc. The Control Orders
broadly relate to licensing of dealers for trade (if dealing in specified commodities like rice,
wheat, pulses, oilseeds and in quantities in excess of those prescribed), regulation of stock limits
(limits varying from State to State and within the State from commodity to commodity),
restriction on movement, compulsory purchase under the system of levy etc.
The recent position with regard to restrictions on movement of food and agricultural produce
reveals that some of the States have imposed restrictions on movement of some essential
commodities. Most of these restrictions relate to foodgrains and more particularly to
rice/paddy. States like Andhra Pradesh, Tamil Nadu, Karnataka, J&K and Madhya Pradesh have
imposed statutory restrictions on movement of rice/paddy outside the State with a view to
maximizing procurement and to meet internal requirements
The provisions under this legal instrument and other Acts and orders issued by States are used
particularly during the periods of short supply as reflected through high prices to regulate the
activities of traders and processors pertaining to trading, stocking, maintenance of quality,
grading, packing, processing, blending and movements. Considering the fact that shortages have
now been replaced by surpluses, these restrictive provisions have to be put to an end for
uninhibited free marketing system. While the Essential Commodities Act may continue as an
umbrella legislation for the Centre and the States to use when needed, a progressive dismantling
of controls and restrictions is required for agricultural products.
Advantages of amendment in the act
• Amendment to the Act is necessary to promote investment in building agricultural
marketing infrastructure, motivating corporate sector and processing units to undertake
direct marketing of agricultural produce and to facilitate India as a whole becoming an
integrated market.
• By removing restrictions on storage of agricultural produce, substantial warehousing
capacity can also be created in private sector. With the removal of restrictions on
stocking and storage, warehousing activities will get a fillip and stored foodgrains acting
as a collateral will facilitate marketing credit or pledge finance for producers, as well as
entrepreneurs.
• This will lead to regional specialization based on resource endowments and, therefore,
would also help increase efficiency in the production process.
• Facilitating free trade and movement of agricultural commodities would enable farmers
to get best prices for their produce, achieve price stability and ensure availability at
reasonable prices in deficit areas.
After consultation with the concerned Central Departments/ Ministries, the Central Government
have issued an Order under Section 3 of the Essential Commodities Act called the Removal of
(Licensing requirements, stock limits and Movement Restrictions) on Specified Foodstuffs
Order, 2002 on 15.2.2002. The salient features of this Order are: -
i) It pertains to specified commodities namely, wheat, paddy/ rice, coarse grains,
sugar, edible oilseeds and edible oils.
ii) It removes all restrictions on purchase, stocking, transport, etc. of specified
commodities and also the requirement of licensing of dealers in respect of the specified
commodities.
iii) Any dealer may freely buy, stock, sell, transport, distribute, etc. any quantity of
these commodities and shall not require a permit or license therefore under any order issued
under the Essential Commodities Act, 1955.
Pledge Financing & Marketing Credit:
Small farm holdings contribute about 54% of marketable surplus and distress sale by these small
farmers account for about 50% of the marketable surplus. The farmers often sell their produce to
square off their debts soon after harvesting.
Pledge financing enables the usage of inventories of graded produce as collateral for accessing
Pledge Financing & Marketing Credit:
Small farm holdings contribute about 54% of marketable surplus and distress sale by these small
farmers account for about 50% of the marketable surplus. The farmers often sell their produce to
square off their debts soon after harvesting.
Pledge financing enables the usage of inventories of graded produce as collateral for accessing
credit from the organized credit market, thus enabling farmers to take advantage of favorable
prices; to hold inventory of graded produce under favorable storage conditions; promotes rural
godowns and warehousing, thus enabling farmers to hold inventory without having to dispose of
produce at adverse prices in the regulated markets; advances grading of farm produce to the farm
gate, and enables identity preserved storage closer to farms, thus enabling farmers to improve
price realization considerably.
There is an imperative need to improve the flow of credit to agricultural produce marketing to
afford to the growers a reasonable opportunity to hold on to their produce in falling markets at
the time of harvest. Marketing credit can be improved by introducing a user-friendly pledge
financing scheme through a network of rural godowns and negotiable warehousing receipt
system for access to safe and scientific storage.

Present provision
Produce Marketing Loan Scheme formulated by the Government in 1988, could not take off
due to its limited applicability.
According to the RBI Guidelines (2012), Loans up to ` 25 lakh against pledge/hypothecation of
agricultural produce (including warehouse receipts) for a period not exceeding 12 months,
irrespective of whether the farmers were given crop loans for raising the produce or not. Such
advances are included as direct finance to farmers for agricultural purposes under priority sector
lending.
Shortcomings
• Limited credit for marketing of crops (pledge financing) is available at present to the
farmers from the formal banking channels.
• The quantum of financing done both by Commercial banks and Cooperative banks for
pledge financing is very little as compared to the crop production loans.
• The quantum is small and they get clubbed along with short- term direct agricultural
loans for agriculture.
• Poor networks of rural godowns
Recommendations
• In respect of high value crops, RBI should enhance the ceiling. Such advances should
also be categorized as direct finance to farmers for agricultural purpose, under priority
sector advances.
• Banks and commodity exchanges (national Spot Exchange has provision for pledge
financing upto 80% of the produce value) should be encouraged to augment the resources
of state marketing cooperatives, which provide Pledge financing facilities to farmers.
• Regional Rural Banks have an extensive reach through their 14,500 branches all over the
country. At present NABARD refinance does not support Regional Rural Banks through
its refinance for Pledge Financing Loans. NABARD should provide 100% refinance
to RRBs, on similar lines as that of Cooperative Banks.
• Arrangements should be developed so that the warehousing receipts / godown receipts of
private sector are acceptable to the bankers for providing credit to farmers.
Forward and Futures markets
It is an agreement between two parties to buy and sell a commodity at a predetermined future
date at a price that is agreed when the contract is entered into between buyer and the sellers. The
three principal elements of the forward contract are:
• the commodity and its characteristics are known to the buyers and the sellers but may not
be known to other potential buyers and sellers;
• the date on which the commodity will be bought and sold is determined in advance by the
buyer and seller;
• the price to be paid by the buyer to the seller at the future date is determined on the day
the contract is entered into between the buyer and the seller, but is not made known to
other potential buyers and sellers.
Advantages from Forward and Futures Markets
• Risk management
• Forward and futures contracts enable price discovery. The price discovery function
 buyer and seller;
• the price to be paid by the buyer to the seller at the future date is determined on the day
the contract is entered into between the buyer and the seller, but is not made known to
other potential buyers and sellers.
Advantages from Forward and Futures Markets
• Risk management
• Forward and futures contracts enable price discovery. The price discovery function
allows important economic decisions (that constitute the marketing function of an
economy) to be made as to which commodities to produce; how to produce the
commodities; how much of each commodity to be produced; how much to sell and at
what prices; how much to store and for how long; what commodities to consume and
how much to consume and at what prices. Storing is an economic decision that is driven
by the opportunity costs and the availability of credit.
• Forward contract may well be regarded as direct and alternative marketing facilitator.
Direct marketing is effective only if farmers have an opportunity to access reliable
reference prices for a range of grades, qualities and time of deliveries.
• By dovetailing its functioning with spot markets can work as a tool to stabilize price by
handling the situation arising out of good harvest as well as poor harvest for stabilization
of supplies along with prices. The scenario of good harvest will enable the future to
contract as lower prices so as to signal the farmers to reduce the area of respective crops
and encourage the farmers for easy and timely diversion of cropping pattern
• facilitate integration of domestic market with international market
• The new liberalization policy has led to the process of commercialization of agricultural
sector. As a result, several new agro-based industries including traditional ones are being
set up. The need for effective price risk management has become imperative to protect
these agro-based industries.
• Thrust to enhance international trade in raw agricultural commodities and their value
added products have exposed the domestic market to international price risk. Since
exporters generally operate their business on a thin margin, an efficient price risk
management mechanism would be essential in the new environment. Withdrawal of
Government’s intervention from commodity sector ensures only demand and supply
forces will determine market price in the new economic environment.
• It is also argued that an efficient price management mechanism for agricultural
commodities encourages commercial banks to finance the commodity sector and attract
direct foreign investment in the agricultural sector.
As per the existing provisions u/s 15 of the Forward Contract (Regulation) Act, 1952 91
commodities have been declared as notified goods in Forward Contracts (Regulation) Rules,
1954. U/s 15, the contracts are rendered illegal except those entered into between members of a
recognised association or through or with such a member. There are 91 notified goods and
contain oilseeds & oil, foodgrains & pulses, spices, metals etc.
Food grains and edible oilseeds were allowed to be traded in 2003, hence recommendation
of “task force” has been rendered useless now. Still following recommendations can be useful:
Commodity futures trading in the country also suffers from a number of other limitations as
detailed below:
• Limited and closed nature of membership in the Exchanges;
• Absence of many hedgers who have substantial underlying positions;
• Absence of transparency;
• Limitations of prudential regulation
• Deficient in several aspects such as infrastructure, logistic, management, linkages with
financial institutions, reliability, integrity and an efficient information system which do
not encourage a large group of the market players in the commodity sector to trade in this
market.
• The linkage between the spot and futures markets seems to be poor due to domination of
the speculators.
Important institutional reforms required in this area are as follows:
• Regulatory framework has to be strengthened, making FMC an autonomous organization
on the lines of SEBI (Still under MCA)
• Exchanges have to be exposed to the best practices from across the world;
• Institutional interface between various related agencies such as warehousing
corporations, banks and financial institutions, clearing and settlement corporations,
system of brokages and institutions for risk containments, have to be strengthened;
• Enabling provisions for commencing options trading etc. have to be incorporated by
means of an amendment to the Act;
 • Exchanges have to be exposed to the best practices from across the world;
• Institutional interface between various related agencies such as warehousing
corporations, banks and financial institutions, clearing and settlement corporations,
system of brokages and institutions for risk containments, have to be strengthened;
• Enabling provisions for commencing options trading etc. have to be incorporated by
means of an amendment to the Act;
• Initiatives such as modern national level commodity exchanges and warehousing receipt
system have to be actively pursued;
• Exchanges and other stake-holders are to sensitized to the challenges facing commodity
futures trading and to ‘upgrade’ their responses;
• The policy direction should aim towards convergence of futures markets i.e. trading in
derivatives products by all the interested exchanges by removing the
compartmentalization of commodity exchanges trading on in commodity derivatives
products;
• The level of general awareness particularly that of farmers and cooperatives, on futures
trading and related issues needs to be raised for increasing their participation in the
futures markets.
• Warehousing Receipts should act as good evidence of the receipt for goods and the terms
of the contract and storage, proof for their quality and condition, or “apparent order and
condition”. Warehousing receipts (WHR) would go a long way in achieving these
objectives apart from covering quality risk, which is an important risk component of
commodity futures trading. If quality risk is not covered price risk management by
means of futures contracts have limited meaning and could have only qualified
success. Legal framework for making warehouse receipts transferable and negotiable has
to be strengthened in making negotiable warehouse system the demat of commodity
futures trading. Update: Warehouse receipt has been given legal status but need to be
checked whether they have become “demat” of commodity training or not
Government has, therefore, to continue its efforts to strengthen and institutionalize the exchanges
and to instill confidence and awareness among market players.

Market Infrastructure Development

Projections of production and marketed surplus of various farm products show that the
quantities, which the marketing system will be required to handle in future, are quite large. A
marketing system backed by strong, adequate infrastructure is at the core of agricultural
marketing. The situation of control by the state has to be eased to facilitate greater participation
of the private sector, particularly to engender massive investments required for the development
of marketing.
The infrastructural facilities can be classified as physical and institutional. The means of
communication and transportation (including air cargo, sea cargo, roads, railways, transport
facilities), market yards, processing units, electrification and storage structures are physical
infrastructure whereas cooperatives, local self-government, banking institutions, extension
agencies, Research and training institutions, marketing organizations and market intelligence
network are institutional infrastructure. warehouses,
For example, from the view point of complete supply chain, from farm to the market, the
infrastructure for all types of perishable horticulture produce is required at following levels:
• Small pre-cooling units and or zero-energy cool chambers in the production areas where
the field heat of the produce is to be removed at fast rate to bring down the temperature
of the produce to the desired level before putting the product in the cold storages. The
refrigerated transport units from the farm to the cold storages are also utilized as mobile
pre-cooling units for this purpose;
• Collection Centers near to the farms;
• Medium to small cold storages having multi-product, multi-chamber facilities are the
most popular segment where horticulture produce is stored as transit godowns;
• Specialized cold storage with facility of built in pre-cooling; high humidity and
Controlled/Modified Atmosphere are required for storage of the produce for a longer
period. These specialized storages are essential for extended shelf life of the produce
and without these storages the requirement of storing the produce to meet the demand in
the off season is not feasible;
• Other components like ripening chambers close to the markets and display cabinets at
retail outlets;
• Linkages for conversion of fresh produce in other marketable forms;
• Integrated Pack Houses to serve farms in respective regions having an area of around
5000-10000 hectare. Farms associated with each of the centers would collect farm
 and without these storages the requirement of storing the produce to meet the demand in
the off season is not feasible;
• Other components like ripening chambers close to the markets and display cabinets at
retail outlets;
• Linkages for conversion of fresh produce in other marketable forms;
• Integrated Pack Houses to serve farms in respective regions having an area of around
5000-10000 hectare. Farms associated with each of the centers would collect farm
produce and bring them to common cold storage centers, where these products could be
given treatments, such as washing, sorting, grading and packing. These products will
then be preserved in the appropriate cold storage facility. The services of these centers
will not only increase the value of the farm product, but will also remove most of the
unwanted bio-degradable bio-mass from the horticulture products, which can be utilized
as farm manure or even as cattle feed.
Need
• To provide sustenance to production activity, income generation and social service
supplies
• It has also positive effect on income distribution because low per capita infrastructure
limits the access of small and marginal farmers to the market.
• Roads stimulate agricultural change and modernization not only through their immediate
effects on relative prices and marketing opportunities but also through backward
linkages. The roads open up opportunities for commercial agriculture and encourage
shifts to production of higher value, transport – sensitive products (fruits, vegetables,
dairy, poultry and marine products). Roads also improve access of the people to
extension agents, banks, markets and health services.
• Market infrastructure is important not only for the performance of various marketing
functions and expansion of the size of the market but also for transfer of appropriate
price signals leading to improved marketing efficiency.
• It lead to reduction in marketing costs which is crucial for increasing the realization of
growers and reducing the costs to the consumer.
With a view to induce large investment in the development of marketing infrastructure as
envisaged above, the Ministry has formulated a scheme for “Development/Strengthening of
Agricultural Marketing Infrastructure, Grading and Standardization”. Under this scheme
investment subsidy is provided on the capital cost of general or commodity specific
infrastructure for marketing of agricultural commodities and for strengthening and modernization
of existing agricultural markets, wholesale, rural and periodic or in tribal areas. The scheme is
reform linked, to be implemented in those States/UTs that amend the APMC Act wherever
required to allow setting up of agricultural markets in private and cooperative sectors. The States
of Madhya Pradesh, Tamil Nadu, Kerala, Manipur, Himachal Pradesh, Andhra Pradesh, Punjab,
Sikkim, Nagaland and Andaman & Nicobar Islands (U.T.) have so far been notified for
implementation of the Central Sector Scheme, being the reforming States. Under the scheme,
back ended subsidy @ 25% of capital cost of the project is provided in all States and @ 33.3% of
capital cost in case of NE States, hilly areas and SC/ST entrepreneurs.
Storage Infrastructure
Storage infrastructure is necessary for carrying over the agricultural produce from production
periods to rest of the year. Lack of adequate scientific storage facilities cause heavy losses to
farmers in terms of wastage in quantity and quality of produce in general and of fruit and
vegetables in particular. Seasonal fluctuations in prices are aggravated in the absence of proper
scientific storage facilities. There is palpable lack of storage infrastructure throughout the
country, especially in the hill and remote areas, where all the more the requirement is more
important. It is well known that small farmers do not have the economic strength to retain
produce with themselves till the market prices are favourable. There is a felt need in the country
to provide the farming community with facilities for scientific storage so that wastage and
produce deterioration are avoided and also to enable it to meet its credit requirement without
being compelled to sell the produce at a time when the prices are low.
Among the principal agencies engaged in warehousing and storage, FCI constructs godowns for
their own needs of procurement and public distribution, the storage of CWC/ SWCs is by and
large utilised by FCI, traders and for stocking fertilizers. These principal agencies have,
therefore, by and large tended to bypass the requirement of farming community in the rural areas.
To consider various aspects of the problems relating to storage of agricultural produce and to
improve the country’s storage capacity and also storage technology, the Govt. constituted a High
level Expert Committee on Cold storage and storage (2003) which inter alia recommended
that about 20 lakh tonne storage capacity may be created in rural/semi-urban areas. Creation of
large utilised by FCI, traders and for stocking fertilizers. These principal agencies have,
therefore, by and large tended to bypass the requirement of farming community in the rural areas.
To consider various aspects of the problems relating to storage of agricultural produce and to
improve the country’s storage capacity and also storage technology, the Govt. constituted a High
level Expert Committee on Cold storage and storage (2003) which inter alia recommended
that about 20 lakh tonne storage capacity may be created in rural/semi-urban areas. Creation of
storage facilities for agricultural produce, particularly in the rural area has also been emphasized
in the National Agriculture Policy. An Inter-Ministerial Task Force constituted by the Ministry
of Agriculture has in its report inter alia recommended in 2002 that in addition to 78.83 million
tonne available storage capacity in the country additional storage capacity of 130 lakh tonne may
be created during 10th plan period. Of this 90 lakh tonne capacity is to be created in private and
cooperative sector.
Accordingly the capital investment subsidy scheme titled ‘Gramin Bhandaran Yojana’ has
been launched w.e.f. 01.04.2001. The main objectives of the scheme include creation of scientific
storage capacity with allied facilities in rural areas to meet out various requirements of farmers
for storing farm produce, processed farm produce, agricultural inputs, etc., and prevention of
distress by creating the facility of pledge loan and marketing credit.
The Finance Minister in the 2001-2002 Budget has announced creation of Rural Godowns for
non-perishables on the lines of construction of cold storages under the back-ended subsidy
scheme implemented by the National Horticulture Board. Though a total of 90 lakh tonne
capacity of Rural Godown was targeted during 10th Plan period, the same has now been revised
upwards to 140 lakh tonne on the target of 90 lakh tonne capacity was already achieved during
2004-05 itself. Increased requirement of Rural Storage has been necessitated on account of
increase in the production of food grain and its continuing increasing trend. The scheme has
now been made farmers’ friendly by allowing subsidy for smaller godowns of 50 MT size in
general and of 25 in hilly areas. Five lakh tones capacity to be created is reserved for small
farmers and the target of construction in the Tenth Plan is enhanced from 90 to 140 lakh tonne.
The National Horticulture Board is providing assistance under a Central Scheme for the
construction/ renovation of cold storages in the country.
Some recommendations:
• Definition of rural godown should include a house, warehouse located in a rural area
where a rural periodic market/market yard/sub-yard/collection centers for different
agricultural commodities already exists.
• Any private entrepreneur, cooperative, APMCs, SWC/CWC, registered NGOs, Farmers
Registered Organisations, Accredited microcredit organisations and shelf-help groups
should be eligible to construct and operate rural godown under the scheme.
• The Godowns should be of viable capacity and rat proof with scientific storage following
the specification drawn by CWC/SWC.
• The growers/process’s, State procurement agencies, wholesalers, other agencies involved
in PDS etc. should be included as potential users.
• APMC market fee, sales tax, purchase tax, octroi etc. should not be leviable on the goods
stored.
• Similarly, provisions of Essential Commodity Act, Labour Act, Mathadi Act, Shop
Establishment Act, Industrial Disputes Act etc. should not be applicable to these
Warehouses.
• The godown owners/operators should be permitted to play the role of on-lender so as to
channel credit to potential users.
Cold Storage
It is a matter of concern that more than 30 per cent of fruits and vegetables produced in the
country are lost due to lack of proper handling, stoarge and procesing facilities. Cold
storages are most important infrastructural need for perishable and semi perishable
commodities which need an immediate attention. The present storage capacity available is
sufficient only for 10 per cent of total production of fruits and vegetables. With the
anticipated increase in production of fruit and vegetables and other perishable commodities,
the cold storage capacity requirement would be much higher. Foreseeing the future
requirements of the fresh/precooked/frozen fruits and vegetables and their products as well
as anticipated change in the food habits in favour of processed food, the capacity
requirement for post harvest management of perishables is estimated at more than five times
the presently available capacity. The investment should basically be made by the private
sector only. In future, there would be a need for multi-chamber type of cold storage units for
various perishable and other products. For encouraging private entrepreneurs there is a need
to provide subsidy to make the units viable for some initial years. This apart, the regulatory
arrangements should also be reviewed and simplified for attracting private investment in this
 as anticipated change in the food habits in favour of processed food, the capacity
requirement for post harvest management of perishables is estimated at more than five times
the presently available capacity. The investment should basically be made by the private
sector only. In future, there would be a need for multi-chamber type of cold storage units for
various perishable and other products. For encouraging private entrepreneurs there is a need
to provide subsidy to make the units viable for some initial years. This apart, the regulatory
arrangements should also be reviewed and simplified for attracting private investment in this
venture. There is a need to provide incentives in reducing current expenses such as tax relief
in electricity.
Physical Facilities in Markets
The infrastructural amenities are made available in the regulated markets. Auction platforms
are needed in market for settlement of price of the produce in a congenial atmosphere between
buyers and sellers. Some commodities when brought for sale contain higher moisture than
desired level and hence there should be a space for drying. Cold storage units are needed in the
markets where perishable commodities are brought for sale. They are brought for sale only in a
few markets.
No doubt, the govt. has created considerable infrastructure at the wholesale market level in terms
of market yards with associated facilities, approach roads and market committees with
representation of farmers. But still, there is considerable gap in the facilities available in the
market yards. Most of the regulated market yards in the country at present lack facilities for
handling the produce arriving there. It reduces the effective participation of traders.
In 200-01
• Both covered and open auction platforms exist in only two-thirds of the regulated
markets
• Presently only one-fourth of the markets have common drying yards.
• Trader modules viz. shop, godown and platform in front of shop exist in 63% of the
markets.
• The cold storage units exist only in 9% of the markets
• grading facilities exist in less than one-third of the markets
• The basic facilities viz. internal roads, boundary walls, electric lights, loading and
unloading facilities and weighing equipment are available in more than 80% of the
markets.
• Farmers’ rest houses exist in more than half of the regulated markets.
• number of fruit and vegetables markets brought under regulation is small (hence their
infrastructure is poorer)
Miscellaneous Infrastructure
• The electronic trading would be more appropriate form of direct marketing between
different buyers and sellers. Every market committee should be provided with facility of
electronic trading by setting up a special kiosk for the purpose.
• Better mobile and telephone connectivity in rural areas (penetration in 2012 around
40% only)
• There is an urgent need for investment in providing road connectivity to remaining
unconnected villages.
• Apart from general purpose markets, there is need for developing specialized markets
for fruit and vegetables. It has been assessed that there are at least 241 such places in the
country where fruit and vegetables markets should be developed. The infrastructure
required for such markets depends on the volume of arrivals which in turn depends on
the size of population to which these markets cater.
• There is a need to promote Apni Mandi (farmer’s market for direct marketing) in all
the districts, rather than establishing them at few centres
• Rural periodic market (haats/weekly bazaars) is the first contact point for producer –
sellers for encashing their agricultural produce and buying other goods needed by them.
Even minimum necessary infrastructural facilities for operational, technical and pricing
efficiency do not exist in most of these rural periodic markets. Owing to their financial
non-viability, these markets did not receive adequate attention. Even though the
73rd Amendment to Constitution bestowed management of rural markets to village
panchayats, different authorities still continue to own and operate these
markets. Moreover, where these markets are brought under regulation as sub yards, and
have turned to a case of multiple collection of ground rent, market fee and other charges
etc. by different agencies disregarding their developmental responsibilities. The fees or
other charges collected in these markets are also disproportionate to the amenities and
facilities rendered. The rural periodic markets, besides transacting agricultural and allied
commodities, also perform the function of distribution of items of daily needs of the rural
 panchayats, different authorities still continue to own and operate these
markets. Moreover, where these markets are brought under regulation as sub yards, and
have turned to a case of multiple collection of ground rent, market fee and other charges
etc. by different agencies disregarding their developmental responsibilities. The fees or
other charges collected in these markets are also disproportionate to the amenities and
facilities rendered. The rural periodic markets, besides transacting agricultural and allied
commodities, also perform the function of distribution of items of daily needs of the rural
population. Farmer is a seller, consumer and even trader in these grass root level markets.
80% of the household income of the rural masses is estimated to be spent at these
markets.
• There is urgent need to develop these rural periodic markets in a phased manner with
necessary infrastructure amenities to have a strong base level link in the marketing chain.
The rural market can also be used for effective credit, input marketing and procurement
activities. Haats need to be provided with mobile banks on haat days by Gramin
Banks. Their development should be looked as socio-economic development as
multipurpose growth centers so that these places could be used for other developmental
activities related to health, education, animal husbandry on days other than haat day and
a scheme to this effect in the sector is, therefore, necessary.
• The wholesale trade combines several functions. Financing is one of these functions
rendered by the Commission agents and traders known as adatiyas in many parts of the
country. Kuccha adatiyasare provided finance by pucca adatiyas to make payment to the
farmers. Where produce can be carried in inventory with associated incentives, farmers
often access credit from the wholesale trade. The informal sector provides significant
credit to agriculture and wholesale trade, but the cost of credit is high compared to the
rate at which it may be provided by banks. Lending against stocks or inventory of
produce is a significant activity of banks. For example, banks lend to cotton spinning
mills against stocks of cotton. However, bank credit to farmers against agriculture
produce is quite uncommon. These lacunae should be corrected.
• The country would also require reefer container/vans for transport of perishable items
for domestic and export marketing. At present their availability in the country is
negligible in comparison to the present production of perishable commodities. There is a
need to encourage the investors in this area by providing incentives.
• Cleaning, Grading and Packaging: The importance of these facilities can be hardly
over emphasized. At present, the quantity graded at producers level is almost
negligible. There is a need to create facilities for cleaning, grading and packaging not
only at primary level but also in the villages from where produce is brought to the market
for sale. In the absence of such facility at the village level, the kind of pollution and
congestion created at market yards during the peak arrivals period is well known. There
is need to promote proper packaging after grading so that further chances of adulteration
or temptation may not be there. Besides this there is a strong need to educate the farmers
for proper packaging and grading before they bring the produce to the market. Scientific
packaging should be encouraged at the farm level through subsidy support.
• Export Zones and Food Parks: With a view to taking advantage of new international
trade environment, there is a need to encourage export of high value traditional/non-
traditional products grown in various parts of the country. Commodities having export
potential are several fruits and vegetables, raw as well as processed and packed spices
like cumin, fennel, coriander and other farm products like fenugreek and hena for which
there is significant demand by Indian Diaspora and others in several countries.
However, there is a need to educate and train the growers of these crops in producing,
grading and packing for overseas markets and create necessary infrastructure. A scheme
of creating Export Oriented Agri-Zones (EOAZ) has been announced by the Govt. of
India (Ministry of Commerce) which should be promoted by providing institutional and
physical infrastructure in each of these as per the needs of the specific commodity. In
some of EOAZs, there is also a need to establish what is called Food Parks. In these
parks, some common facilities like electricity and warehouse should be created with
central government assistance which will help in attracting investment by the private
sector and the state government.
• Considering the increase in demand for value added and processed products, there is a
need to enhance the capacity of agro-processing sector. This will not only help in
stabilizing the prices realized by farmers but also in creating employment in rural
areas. The food-processing sector alone provides tremendous potential in this
area. Quality control and standardization will be extremely important in this
endeavour. The Central government should establish or encourage a network of food
 • Considering the increase in demand for value added and processed products, there is a
need to enhance the capacity of agro-processing sector. This will not only help in
stabilizing the prices realized by farmers but also in creating employment in rural
areas. The food-processing sector alone provides tremendous potential in this
area. Quality control and standardization will be extremely important in this
endeavour. The Central government should establish or encourage a network of food
analysis laboratories in the country. This will also be necessary to face competition from
imported processed products.
• Sources of Investment: For realizing the potential of investment in agricultural
marketing system, a major part of which need to come from the private sector, a
conducive and favourable environment would have to be created. For attracting the
private sector investment, there is a need for (
o making complementary investment by the State and Central government;
o subsidizing a few activities to enable the private sector initiatives to attain
viability;
o active stance by the Central government in some initiatives
o reducing the regulatory controls and simplifying the procedures; and
o Ensuring adequate credit flows to agricultural marketing activities.
Agricultural marketing and trade activities like construction of storage structure; rural godowns;
cold storages, reefer vans; cleaning, grading & packing houses; export oriented agri-zones; and
agro – processing and value addition should be included under the definition of priority sector
for the purpose of lending by financial institutions.
Marketing Research & Information Network
With a view to provide to electronic connectivity to all the important wholesale
markets in the country, this Department is implementing a Marketing Information Network
Scheme viz. ‘AGMARKNET’. The aim of the scheme is to collect and disseminate (price and
market related) information in respect of agricultural commodities. The scheme was launched in
the year 2000-01 and as on date 3200 markets from all over the country have been linked to a
central portal. ‘AGMARKNET’ is a unique live portal on agricultural commodities,
technically supported by a high capacity Central server and the programming capabilities of the
NIC and the data is fed into the system and later disseminated to farmers in a decentralized mode
through the voluntary cooperation of mandi staff.
Market information is needed by farmers in planning production and marketing, and is equally
required by other market participants in arriving at optimal trading decisions. The existence and
dissemination of complete and accurate marketing information is the key to achieving both
operational and pricing efficiency in the marketing system and IT has an important role to play in
the process.
Price related information: The data is usually sent by e-mail from the mandi in the afternoon
indicating the day’s minimum price of the commodity, the maximum price and the modal price,
i.e. the price at which the maximum sales have taken place. The quantity of arrivals is also
reported. E-mail from all the markets are compiled in the DMI/NIC Headquarter and after
verification uploaded on the portal. Information on the portal is in public domain and can be
accessed freely. As on date, price information in respect of more than 300 commodities and
3000 varieties are reported on the Site.
Market related information: In addition to price, several other markets related information is
provided on the portal. These relate to accepted standards of grades, labeling, sanitary and
phyto-sanitary requirements, physical infrastructure of storage and warehousing, marketing laws,
fees payable etc. Efforts are on to prepare a national atlas of agricultural markets on a GIS
Platform that would indicate the availability of entire marketing infrastructure in the country
including storages, cold storages, markets and related infrastructure. Similarly commodity
profiles indicating the post-harvest requirements of important commodities in terms of quality,
packing, standards etc. are being loaded on to the portal. Commodities already covered include
Rice, Bengal gram, Red gram and mustard rapeseed.
Links: The portal has links with several Ministries and Central Institutions that are directly
involved in implementing agriculture related programmes. For example, ministries of
Agriculture, Commerce, Food and Public Distribution, Consumer Affairs and Health; several
central institutions set up by Government of India viz. NCDC, NAFED, TRIFED, NDDB,
NHB, APEDA etc; and, Commodity Boards and Export Promotion Councils for specific
commodities and to promote exports. The portal is also linked online with commodity
exchanges, providing future prices in respect of cereals, oilseeds, etc. International price trends
of agricultural commodities available on FAO website can also be acceded through the portal.
The portal is constantly enriched by dissemination of information in regional languages.
Agriculture, Commerce, Food and Public Distribution, Consumer Affairs and Health; several
central institutions set up by Government of India viz. NCDC, NAFED, TRIFED, NDDB,
NHB, APEDA etc; and, Commodity Boards and Export Promotion Councils for specific
commodities and to promote exports. The portal is also linked online with commodity
exchanges, providing future prices in respect of cereals, oilseeds, etc. International price trends
of agricultural commodities available on FAO website can also be acceded through the portal.
The portal is constantly enriched by dissemination of information in regional languages.
Users: Price and other data reflected on the portal is being made use of by several agencies
including Banks, Commodity Exchanges, Newspapers, Market Committees, Farmers’
Organizations etc. Price information on the portal has credibility since it is generated by the
Government system and acts as a reference point.
Improvement needed:
To facilitate both the Government as well as the private sector in planning development of an
appropriate marketing strategy in agriculture sector, it would be necessary to create at national
level an ‘Atlas of Agricultural Markets’ which would provide information in respect of each
commodity, major areas of production, movement and storage and of market and consuming
centers. This would be useful for research and policy making. The National Atlas of
Agricultural Markets will be based on the application of GIS tools, such mapping activity then
can also be put on the internet for it's greater usage.

Facility of ‘electronic’ trading or e-commerce should also be provided on the market

information network portal to enable producers to directly transact business with the buyers. This
would enable increasing volume of direct trading in standardized quality products across the
country, benefiting both the consumers as well as the producers.
Marketing extension, Training and Research
In order to strengthen and develop agricultural marketing system in the country, efforts in the
area of training and extension have to be made at three levels.
• At policy level, it is necessary to formulate an effective policy on agricultural marketing
under which various components of marketing programmes and activities can be
integrated and coordinated.
• At managerial level, the managerial and technical capabilities of those technical
institutions involved in the implementation of the marketing policy needs to be improved
to enable to work to be carried out more efficiently and economically.
• At farm level, marketing policies and programmes should assist farmers in marketing
their produce, purchase their inputs and raise their incomes. At farm level, however, the
effectiveness of Government policies and programmes often looses its impact, especially
for those farmers whose marketable surplus is too small and not oriented to marketing
requirements.
In India, although at village and farm level agricultural production extension services exist but
marketing extension work designed to benefit farmers and other market functionaries does not
exist. Marketing Extension has not been accorded due importance it deserves. In the absence of
emphasis on marketing extension, technology transfer in the field of agricultural marketing has
been sluggish.
Agricultural marketing is witnessing major changes owing to liberalization and globalisation of
markets. If the Indian farmers have to withstand the possible onslaught of international
competitors (post-WTO scenario) both in domestic as well as overseas markets the marketing
extension would be an effective instrument to safeguard farmers interest through proper
education and guidance on regular basis. In this context agriculture has to be market driven,
more cost effective, competitive, innovative and responsive to high tech and I.T. applications.
The objective of imparting training to marketing functionaries and stake holders should be to
create an ambiance of Good Marketing Practices in the country to promote the interests of
farmers as well as consumers.
The marketing extension service to assist small and marginal farmers in solving the problems
faced in marketing their produce is therefore, a sine-qua-non in the free trade environment.
The marketing extension envisages:
• Advise on product planning- Even for small farmers, the concept of product planning
i.e. the careful selection of the crops and varieties to be grown with market ability in
mind, is an important starting point. Providing this basic advice to the farmers is very
essential to enable them to withstand the competition in the market.
• Marketing Information (Discussed earlier) - The farmers need information on two
aspects of marketing viz. current price and market arrival information and forecasting of
market trends. This information has also to be supplemented with other information about
 i.e. the careful selection of the crops and varieties to be grown with market ability in
mind, is an important starting point. Providing this basic advice to the farmers is very
essential to enable them to withstand the competition in the market.
• Marketing Information (Discussed earlier) - The farmers need information on two
aspects of marketing viz. current price and market arrival information and forecasting of
market trends. This information has also to be supplemented with other information about
reaching a particular market to get the particular price, arrangements available in the
market related to storage, transactional methods, quality requirements, post-harvest
handling requirements etc. Along with the information of spot market, the forward and
futures market prices are also required to be disseminated to the farmers. They have also
to be educated or trained in taking appropriate signals from the forward and futures
prices.
• Securing markets for farmers - The extension agency can advise farmers 'in several
ways. For grains to be sold to the government procurement agencies the extension
workers can advise on how, when and at what price to sell the designated food grains to
the Government agencies. For cash crops, farmers need assistance in making contract
marketing arrangements with processors, wholesale traders or other bulk buyers.
• Advise on alternate marketing - In order to avoid 'gluts' in the small local markets,
farmers can be advised to take benefit of warehousing with pledge finance schemes,
entering into forward contracts or go in for futures trading. A planned marketing strategy
will benefit the producers in terms of ideal income and help stabilize local market prices
and market supplies 'in terms of raising farmers income.
• Advise on improved marketing practices - Farmers need education on improved
harvesting methods, standardization and grading, improved packing and handling
practices, appropriate storing methods etc. for profitable marketing of his produce.
• Advise on establishing and operating markets - Marketing extension should help rural
population to establish and operate markets on their own to save from exploitative
elements. Operating within the framework of marketing rules and regulations, the rural
population will be able to protect their interests better when they visit distant wholesale
or terminal markets.
Recommendations:
• Training, capacity and extension systems in agricultural marketing will have to sensitise
and orient the beneficiaries to respond to these challenges.
• Knowledge has to be imparted at the grassroots level in areas such as market driven
production program, post-harvest management of agricultural and horticultural crops,
availability of marketing finance, information on facilities for quality assurance and
standards, grading, packaging, storage, transportation, contract farming, direct marketing,
alternative markets including Forward and Futures markets, commodity exchanges,
online market information system, quality certification, WTO related parameters etc.
• Training and education modules will have to be prepared in these areas for reaching the
region specific farmers in vernacular languages.
• Considering the limited reach of public extension service, privatization of extension
services with appropriate financial support from public sector is considered more
appropriate and practical. The NGOS, Cooperatives, Trade Associations, Private Limited
companies, and corporate bodies need to be encouraged to undertake marketing extension
activities.
• Agriclinic or Agribusiness Center (read about it separately) is a step in right direction
• Research in agricultural marketing assumes the most important role in the agricultural
marketing. Hence we should undertake need based research and play proactive role in
the area of research marketing effectively. Following area have been identified for
potential research marketing:
o Marketing technology adaptable to Indian conditions like labour intensive
technology without compromising quality;
o Dynamic studies of comparative advantage of commodities of India
o Provide Outlook information for prices and production for log, medium and short
term decisions.
o Structure conduct and Performance of Agricultural markets
o Study on cost and margins of agricultural crops
• The National Institute of Agricultural Marketing (NIAM), Jaipur should be the nodal
agency for implementation of training, extension and research programs in Agricultural
Marketing. The Institute should coordinate research activities in collaboration with State
Agricultural Universities, State Agricultural Marketing Boards, Directorate of Marketing,
Ministry of Agriculture & Cooperation and International Agencies involved in promoting
 o Structure conduct and Performance of Agricultural markets
o Study on cost and margins of agricultural crops
• The National Institute of Agricultural Marketing (NIAM), Jaipur should be the nodal
agency for implementation of training, extension and research programs in Agricultural
Marketing. The Institute should coordinate research activities in collaboration with State
Agricultural Universities, State Agricultural Marketing Boards, Directorate of Marketing,
Ministry of Agriculture & Cooperation and International Agencies involved in promoting
agricultural Marketing. Important areas of research can be Price discovery mechanism,
Supply Chain management, effectiveness of marketing institutions, export potentiality,
Implication of WTO on agricultural marketing, risk management etc.
• To facilitate private agencies to undertake extension programmes on regular basis for the
country as a whole, a 24 hours TV Kinas Channel on Doordarshan is necessary. There
are 75 channels operated by Doordarshan, out of this one channel should be devoted
exclusively to the farmers service. The Kisan Channel would be best visual media to
educate farmers by public as well as private agencies for both agricultural as well as
marketing extension service
• IT Application in Agricultural Marketing: Agricultural produce marketing requires
National and International connectivity between the market and exporter/growers/traders,
industry consumers in order to provide day-to-day information with regard to commodity
arrivals and prevailing rates etc., to provide links for online International Market
Information; to provide export-related documentation, to inform about the latest research
in agricultural marketing, packaging/storage etc. related information and to provide
linkage/connectivity with the World Trade Center (WTC), APEDA, NIAM, NBB, DNH,
IIP, State Agricultural Marketing Boards, and universities.
• The farmer advisory service should also be leveraged to the platform of Information
Technology.
• E-Catalogue for Commodity Profiles: In the present time of export competitiveness,
each and every product needs to the publicized highlighting its characteristics on nutrition
values, chemistry, quality standards, seasonally, quantity for supply and prices etc. A
brief commercial profile of the commodity would help the buyer in making comparative
analysis on account of cost and margins. Main objective of the scheme will be a) to
prepare commercial profiles of exportable commodities and b) to give exposure of
commodities to the international markets.
• National Atlas of Agricultural Markets would be useful for research and policy making.
Model APMC Act
While promoting the alternative marketing structure, however, Government needs to put in place
adequate safeguards to avoid any exploitation of farmers by the private trade and industries. For
this, there was a need to formulate a model legislation on agricultural marketing. The Ministry
of Agriculture accordingly formulated a model law on agricultural marketing in consultation
with the States Governments. The draft model legislation provides for:
• establishment of Private Markets/Yards, Direct Purchase Centres, Consumer/Farmers
Markets for direct sale and promotion of Public Private Partnership in the management
and development of agricultural markets in the country
• Separate constitution for Special Markets for Commodities like Onions, Fruits,
vegetables, Flowers etc.
• regulate and promote contract-farming arrangements in the country by an institutional
arrangement for registration of sponsoring companies, recording of Contract Farming
Agreement, indemnity to farmers’ land and lays down a time bound dispute resolution
mechanism
• prohibition of commission agency in any transaction of agricultural commodities with
the producers
• redefines the role of present Agricultural Produce Market Committee to promote
alternative marketing system, contract farming, direct marketing and farmers/consumers
markets
• redefines the role of State Agricultural Marketing Boards to promote standardization,
grading, quality certification, market led extension and training of farmers and market
functionaries in marketing related areas
• constitution of State Agricultural Produce Marketing Standards Bureau for promotion of
Grading, Standardization and Quality Certification of agricultural produce. This would
facilitate pledge financing, E-trading, direct purchasing, export, forward/future trading
and introduction of negotiable warehousing receipt system in respect of agricultural
commodities

Implementation of agricultural marketing reforms

The following steps have been taken to persuade the States to bring changes in the APMC
Act on the lines of the Model Act:
• National level meetings were organized with the State Governments in 2004
• Follow up letter from Union Agriculture Minister sent to State Ministers In-charge of
Agricultural Marketing for amending the APMC Act in 2004 and 2005
• A new Central Sector Scheme to provide investment subsidy on market
infrastructure development projects implemented in November, 2004. Central
assistance under the scheme is to be provided in those States that amend the APMC Act
on the lines of the Model Act. An amount of Rs.25 crore was also released to NABARD/
NCDC to provide investment subsidy to eligible projects through banks in March, 2005.
• The States of Andhra Pradesh, Arunachal Pradesh, Assam, Goa, Gujarat, Himachal
Pradesh, Jharkhand, Karnataka, Maharashtra, Mizoram, Nagaland, Odisha, Rajasthan,
Sikkim, Tripura and Uttarakhand have amended their APMC Act on the lines of the
Model Act. Bihar has repealed their APMC Act since September, 2006. Other States are
in the process of amending their APMC Acts. Nine States have amended their APMC
Rules so far.
• An Empowered Committee was constituted in 2010 to persuade States to implement the
reforms in Agricultural Marketing.
 reforms in Agricultural Marketing.
Other steps
• Agricultural Produce Inter-State Trade and Commerce (Development and
Regulation), Bill, 2012 has been prepared with the objective to promote free flow and
seamless inter-State transfer of agricultural produce across the country; promotion,
development and regulation of inter-state trade and commerce of agricultural produce for
the benefit of farmers and consumers; and providing a common national level market for
agricultural produce to avoid multiple licensing requirements, remove internal trade
barriers and bottlenecks. The Bill is being finalized in consultation with concerned
Ministries and State Governments
• Implementation of Plan Schemes viz. Marketing Research and Information Network
(MRIN), Construction of Rural Godowns (RGS); (iii) Development/ Strengthening of
Agricultural Marketing Infrastructure, Grading & Standardization (AMIGS); and (iv)
Strengthening of Agmark Grading Facilities (SAGF).
• Marketing Extension.
• Training of personnel in Agricultural Marketing Promotion of Standardization and
Grading of agricultural and allied produce under the Agricultural Produce (Grading &
Marking) Act, 1937 as amended in 1986.
The reports have been summarized earlier. It’s just a list of recommendations. Not of much
importance now

EXPERT COMMITTEE ON AGRICULTURAL MARKETING, 2000 (S. L.

Guru)
1. Government is promoting organized marketing of agricultural commodities in the country
through a network of regulated markets. Most of the state Governments
and Union Territories have enacted legislations to provide for development of agricultural
produce market. As on 31.3.2001, 7177 markets have been covered under regulation. The
country also has nearly 27,294 rural periodical markets, about 15% of which function under the
ambit of regulation.
2. Regulated markets have helped in mitigating the market handicaps of producers/sellers at the
wholesale assembling level. But, the rural periodic markets in general, and the tribal markets in
particular, remained out of its developmental ambit. It was envisaged that physical markets with
facilities and services would attract the farmers and the buyers creating competitive trade
environment thereby offering best of the prices to the producers/sellers.
3. The Institution of regulated market has, however, achieved a limited success. These markets
were supposed to ensure smooth and orderly development of agri-marketing by ensuring fair
play of trade practices and market forces. Over a period of time these markets have, however,
acquired the status of restrictive and regulated markets, providing no help in direct and free
marketing, organized retailing, smooth raw material supplies to agro – processing, competitive
trading, information exchange and adoption of innovative marketing systems and technologies.
Monopolistic practices and modalities have prevented development of free and competitive trade
in agri- marketing, future markets, use of latest technologies in post harvest technology and
handling exports, agro based industries, warehousing etc. Now these markets have failed in
containing the scenarios of plenty’s and scarcities.
4. An efficient agricultural marketing is essential for the development of the agricultural
sector. In as much as it provides outlets and incentives for increased production, the marketing
system contributes greatly to the commercialization of subsistence farmers. World-wide,
Governments have recognized the importance of liberalizing agricultural markets. Government
policy has to effectively address issues of marketing liberalization and help to overcome the
constraints faced by various organizations including private sector involved in agri-marketing.
The ever increasing production, spread of latest technologies, changing socio – economic
environment, increasing demand for downsizing the distribution chain and reducing the margin
between farmers and ultimate consumers, challenges emerging out of liberalization and
globalization in the post WTO period requires a vibrant, dynamic and assimilative marketing
structure and system.
5. In promoting vibrant competitive marketing systems, Government need to examine all
existing policies, rules and regulations with a view to remove all legal provisions inhibiting free
marketing system. Today, State Governments alone are empowered to initiate the process of
setting up of a market for certain commodities, which are regulated and for certain areas, in
which the Regulation is enforced. These provisions will have to be replaced by providing an
omnibus provision that anybody can set up a market, provided minimum standards,
specifications, formalities and procedures which may be let down by the Government of India
are complied with. The Government of Karnataka has set the ball rolling by amending its Act to
allow the National Dairy Development Board to set up wholesale fruit and vegetables market
at Bangalore with the subsidiary collection centers to promote integrated marketing of
horticultural produce grown in the State. Private Sector, Corporates, Joint Ventures need to be
similarly encouraged to set up markets for free and competitive trade.
6. The institution of regulated markets, set up to strengthen and develop agricultural marketing
6. The institution of regulated markets, set up to strengthen and develop agricultural marketing
in the country has achieved a limited success. The restrictive legal provisions did not augur well
with competitive market structure. Promoting competition in the trade and facilitating farmers
with supporting services like grading, standardization, storage with pledge finance and facilities
in the markets have become secondary activities. Funds from the Agricultural Marketing Boards
have been siphoned off in many states to Public Ledger Account by the State
Authorities. Consequently, the modernization/infrastructure development conducive to
operational efficiency of the markets has suffered heavily. The Committee recommends that by
an appropriate amendment in the Act the utilization of funds by the market committees and the
Marketing Boards for these activities may be made mandatory.
7. The spot markets, have not been linked with the forward and future markets to receive price
signals. The futures trading in agricultural commodities is also regulated by the Government.
The linkage between the spot and futures markets seems to be poor due to domination of the
speculators. Government has, to continue its efforts to strengthen and institutionalize commodity
exchanges to instill confidence and awareness among market players.
8. There is an imperative need to make Government administered marketing organizations
administratively viable and managerially competent in keeping with liberalized trade
atmosphere. The marketing activities are many-folded and need liaison and collaboration with
related organizations. Market committees including sub-yards, should be headed by
professionals. Existing Secretaries need to be trained in professional management of the
markets. The functions of APMC and Marketing Boards may have to be remodeled for this
purpose.
9. The nature of legal framework within which agricultural markets operate has a fundamental
effect on the functioning of the agricultural marketing system. Legal reforms can play an
important role in making the marketing system more effective and efficient by removing
unnecessary conditions and by establishing a sound framework to reduce uncertainty of the
market. A review is, therefore required in respect of all laws which regulate participation in
market such as registration/licensing, commodities traded, controls on packaging and labeling,
laws affecting market place, laws affecting supply including controls on movement of produc
and volume of commodities traded, laws relating to access to credit and capital dispute resolution
mechanism.
10. The Essential Commodities Act, 1955 which has resulted in restrictions on storage and free
movement of stocks, initiative by the trade in innovation and investment, should be repealed to
make way for play of free market forces in real sense. The Committee recommends that a Task
Force be set up under the Ministry of Agriculture, Department of Agriculture & Cooperation to
undertake a review of all marketing legislations, policies and programmes and suggest various
reforms in the statutory arrangements relating to agricultural marketing as well as policies and
programmes for development and strengthening of agricultural marketing with specific reference
to needed investment, package of incentives and easy and adequate marketing credit.
11. Direct marketing enables farmers to meet the specific requirements of wholesalers from the
farmers' inventory of graded produce and of retail consumers based on consumers' preferences,
thus enabling farmers to dynamically take advantage of favourable prices and improve their net
margin. It encourages farmers to undertake grading of farm produce at the farm gate and obviates
the necessity of farmers to haul produce to regulated markets that are not necessarily spaced on
the principles of efficiency. Direct marketing thus enables farmers and buyers to economize on
transportation costs and to improve price realization considerably.
12. The Committee suggests promotion of direct marketing as one of the alternative marketing
structure that sustains incentives for quality and enhanced productivity, reduce distribution
losses, improving farmer incomes with improved technology support and methods. The market
will operate outside the purview of the Agricultural produce Marketing Act and will be owned
by professional agencies in private sector, wholesalers, trade associations and other
investors. The government’s role should be that of a facilitator rather than that of having control
over the management of the markets.
13. Direct marketing by farmers to the consumers was experimented through Apni Mandis
in Punjaband Haryana. The concept, with certain improvements got popularized in Andhra
Pradesh through Rythu Bazars and in Tamil Nadu as Uzhavar Santhaigal. At present, these
markets are being run at the expenses of State exchequer, as a promotional measure, to inculcate
markets are being run at the expenses of State exchequer, as a promotional measure, to inculcate
habit of marketing without help of middlemen by the small and marginal producers of fruit and
vegetables. Considering the vastness of the country, more and more such markets need to come
up in the organized sector with private investment so that they can be developed in tune with the
market requirements with backward & forward linkages. A common Code of Conduct and
modalities with regard to ownership, operation & need based infrastructure will have to be
prepared and circulated to spread the concept of direct marketing by the farmers.
14. The similar logic holds good for consumer organizations also who can procure directly from
producers and distribute to the consumers commensurate with their purchasing powers. The
Government should support these organizations with schemes like providing back ended
incentives for refrigerated as well general transport, setting up of grading and packing houses,
credit at low interest etc., till they become financially self-sufficient on commercial lines.
15. Direct marketing through SHGs or informal groups, NGOs, cooperatives, Farmers
Associations, Companies, partnership, joint ventures may be encouraged by government to
various policy back up and programmes. These organizations may be encouraged to create and
manage markets physical as well as futures. The cooperatives however, will have to be freed
from the shackles of politician and bureaucrats.
16. As another form of direct marketing, the unemployed youth could be involved in
procurement of orders and supply of graded and packed products to different city dwellers. The
youth could be trained in marketing practices of procuring products and supplying them. The
financial assistance from the public sector to such ventures would generate entrepreneurship and
provide profitable employment to the younger generation. They could be given assistance in the
form of working capital to start the enterprise along with the necessary agri-business training.
17. The use of information technology in agri-marketing has become indispensable. Therefore
encouragement may be provided to generate and host useful portals, websites, databases,
information packages and other soft wares, generic as well as customize on agricultural
marketing. Info kiosks may be encouraged to be set up in the markets, spot as well as futures,
farmers organizations, Associations of traders and other functionaries for exploiting the
opportunities of information revolution, especially for online demand of different products;
product specifications with regard to quality, pack size, packaging material, quantity and the time
frame of supply; the transport cost involved and the marketing charges likely to be incurred in
the market where the goods are to be delivered; facilities available to the farmer in the buying
market; Re-handling of the produce, if necessary, in the supplying market to suit to the
requirement of the buyer market; the rules and regulations of the destination market, if it is
located outside the state at distant place, and other specific information as may be conducive for
the seller to transact the business with the purchasers; and the legal provisions related to storage,
transportation, phyto-sanitary requirements etc.
18. Forward contract may well be regarded as direct and alternative marketing facilitator. With
the initiation of the liberalization process in India, interest in futures markets has been revived
for their price risk management and price discovery roles, as well as handling the situation of
plenty’s and scarcities. In the country currently, futures contracts are traded in nine commodities
in 20 commodity exchanges. It is suggested that more and more commodities be added to
facilitate competitive and free marketing system.
19. A recent study conducted by the IIM, Ahmedabad has indicated that the performance of the
Indian commodity futures markets is varied across the commodities, exchanges and
contracts. They are deficient in several aspects such as infrastructure, logistic, management,
linkages with financial institutions, reliability, integrity and an efficient information system
which do not encourage a large group of the market players in the commodity sector to trade in
this market. Government has, therefore, to continue its efforts to strengthen the exchanges and to
instill confidence and awareness among market players.
20. Poor credit flows have had an adverse effect on the development of agricultural marketing
systems in the country. Certified warehouses and a system of negotiable warehouse receipts
could lead to improved credit delivery, better loan recovery and convenience in asset
management. The existing Government warehousing corporations should play a leading role in
the development of warehousing. However, they can only cover part of the field, which should
be opened up to private operators, particularly those who already provide storage services. The
institutionalization of the warehouse receipts system through the commodity exchanges is most
likely to yield the best results in the context of promoting and propagating warehouse receipts, in
likely to yield the best results in the context of promoting and propagating warehouse receipts, in
particular electronic warehouse receipts, and a national system of warehouse receipts.
21. Pledge financing enables the usage of inventories of graded produce as collateral for
accessing credit from the organized credit market at cheaper rates of interest that reflect the lower
credit and collateral risk, thus enabling farmers to dynamically take advantage of favourable
prices and improve their net margin. It enables farmers to hold inventory of graded produce
under favourable storage conditions and standardized preservation under supervisory conditions;
promotes rural godowns and warehousing. It also advances grading of farm produce to the farm
gate, thus enabling farmers to improve price realization considerably; identifying preserved
storage closer to farms.
22. Produce market loan for a period up to six months to farmers availing crop loans up to Rs.
One lakh are reckoned as priority sector advance. Banks are financing Artiya’s for provision of
inputs to farmers. Finance to wholesaler / traders is not treated as agricultural finance. Loans for
construction/ running storage facilities are already included under priority lending. It is
suggested that the existing limit of priority sector advance should be revised upward suitably
taking in to consideration innovation in agricultural sector in the post WTO regime. The credit
flow to the agricultural marketing is very meager. The banking environment and lending policies
and programmes for financing is not found conducive for the increased capital needs of
agricultural marketing. Therefore government is requested to design full fledged agricultural
marketing credit policy considering the requirement of increased production, market innovations,
technologies and socio-economic changes with specific reference to post WTO regime.
23. Market infrastructure is important not only for the performance of various marketing
functions and expansion of the size of the market but also for transfer of appropriate price signals
leading to improved marketing efficiency. High investment with entrepreneurial skills are
required for creation and managing these infrastructures. Therefore private investment in the
market infrastructure development may be encouraged by modifying various procedure backed
up by package of incentives. Nevertheless, for providing infrastructure in remote and difficult
areas, the public sector would need to continue to play an important role.
24. Projections of production and marketed surplus of various farm products show that even at
the existing marketed surplus-output ratios, the quantities which the marketing system will be
required to handle in future, are quite large. The marketing system backed by strong, adequate
infrastructure is the core content of agri-marketing. Development of infrastructure with in spot
markets and others places is a huge task. Committee based on the estimates of the State Master
Plan for Development of Regulated Markets found that there is a need of total investment of Rs
6026 crores
25. Apart from general purpose markets, there is need for developing specialized markets for
fruits and vegetables. It has been assessed that there are at least 241 such places in the country
where fruit and vegetables markets should be developed. The investment requirement for fruit
and vegetables markets in the country is around Rs.970 crores.
26. Rural periodic market is the first contact point for producer – sellers for encashing his
agricultural produce and buying other goods needed by them. There are in all 27294 rural
periodic markets including those for livestock, in the country. There is urgent need to develop
these rural periodic markets in a phased manner with necessary infrastructural amenities to have
a strong base level link in the marketing chain. The investment requirement for developing these
primary rural market places is estimated at Rs.2146 crores.
27. Encouragement by way of policy back up as well as financial support is recommended for
special type of markets like floriculture, cattles etc. For export promotion and inter state
marketing setting up of 50 mega markets in the country with government financial support in
private, public, cooperative or joint venture is suggested. Encouragement may be considered for
promoting marketing of organically grown produce, fruits & vegetables, medicinal plants, herbs
etc.
28. Storage infrastructure is found necessary for carrying the agricultural produce from
production to consuming periods. Country needs much more storage facility than what is
available now. This is specially more important for hill and remote areas in several states. For
an additional 20 million storage capacity the investment required is estimated at Rs.5400 Crores.
The private sector needs to be encouraged to enter the storage and warehousing activity and
make investment of this magnitude. Village Panchayats, cooperatives, SHGs and farmers
organizations may be encouraged for undertaking warehousing.
29. Committee deliberated various alternative, competitive and affordable preservation and
temperature management technologies for perishables. The Expert Committee recommends
increased use of alternate use of technologies like, Irradiation, Nitrogen fill packaging, Vacuum
packaging, shrimp wrapping and others. However, the Committee recognize the relevance and
utility of cool chains and therefore supports the government programme of end used subsidies for
cold storages. Cold storages are most important infrastructural need for perishable and semi
perishable commodities which need an immediate attention. The present storage capacity
available is sufficient only for 10 per cent of total production of fruits and vegetables. In the next
10 years, 15000 cold storage units would need an investment of the order of Rs.27,000 Crores.
The investment should basically be made by the private sector. In future, there would be a need
for multi-chamber type of cold storage units for various perishable and other products in the
country. For encouraging private entrepreneurs there is a need to provide incentives to make the
units viable for some initial years.
30. The country require reefer containers/vans for transport of perishable items for domestic and
export marketing. At present their availability in the country is negligible in comparison to the
present production of perishable commodities. For handling the expected higher production in
the next 10 years, at least 3000 reefer containers/vans with a capacity up to 8 tonnes each would
be required. This would require an investment of Rs.600 crores, which shall be created by
private, cooperative and joint sector sector. There is a need to encourage the investors in the area
by providing suitable incentives.
31. There is a need to create facilities for cleaning, grading and packaging not only in spot
markets but also in the villages from where produce is brought to the market for sale. There is
need to promote proper packaging after grading so that further chances of adulteration may not
be there. Besides this there is a strong need to educate the farmers for proper packaging and
grading before they bring the produce to the market. Scientific packaging should be encouraged
at the farmer level through various incentives. The Expert Committee feels that this is an
important activity, and an investment of Rs.2000 crores should be earmarked for this purpose
during the next 10 years.
32. With a view to taking advantage of new international trade environment, there is a need to
encourage export of high value non-traditional products grown in various parts of the
country. The Government of India (Ministry of Commerce) has announced a scheme of creating
Export Oriented Agri-Zone (EOAZ). It should be promoted by providing institutional and
physical infrastructure in each of these as per the needs of the specific commodity. In some of
EOAZs, there is also a need to establish what is called Food Parks. In these parks, some
common facilities like electricity and warehouse should be created with central government
assistance which will help in attracting investment by the private sector and the state
government. While most of the investment should be made by the private entrepreneurs, as a
way of incentive, government should invest in common facilities, and quality certification. The
estimated public investment is Rs.200 crores and private investment of around 400 crores on fifty
such EOAZs. In identification of EOAZs and Food Parks the Government of India should take
an active stance, rather than leaving it to the state governments. The Group further recommends
that commodity wise export potential studies be commissioned before establishing EOAZs.
33. Considering the rising demand for value added and processed products, there is a need for
enhancing the capacity of agro-processing sector. For attracting private initiative and investment
in food processing, the Government of India through Department of Food Processing and
National Horticulture Board have already formulated several schemes of assistance. There is
strong need to popularize their implementation in different agro-climatic zones by creating
awareness about these schemes.
34. At present, value addition is estimated at only seven per cent and processing only two percent
of the total production. Within next ten year, there is a need to increase value addition to 35
percent and processing at least 10 percent. Quality control and standardization will be extremely
important in this endeavour. The Central government should encourage a network of food
analysis laboratories in the country. This will also be necessary to face competition from
imported processed products.
35. Presently the alcoholic beverages based on fruit & vegetables are clubbed with other
alcoholic beverages. Whereas world over items like wines and beer which are based on fruit &
alcoholic beverages. Whereas world over items like wines and beer which are based on fruit &
vegetables and have low content of alcohol (ranging below 11-12%) are considered as items of
food and are promoted as health drinks. This sector has not developed in India so far because the
Excise laws have implications both in terms of financial pricing of the products as well as
restrictive legal frame work for setting up and operation of units for the manufacture of these
health drinks.
36. The Word “Plantation Crops” as mentioned in some labour laws and Land Ceiling Act has a
rather limited meaning pertaining mainly to coffee, tea, rubber, etc. If plantation is used as
generic term for an advanced form agriculture where various types of management from the
selection of land, selection of species to be grown, the financial support, the management of
labour, the processing & marketing are all done at a higher level than what is done for ordinary
agricultural crops, the horticulture is bound to get a fillip. The existing legal frame work will
open new avenues for development of entire horticulture sector if production of fruit &
vegetables, medicinal & aromatic plants, spices, is also brought under the definition of
plantation.
37. NIAM should become ‘Centre of Excellence’ for Asian Region and be headed by Technocrat,
Marketing Practitioner, Academician of national/international repute. Training in agricultural
marketing should be strengthened and NIAM should take active stance in the programme.
Training modules of different duration should be designed for farmers, NGOs, co-operatives,
extension workers, development functionaries, PRI representatives, development administrators,
people’s representatives and policy makers.
38. In India , although at village and farm level agricultural production extension services exist
but marketing extension work designed to benefit farmers and other market functionaries does
not exist. In the absence of emphasis on marketing extension, technology transfer in the field of
agricultural marketing has been sluggish. The marketing extension service to assist small and
marginal farmers in solving the problems faced in marketing their produce is a sine-qua-non in
the liberalized trade environment. A massive programme of marketing extension should be
launched at the disaggregated level. In each agro-climatic region the extension messages should
include (a) advise on product planning; (b) market information; (c) secure markets; (d) alternate
marketing channels; (e) improved marketing practices including grading and packing; and (f)
advantages of group marketing.
39. Considering the limited reach of public extension service, it is felt that privatization of
extension services with appropriate financial backup from the public sector is considered more
appropriate and practical. The NGOs, Cooperatives, Trade Associations, Private Limited
companies, and corporate bodies should be allowed and encouraged to undertake marketing
extension. To facilitate private agencies to undertake extension programmes on regular basis for
the country as a whole, a 24 hours TV Kisan Channel on Doordarshan is necessary. The Kisan
Channel would be best visual media to educate farmers by public as well as private agencies for
both agricultural as well as marketing extension service.
40. The agricultural marketing research which is becoming increasingly important has received
inadequate attention in the past. There has been a need to set up a liaison, linkages amongst the
research activities findings and the field position. The SAUs and the Regional & Other Centres of
ICAR should be given a mandate for applied research in agricultural marketing and functioning
of these units. Marketing organizations may be forced to set apart some funds for marketing
research.
41. The probable areas for training, research and information technology for producers as well as
different market functionaries could cover agri-business management; WTO and its
implementation; post-harvest management; grading, standardization and quality assurance;
information technology.
42. The sensitization programmes for state level, district level, farmers and stake holders would
also be conducted. The programme on post-harvest management for agricultural, horticultural
crops, livestock, marine products, etc. may be conducted on regular basis. Quality assurance
specially for perishables awareness on standardization and grading & quality control are the
other areas for government support.
43. Agricultural Produce Marketing requires connectivity between the market and
Exporter/Growers/Traders, through wide area network (WAN) of National and International
linkages in order to provide day-to-day information with regard to commodity arrivals and
prevailing rates etc., to provide links for online International Market Information; to provide
prevailing rates etc., to provide links for online International Market Information; to provide
export-related documentation, to inform about the latest research in agricultural marketing,
packaging/storage etc. related information and to provide linkage/Connectivity with the World
Trade Centre (WTC), APEDA, NIAM, NHB, DMI, IIP, State Agricultural Marketing Boards,
and universities.
44. Other areas of importance are a) Setting up of value added networks services, Information
Kiosks in rural areas; b) promotional E- Catalogue for Commodity Profiles; c) Farmer advisory
services in the fields of agricultural marketing, d) National Atlas of Agricultural Markets.
45. Till today, agricultural marketing in the planning process has not received the required
priority, therefore the Committee recommends that highest priority may be given to the needs of
agricultural marketing in the planning process. The investment requirement for strengthening
agricultural marketing infrastructure comes to Rs. 268742 crores. Most of these would need to
come from private sector. This may require a conducive and favourable environment consisting
of (a) making complementary investment by the state and Central Government (b) subsidizing a
few activities to enable private sector initiatives to attain viability (c) active stance by the Central
Government in some initiatives (d) reducing the regulatory control and simplifying the procedure
and (e) ensuring adequate credit flow to agricultural marketing activities.
46. Government is promoting organized marketing of agricultural commodities in the country
through a network of regulated markets. Most of the state Governments
and Union Territories have enacted legislations to provide for development of agricultural
produce market. As on 31.3.2001, 7177 markets have been covered under regulation. The
country also has nearly 27,294 rural periodical markets, about 15% of which function under the
ambit of regulation.
47. Regulated markets have helped in mitigating the market handicaps of producers/sellers at the
wholesale assembling level. But, the rural periodic markets in general, and the tribal markets in
particular, remained out of its developmental ambit. It was envisaged that physical markets with
facilities and services would attract the farmers and the buyers creating competitive trade
environment thereby offering best of the prices to the producers/sellers.
48. The Institution of regulated market has, however, achieved a limited success. These markets
were supposed to ensure smooth and orderly development of agri-marketing by ensuring fair
play of trade practices and market forces. Over a period of time these markets have, however,
acquired the status of restrictive and regulated markets, providing no help in direct and free
marketing, organized retailing, smooth raw material supplies to agro – processing, competitive
trading, information exchange and adoption of innovative marketing systems and technologies.
Monopolistic practices and modalities have prevented development of free and competitive trade
in agri- marketing, future markets, use of latest technologies in post harvest technology and
handling exports, agro based industries, warehousing etc. Now these markets have failed in
containing the scenarios of plenty’s and scarcities.
49. An efficient agricultural marketing is essential for the development of the agricultural
sector. In as much as it provides outlets and incentives for increased production, the marketing
system contributes greatly to the commercialization of subsistence farmers. World-wide,
Governments have recognized the importance of liberalizing agricultural markets. Government
policy has to effectively address issues of marketing liberalization and help to overcome the
constraints faced by various organizations including private sector involved in agri-marketing.
The ever increasing production, spread of latest technologies, changing socio – economic
environment, increasing demand for downsizing the distribution chain and reducing the margin
between farmers and ultimate consumers, challenges emerging out of liberalization and
globalization in the post WTO period requires a vibrant, dynamic and assimilative marketing
structure and system.
50. In promoting vibrant competitive marketing systems, Government need to examine all
existing policies, rules and regulations with a view to remove all legal provisions inhibiting free
marketing system. Today, State Governments alone are empowered to initiate the process of
setting up of a market for certain commodities, which are regulated and for certain areas, in
which the Regulation is enforced. These provisions will have to be replaced by providing an
omnibus provision that anybody can set up a market, provided minimum standards,
specifications, formalities and procedures which may be let down by the Government of India
are complied with. The Government of Karnataka has set the ball rolling by amending its Act to
are complied with. The Government of Karnataka has set the ball rolling by amending its Act to
allow the National Dairy Development Board to set up wholesale fruit and vegetables market
at Bangalore with the subsidiary collection centers to promote integrated marketing of
horticultural produce grown in the State. Private Sector, Corporates, Joint Ventures need to be
similarly encouraged to set up markets for free and competitive trade.
51. The institution of regulated markets, set up to strengthen and develop agricultural marketing
in the country has achieved a limited success. The restrictive legal provisions did not augur well
with competitive market structure. Promoting competition in the trade and facilitating farmers
with supporting services like grading, standardization, storage with pledge finance and facilities
in the markets have become secondary activities. Funds from the Agricultural Marketing Boards
have been siphoned off in many states to Public Ledger Account by the State
Authorities. Consequently, the modernization/infrastructure development conducive to
operational efficiency of the markets has suffered heavily. The Committee recommends that by
an appropriate amendment in the Act the utilization of funds by the market committees and the
Marketing Boards for these activities may be made mandatory.
52. The spot markets, have not been linked with the forward and future markets to receive price
signals. The futures trading in agricultural commodities is also regulated by the Government.
The linkage between the spot and futures markets seems to be poor due to domination of the
speculators. Government has, to continue its efforts to strengthen and institutionalize commodity
exchanges to instill confidence and awareness among market players.
53. There is an imperative need to make Government administered marketing organizations
administratively viable and managerially competent in keeping with liberalized trade
atmosphere. The marketing activities are many-folded and need liaison and collaboration with
related organizations. Market committees including sub-yards, should be headed by
professionals. Existing Secretaries need to be trained in professional management of the
markets. The functions of APMC and Marketing Boards may have to be remodeled for this
purpose.
54. The nature of legal framework within which agricultural markets operate has a fundamental
effect on the functioning of the agricultural marketing system. Legal reforms can play an
important role in making the marketing system more effective and efficient by removing
unnecessary conditions and by establishing a sound framework to reduce uncertainty of the
market. A review is, therefore required in respect of all laws which regulate participation in
market such as registration/licensing, commodities traded, controls on packaging and labeling,
laws affecting market place, laws affecting supply including controls on movement of produc
and volume of commodities traded, laws relating to access to credit and capital dispute resolution
mechanism.
55. The Essential Commodities Act, 1955 which has resulted in restrictions on storage and free
movement of stocks, initiative by the trade in innovation and investment, should be repealed to
make way for play of free market forces in real sense. The Committee recommends that a Task
Force be set up under the Ministry of Agriculture, Department of Agriculture & Cooperation to
undertake a review of all marketing legislations, policies and programmes and suggest various
reforms in the statutory arrangements relating to agricultural marketing as well as policies and
programmes for development and strengthening of agricultural marketing with specific reference
to needed investment, package of incentives and easy and adequate marketing credit.
56. Direct marketing enables farmers to meet the specific requirements of wholesalers from the
farmers' inventory of graded produce and of retail consumers based on consumers' preferences,
thus enabling farmers to dynamically take advantage of favourable prices and improve their net
margin. It encourages farmers to undertake grading of farm produce at the farm gate and obviates
the necessity of farmers to haul produce to regulated markets that are not necessarily spaced on
the principles of efficiency. Direct marketing thus enables farmers and buyers to economize on
transportation costs and to improve price realization considerably.
57. The Committee suggests promotion of direct marketing as one of the alternative marketing
structure that sustains incentives for quality and enhanced productivity, reduce distribution
losses, improving farmer incomes with improved technology support and methods. The market
will operate outside the purview of the Agricultural produce Marketing Act and will be owned
by professional agencies in private sector, wholesalers, trade associations and other
investors. The government’s role should be that of a facilitator rather than that of having control
over the management of the markets.
over the management of the markets.
58. Direct marketing by farmers to the consumers was experimented through Apni Mandis
in Punjaband Haryana. The concept, with certain improvements got popularized in Andhra
Pradesh through Rythu Bazars and in Tamil Nadu as Uzhavar Santhaigal. At present, these
markets are being run at the expenses of State exchequer, as a promotional measure, to inculcate
habit of marketing without help of middlemen by the small and marginal producers of fruit and
vegetables. Considering the vastness of the country, more and more such markets need to come
up in the organized sector with private investment so that they can be developed in tune with the
market requirements with backward & forward linkages. A common Code of Conduct and
modalities with regard to ownership, operation & need based infrastructure will have to be
prepared and circulated to spread the concept of direct marketing by the farmers.
59. The similar logic holds good for consumer organizations also who can procure directly from
producers and distribute to the consumers commensurate with their purchasing powers. The
Government should support these organizations with schemes like providing back ended
incentives for refrigerated as well general transport, setting up of grading and packing houses,
credit at low interest etc., till they become financially self-sufficient on commercial lines.
60. Direct marketing through SHGs or informal groups, NGOs, cooperatives, Farmers
Associations, Companies, partnership, joint ventures may be encouraged by government to
various policy back up and programmes. These organizations may be encouraged to create and
manage markets physical as well as futures. The cooperatives however, will have to be freed
from the shackles of politician and bureaucrats.
61. As another form of direct marketing, the unemployed youth could be involved in
procurement of orders and supply of graded and packed products to different city dwellers. The
youth could be trained in marketing practices of procuring products and supplying them. The
financial assistance from the public sector to such ventures would generate entrepreneurship and
provide profitable employment to the younger generation. They could be given assistance in the
form of working capital to start the enterprise along with the necessary agri-business training.
62. The use of information technology in agri-marketing has become indispensable. Therefore
encouragement may be provided to generate and host useful portals, websites, databases,
information packages and other soft wares, generic as well as customize on agricultural
marketing. Info kiosks may be encouraged to be set up in the markets, spot as well as futures,
farmers organizations, Associations of traders and other functionaries for exploiting the
opportunities of information revolution, especially for online demand of different products;
product specifications with regard to quality, pack size, packaging material, quantity and the time
frame of supply; the transport cost involved and the marketing charges likely to be incurred in
the market where the goods are to be delivered; facilities available to the farmer in the buying
market; Re-handling of the produce, if necessary, in the supplying market to suit to the
requirement of the buyer market; the rules and regulations of the destination market, if it is
located outside the state at distant place, and other specific information as may be conducive for
the seller to transact the business with the purchasers; and the legal provisions related to storage,
transportation, phyto-sanitary requirements etc.
63. Forward contract may well be regarded as direct and alternative marketing facilitator. With
the initiation of the liberalization process in India, interest in futures markets has been revived
for their price risk management and price discovery roles, as well as handling the situation of
plenty’s and scarcities. In the country currently, futures contracts are traded in nine commodities
in 20 commodity exchanges. It is suggested that more and more commodities be added to
facilitate competitive and free marketing system.
64. A recent study conducted by the IIM, Ahmedabad has indicated that the performance of the
Indian commodity futures markets is varied across the commodities, exchanges and
contracts. They are deficient in several aspects such as infrastructure, logistic, management,
linkages with financial institutions, reliability, integrity and an efficient information system
which do not encourage a large group of the market players in the commodity sector to trade in
this market. Government has, therefore, to continue its efforts to strengthen the exchanges and to
instill confidence and awareness among market players.
65. Poor credit flows have had an adverse effect on the development of agricultural marketing
systems in the country. Certified warehouses and a system of negotiable warehouse receipts
could lead to improved credit delivery, better loan recovery and convenience in asset
could lead to improved credit delivery, better loan recovery and convenience in asset
management. The existing Government warehousing corporations should play a leading role in
the development of warehousing. However, they can only cover part of the field, which should
be opened up to private operators, particularly those who already provide storage services. The
institutionalization of the warehouse receipts system through the commodity exchanges is most
likely to yield the best results in the context of promoting and propagating warehouse receipts, in
particular electronic warehouse receipts, and a national system of warehouse receipts.
66. Pledge financing enables the usage of inventories of graded produce as collateral for
accessing credit from the organized credit market at cheaper rates of interest that reflect the lower
credit and collateral risk, thus enabling farmers to dynamically take advantage of favourable
prices and improve their net margin. It enables farmers to hold inventory of graded produce
under favourable storage conditions and standardized preservation under supervisory conditions;
promotes rural godowns and warehousing. It also advances grading of farm produce to the farm
gate, thus enabling farmers to improve price realization considerably; identifying preserved
storage closer to farms.
67. Produce market loan for a period up to six months to farmers availing crop loans up to Rs.
One lakh are reckoned as priority sector advance. Banks are financing Artiya’s for provision of
inputs to farmers. Finance to wholesaler / traders is not treated as agricultural finance. Loans for
construction/ running storage facilities are already included under priority lending. It is
suggested that the existing limit of priority sector advance should be revised upward suitably
taking in to consideration innovation in agricultural sector in the post WTO regime. The credit
flow to the agricultural marketing is very meager. The banking environment and lending policies
and programmes for financing is not found conducive for the increased capital needs of
agricultural marketing. Therefore government is requested to design full fledged agricultural
marketing credit policy considering the requirement of increased production, market innovations,
technologies and socio-economic changes with specific reference to post WTO regime.
68. Market infrastructure is important not only for the performance of various marketing
functions and expansion of the size of the market but also for transfer of appropriate price signals
leading to improved marketing efficiency. High investment with entrepreneurial skills are
required for creation and managing these infrastructures. Therefore private investment in the
market infrastructure development may be encouraged by modifying various procedure backed
up by package of incentives. Nevertheless, for providing infrastructure in remote and difficult
areas, the public sector would need to continue to play an important role.
69. Projections of production and marketed surplus of various farm products show that even at
the existing marketed surplus-output ratios, the quantities which the marketing system will be
required to handle in future, are quite large. The marketing system backed by strong, adequate
infrastructure is the core content of agri-marketing. Development of infrastructure with in spot
markets and others places is a huge task. Committee based on the estimates of the State Master
Plan for Development of Regulated Markets found that there is a need of total investment of Rs
6026 crores.
70. Apart from general purpose markets, there is need for developing specialized markets for
fruits and vegetables. It has been assessed that there are at least 241 such places in the country
where fruit and vegetables markets should be developed. The investment requirement for fruit
and vegetables markets in the country is around Rs.970 crores.
71. Rural periodic market is the first contact point for producer – sellers for encashing his
agricultural produce and buying other goods needed by them. There are in all 27294 rural
periodic markets including those for livestock, in the country. There is urgent need to develop
these rural periodic markets in a phased manner with necessary infrastructural amenities to have
a strong base level link in the marketing chain. The investment requirement for developing these
primary rural market places is estimated at Rs.2146 crores.
72. Encouragement by way of policy back up as well as financial support is recommended for
special type of markets like floriculture, cattles etc. For export promotion and inter state
marketing setting up of 50 mega markets in the country with government financial support in
private, public, cooperative or joint venture is suggested. Encouragement may be considered for
promoting marketing of organically grown produce, fruits & vegetables, medicinal plants, herbs
etc.
73. Storage infrastructure is found necessary for carrying the agricultural produce from
production to consuming periods. Country needs much more storage facility than what is
production to consuming periods. Country needs much more storage facility than what is
available now. This is specially more important for hill and remote areas in several states. For
an additional 20 million storage capacity the investment required is estimated at Rs.5400 Crores.
The private sector needs to be encouraged to enter the storage and warehousing activity and
make investment of this magnitude. Village Panchayats, cooperatives, SHGs and farmers
organizations may be encouraged for undertaking warehousing.
74. Committee deliberated various alternative, competitive and affordable preservation and
temperature management technologies for perishables. The Expert Committee recommends
increased use of alternate use of technologies like, Irradiation, Nitrogen fill packaging, Vacuum
packaging, shrimp wrapping and others. However, the Committee recognize the relevance and
utility of cool chains and therefore supports the government programme of end used subsidies for
cold storages. Cold storages are most important infrastructural need for perishable and semi
perishable commodities which need an immediate attention. The present storage capacity
available is sufficient only for 10 per cent of total production of fruits and vegetables. In the next
10 years, 15000 cold storage units would need an investment of the order of Rs.27,000 Crores.
The investment should basically be made by the private sector. In future, there would be a need
for multi-chamber type of cold storage units for various perishable and other products in the
country. For encouraging private entrepreneurs there is a need to provide incentives to make the
units viable for some initial years.
75. The country require reefer containers/vans for transport of perishable items for domestic and
export marketing. At present their availability in the country is negligible in comparison to the
present production of perishable commodities. For handling the expected higher production in
the next 10 years, at least 3000 reefer containers/vans with a capacity up to 8 tonnes each would
be required. This would require an investment of Rs.600 crores, which shall be created by
private, cooperative and joint sector sector. There is a need to encourage the investors in the area
by providing suitable incentives.
76. There is a need to create facilities for cleaning, grading and packaging not only in spot
markets but also in the villages from where produce is brought to the market for sale. There is
need to promote proper packaging after grading so that further chances of adulteration may not
be there. Besides this there is a strong need to educate the farmers for proper packaging and
grading before they bring the produce to the market. Scientific packaging should be encouraged
at the farmer level through various incentives. The Expert Committee feels that this is an
important activity, and an investment of Rs.2000 crores should be earmarked for this purpose
during the next 10 years.
77. With a view to taking advantage of new international trade environment, there is a need to
encourage export of high value non-traditional products grown in various parts of the
country. The Government of India (Ministry of Commerce) has announced a scheme of creating
Export Oriented Agri-Zone (EOAZ). It should be promoted by providing institutional and
physical infrastructure in each of these as per the needs of the specific commodity. In some of
EOAZs, there is also a need to establish what is called Food Parks. In these parks, some
common facilities like electricity and warehouse should be created with central government
assistance which will help in attracting investment by the private sector and the state
government. While most of the investment should be made by the private entrepreneurs, as a
way of incentive, government should invest in common facilities, and quality certification. The
estimated public investment is Rs.200 crores and private investment of around 400 crores on fifty
such EOAZs. In identification of EOAZs and Food Parks the Government of India should take
an active stance, rather than leaving it to the state governments. The Group further recommends
that commodity wise export potential studies be commissioned before establishing EOAZs.
78. Considering the rising demand for value added and processed products, there is a need for
enhancing the capacity of agro-processing sector. For attracting private initiative and investment
in food processing, the Government of India through Department of Food Processing and
National Horticulture Board have already formulated several schemes of assistance. There is
strong need to popularize their implementation in different agro-climatic zones by creating
awareness about these schemes.
79. At present, value addition is estimated at only seven per cent and processing only two percent
of the total production. Within next ten year, there is a need to increase value addition to 35
percent and processing at least 10 percent. Quality control and standardization will be extremely
important in this endeavour. The Central government should encourage a network of food
analysis laboratories in the country. This will also be necessary to face competition from
imported processed products.
80. Presently the alcoholic beverages based on fruit & vegetables are clubbed with other
alcoholic beverages. Whereas world over items like wines and beer which are based on fruit &
vegetables and have low content of alcohol (ranging below 11-12%) are considered as items of
food and are promoted as health drinks. This sector has not developed in India so far because the
Excise laws have implications both in terms of financial pricing of the products as well as
restrictive legal frame work for setting up and operation of units for the manufacture of these
health drinks.
81. The Word “Plantation Crops” as mentioned in some labour laws and Land Ceiling Act has a
rather limited meaning pertaining mainly to coffee, tea, rubber, etc. If plantation is used as
generic term for an advanced form agriculture where various types of management from the
selection of land, selection of species to be grown, the financial support, the management of
labour, the processing & marketing are all done at a higher level than what is done for ordinary
agricultural crops, the horticulture is bound to get a fillip. The existing legal frame work will
open new avenues for development of entire horticulture sector if production of fruit &
vegetables, medicinal & aromatic plants, spices, is also brought under the definition of
plantation.
82. NIAM should become ‘Centre of Excellence’ for Asian Region and be headed by Technocrat,
Marketing Practitioner, Academician of national/international repute. Training in agricultural
marketing should be strengthened and NIAM should take active stance in the programme.
Training modules of different duration should be designed for farmers, NGOs, co-operatives,
extension workers, development functionaries, PRI representatives, development administrators,
people’s representatives and policy makers.
83. In India , although at village and farm level agricultural production extension services exist
but marketing extension work designed to benefit farmers and other market functionaries does
not exist. In the absence of emphasis on marketing extension, technology transfer in the field of
agricultural marketing has been sluggish. The marketing extension service to assist small and
marginal farmers in solving the problems faced in marketing their produce is a sine-qua-non in
the liberalized trade environment. A massive programme of marketing extension should be
launched at the disaggregated level. In each agro-climatic region the extension messages should
include (a) advise on product planning; (b) market information; (c) secure markets; (d) alternate
marketing channels; (e) improved marketing practices including grading and packing; and (f)
advantages of group marketing.
84. Considering the limited reach of public extension service, it is felt that privatization of
extension services with appropriate financial backup from the public sector is considered more
appropriate and practical. The NGOs, Cooperatives, Trade Associations, Private Limited
companies, and corporate bodies should be allowed and encouraged to undertake marketing
extension. To facilitate private agencies to undertake extension programmes on regular basis for
the country as a whole, a 24 hours TV Kisan Channel on Doordarshan is necessary. The Kisan
Channel would be best visual media to educate farmers by public as well as private agencies for
both agricultural as well as marketing extension service.
85. The agricultural marketing research which is becoming increasingly important
has received inadequate attention in the past. There has been a need to set up a liaison, linkages
amongst the research activities findings and the field position. The SAUs and the Regional &
Other Centres of ICAR should be given a mandate for applied research in agricultural marketing
and functioning of these units. Marketing organizations may be forced to set apart some funds
for marketing research.
86. The probable areas for training, research and information technology for producers as well as
different market functionaries could cover agri-business management; WTO and its
implementation; post-harvest management; grading, standardization and quality assurance;
information technology.
87. The sensitization programmes for state level, district level, farmers and stake
holders would also be conducted. The programme on post-harvest management for agricultural,
horticultural crops, livestock, marine products, etc. may be conducted on regular basis. Quality
assurance specially for perishables awareness on standardization and grading & quality control
assurance specially for perishables awareness on standardization and grading & quality control
are the other areas for government support.
88. Agricultural Produce Marketing requires connectivity between the market and
Exporter/Growers/Traders, through wide area network (WAN) of National and International
linkages in order to provide day-to-day information with regard to commodity arrivals and
prevailing rates etc., to provide links for online International Market Information; to provide
export-related documentation, to inform about the latest research in agricultural marketing,
packaging/storage etc. related information and to provide linkage/Connectivity with the World
Trade Centre (WTC), APEDA, NIAM, NHB, DMI, IIP, State Agricultural Marketing Boards,
and universities.
89. Other areas of importance are a) Setting up of value added networks services, Information
Kiosks in rural areas; b) promotional E- Catalogue for Commodity Profiles; c) Farmer advisory
services in the fields of agricultural marketing, d) National Atlas of Agricultural Markets.
90. Till today, agricultural marketing in the planning process has not received the required
priority, therefore the Committee recommends that highest priority may be given to the needs of
agricultural marketing in the planning process. The investment requirement for strengthening
agricultural marketing infrastructure comes to Rs. 268742 crores. Most of these would need to
come from private sector. This may require a conducive and favourable environment consisting
of (a) making complementary investment by the state and Central Government (b) subsidizing a
few activities to enable private sector initiatives to attain viability (c) active stance by the Central
Government in some initiatives (d) reducing the regulatory control and simplifying the procedure
and (e) ensuring adequate credit flow to agricultural marketing activities

Inter-Ministerial Task Force On Marketing Reforms, 2001 (RCA Jain)

The Task Force thereupon identified nine priority areas to work out a road map for strengthening
the agricultural marketing system in the country. The areas identified are a) Legal reforms; b)
Direct marketing; c) Market infrastructure; d) Pledge financing; e) Warehousing receipt system;
f) Forward and futures markets; g) Price support policy; h) IT in agricultural marketing and i)
Marketing extension, Training and Research.
(a) An alternative marketing systems need to be developed in the country to promote
direct marketing, smooth raw material supplies to agro–processing industries, competitive
trading, organized retailing, information exchange and adoption of innovative marketing systems
and technologies;

(b) Credit flow to agricultural sector need to be substantially stepped up to meet increasing
demand for capital expenditure for developing marketing infrastructure and for pledge finance.
Pledge financing enables the farmers to take advantage of favorable prices and improve their net
margin;

(c) A system of negotiable warehouse receipt also need to be introduced in the country for
agricultural commodities to improve credit delivery, better loan recovery and convenience in
commodity management;) ‘Forward’ and ‘Futures’ contracts need to be regarded as direct
and alternative marketing facilitators and be promoted for their price risk management and price
discovery roles;

(e) Information Technology needs to be extensively promoted in agricultural marketing to

generate useful databases and information packages for expanding marketing opportunities,
especially for online information on demand and availability of different products; product
specifications with regard to price, quality, pack size, packaging material, quantity and the time
frame of supply;

(f) ‘Extension and training services need to focus on assisting small and marginal farmers in
i) marketing of their produce, ii) advise on production planning; iii) market information; iv)
alternate marketing channels; v) improved marketing practices including grading and packing;
and vi) advantages of group marketing. The State Agriculture Universities and the Regional &
Other Centers of ICAR should be given a mandate for applied research in agricultural marketing
and related areas
and related areas
Introduction
​Recognising the fact that the need of the hour is the end to end computerization of the
Public Distribution System, the Committee is of the view that if the disbursement to the
beneficiaries in the State can be equated to the allocation to the State, there can be no
diversion. In order to achieve this objective the first and foremost is the automation of
allocation process at all stages. The NIC has installed and running the application called
IISFM at all the FCI centers. The allocation is received by the States in
their godowns and then the State makes District wise allocation. The District Supply
Officer then makes allocation to each Block/Taluk, from where allocation is made to each
FPS. It is necessary that each of these steps is computerized. The information is conveyed
through the District NIC centers to the Food and Supplies department of the State and to
the FCI. The allocation for the next month at each level should be made on the basis of
the in formation so collected through the computer network.

In the present Public Distribution System (PDS), paper ration cards are issued to eligible
families and wheat, rice, sugar and kerosene oil etc are being offered at subsidised prices as
per their eligibility recorded in the ration cards. The record of eligibility and transactions is
maintained manually both in the ration cards and the register maintained in the fair price
shops. This record keeping is not foolproof and is prone to human errors and
tampering. Foodgrains are transferred from FCI store to States and then to regional
levels. There is lot of pilferage at every level and no foolproof central monitoring system is
there. Other deficiencies of this system are:

• Multiple ration cards being issued under a single name

• Faulty system of issue and record keeping- Prone to tampering
• Pilferage - PDS foodgrains find way to market and all the lot don’t reach the
eligible/needy person
• No bio-matric identification for the users
• No central monitoring system to track the carriage trucks
• The delivery mechanism has no RFID (Radio Frequency Identification Device)

There is a need for foolproof monitoring system starting from central store to fair price shops
covering
transactions at all levels and transport.

Suggestions
• Ration card database should be digitized and distribution to the beneficiary should be
made after biometric identification. However, necessary safeguards must be put in place
to ensure that the biometric details of beneficiaries which have been captured for the
purpose of automation of the PDS should not be used for non PDS purposes.
•
Smart cards containing name of the beneficiary, family members, address of the
beneficiary, biometrics of the beneficiary and family members, category in which the
beneficiary falls (i.e. APL, BPL, AAY) and the monthly entitlement. The card can be
embedded with a hologram to avoid counterfeiting.
•
A Point of Sale device (PoS): device is a single fully integrated machine having
sufficient memory to store transaction data over a period of time (to track off-take of
commodities by beneficiaries with precision and to thereby eliminate avenues for
diversion of stock), carrying out authentication of the biometric fingerprint of
beneficiaries capability of carrying out sales and billing transactions, and to print the
receipt of a completed transaction. It must be tamper proof. Solar chargers would be the
best option for recharging the PoS in areas where the electricity supply is erratic.
•
Using biometrics as a tool for authentication of identity of beneficiaries to eliminate
 commodities by beneficiaries with precision and to thereby eliminate avenues for
diversion of stock), carrying out authentication of the biometric fingerprint of
beneficiaries capability of carrying out sales and billing transactions, and to print the
receipt of a completed transaction. It must be tamper proof. Solar chargers would be the
best option for recharging the PoS in areas where the electricity supply is erratic.
•
Using biometrics as a tool for authentication of identity of beneficiaries to eliminate
presence of ghost ration cards in circulation which enables retailers to siphon off stock by
making fictitious transaction entries reflecting sales, without issuing any stock
•
Connectivity which is required for making PDS web enabled could be provided by
making use of infrastructure that has been/is being established by the Government of
India under the Common Services Centers Scheme and the Universal Service Obligation
Fund (Village Public Telephones (VPT’s)/Rural Community telephones).
•
Electronic weighing: Another important facet of an efficient and transparent
distribution system is the mechanism which is used for weighment. In the system as it
exists today, weighment is required to be done at 3 of 4 stages in the distribution chain,
(i) At the FCI when stock is released to the transporters,
(ii) At the whole sale point
(iii) At the retail point
(iii) At the time of sale of the stock to the beneficiary.
Even the FCI uses the manual beam scale instead of the electronic scales while loading
the stock. Weighing done in this manner is by and large unreliable and since it is
completely dependant on human intervention it is susceptible to manipulation which once
again creates the window of opportunity for diversion. It is imperative that weighing be
done using electronic scales at each stage and the weighment mechanism be integrated
with the PoS device. This will mean that the quantity which is being transferred from
one stake holder to another in the distribution chain is automatically reflected on the
smart card. As an additional safeguard the weigh bridge at the storage godown should be
linked to the internet, so that the precise details of stock, being dispatched, i.e. quantity,
date of dispatch etc. are readily available for viewing by the beneficiaries
•
Tracking PDS stock from the godown to the FPS by affixing RFID tags to the bags
•
Global Positioning System can be used for tracking the movement of trucks carrying
specified food articles (SFAs). For this, routes that have to be followed by the trucks
carrying SFAs have to be prepared and specified. Devices required for GPS have to be
installed on every truck and movement of the truck can then be monitored. Indian Oil
Corporation and State of Chhatisgarh are using this technology.
•
SMS alerts to registered beneficiaries about dispatch of grains from FCI godowns, date f
distribution etc.

Challenges
• supply of electricity in the remote, rural areas of the country is erratic and undependable
(alternative sources of energy such as solar energy etc. can be utilized)
•
Comprising of biometric data----Necessary safeguards must be put in place to ensure
that the biometric details of beneficiaries which have been captured for the purpose of
automation of the PDS should not be used for non PDS purposes and must be safe from
cyber theft.
•
Lack of internet connectivity—PoS device must be enabled to work in off line mode.
These devices contain sufficient memory for storage of one month’s transaction details at
the expiry of each fortnight/month the retailer is required to take the PoS device/Smart
Card to the nearest point where connectivity to the central server is available, which may
be either the Gram Panchayat/Block level and transfer details to the central data base.
•
Lack of uniform standards might create incompatibility in shifting from FPS in one
State to different state: Uniform standards must be prescribed for the three critical aspects
of the computerized model, i.e. the PoS device, the smart cards and the capturing of
biometric details, in as much as this is required for ensuring inter-compatibility and to
promote connectivity and operational efficiency.
•
It might not be possible to use RFID tags for the purpose of long range, remote tracking
of bags (low range and can be read locally only). Furthermore, the technology would be
expensive to implement, taking into account that each bag containing PDS stock being
dispatched from each godown in the country would be required to be tagged. Use of
RFID or GPS may not be necessary if there is proper accounting of the stocks by
complete automation of the allocation and distribution systems.

Best Practices
 of bags (low range and can be read locally only). Furthermore, the technology would be
expensive to implement, taking into account that each bag containing PDS stock being
dispatched from each godown in the country would be required to be tagged. Use of
RFID or GPS may not be necessary if there is proper accounting of the stocks by
complete automation of the allocation and distribution systems.

Best Practices
•
In Chhattisgarh unified Ration card database has been prepared which is used to
generate computerized FPS Allocation, declaration of stock balance, Web based
Truck Challan etc. Thus information regarding allocation, stocks, issue and sales for each
FPS is now available on the central server. The State is also using Global positioning
System (GPS) for tracking the movement of trucks carrying food grain. This web site
based software also provides a method of citizen participation in monitoring of PDS
where citizen can register their mobile no. or e-mail id and can participate in the
monitoring of PDS. A call centre with a toll free number is also operational for any
complaints or suggestions
•
Karnataka is the only State which has already commenced the actual implementation
of computerisation of PDS operations. The Karnataka model does not contemplate
issuing a smart card to the beneficiaries. The biometric details of members of each family,
which constitute a unit for the purposes of allotment of stock, are loaded on the STT at
the FPS to which the said family is connected. The beneficiary goes to the FPS, enters his
card number in the machine and the terminal displays his entitlement and the quota
available for the month. The FPS dealer then enters the required quantity into the
machine, the beneficiary places his finger on the machine authorizing the transaction,
which is thereafter is completed. One crucial feature of the Karnataka Model is that the
STT also provides a system of ‘voice over’ i.e. when the FPS dealer enters the quantity
in the machine, a voice message is automatically generated, stating the quantity thereby
making verification possible even for an illiterate person.
Case studies
http://www.frontline.in/static/html/fl2827/stories/20120113282709600.htm
http://www.frontline.in/static/html/fl2827/stories/20120113282709800.htm
http://www.frontline.in/static/html/fl2827/stories/20120113282710100.htm
http://www.frontline.in/static/html/fl2827/stories/20120113282710400.htm
http://www.frontline.in/static/html/fl2827/stories/20120113282710600.htm

Improvements needed
• Himachal Pradesh and Tamil Nadu, have a well-functioning universal PDS, which
provides not only foodgrains but also other essential commodities such as pulses and oil.
At the other extreme are States like Bihar and Jharkhand where PDS reforms have barely
begun. The PDS tends to work better where it is more inclusive –targeting is divisive and
undermines public pressure for a functional PDS
• Shortfall that most of them reported was only two or three kilos
• New awareness of cardholders
• Deprivatisation of ration shops, successfully accomplished in Chhattisgarh
• The system of paying commissions to the dealer for transporting grain from the godown
to the ration shop has been replaced with ‘doorstep delivery' to the ration shop. This acts
as a safeguard against the diversion of grain by dealers when they lift their quota from the
godown.
• Fixed date of distribution
• Regular updation of list of eligible Households
• Most people preferred food over cash. The reasons cited for their preference were food
security, the convenience of the local ration shop, fear of money being frittered away,
transaction costs, and the disheartening experience (including long delays) of bank
payments under the National Rural Employment Guarantee Act (NREGA). “Food lasts,
money gets spent in a day or two” was a common refrain
• placing ration shops in the hands of community institutions (such as gram panchayats,
cooperative societies and self-help groups), redesigning ration cards, and introducing
other transparency and accountability measures such as social audits and computerisation
of records followed this up with verification drives at the gram panchayat level are some
of the obvious steps waiting to be taken. A harder task is to improve the selection of BPL
households and expand the coverage of the PDS to avoid exclusion errors.
• functioning PDS helpline number where complaints can be lodged
• While cash transfers may be a possible alternative to the PDS in areas where markets and
banking services are functional and easily accessible, the large majority of India's poor
live in villages like those in Chhattisgarh. Cash transfers in these areas will not only make
it more difficult for the rural poor to get foodgrains but also threaten food security.
• Greater flexibility to the States is, in general, a good principle, and the “per capita” issue
illustrates the larger concern of over-centralisation of the PDS. Elsewhere too such
flexibility is necessary, e.g. fixing eligibility criteria for identifying entitled households.
For instance, living in a “ pacca ” house is often used as an exclusion criterion. In the
plains it is often a sign of wealth, but not necessarily in the hills. This suggests that
exclusion criteria should be State specific.
• In fact, there is ample evidence that decentralised initiatives have contributed to the
revival of the PDS in recent years. Many PDS reforms in the NFSB actually build on
State experiences: reduction in PDS price (in Andhra Pradesh, Chhattisgarh, Jharkhand,
Karnataka, Kerala, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu); expanded
coverage (almost the same set of States), introduction of pulses (in Andhra Pradesh,
Chhattisgarh, Himachal Pradesh and Tamil Nadu) and edible oils (same list, except
Chhattisgarh), etc.
 Chhattisgarh), etc.
• Similarly, to ensure transparency, State-specific technologies are being used: from
sophisticated Global Positioning System (GPS)-equipped trucks to easy-to-identify
yellow trucks for delivery of PDS grain, painting the names of all beneficiaries on public
and private walls to prevent “duplicates,” and so on. State-specific initiatives can be more
effective than a centralised diktat.

Food Stamps
The•system would function in the following manner,
The beneficiary goes to the nominated nationalised Bank along with his ration card and
pays the amount equivalent to the amount of coupons he/she wishes to purchase, subject
to the monthly entitlement. In the alternative he can buy coupons commensurate with his
entitlement at one time, which would be valid for one month.
•
The Bank upon receipt of the money from the beneficiary affixes its stamp to authenticate
the coupons and also makes an entry it the ration card of the cardholder. The money will
then be transferred to the account of the FPS licensee.
•
The beneficiary produces the coupons at the fair price shop and collects the grains as per
the denomination printed on the coupon.
•
The FPS licensee collects all the coupons and submit the same to the Circle Office at the
end of the month to determine the succeeding month’s allocation. The money for the
stock and the transport would be directly transferred from his account in the selected
nationalized bank mentioned above to the account of the department through Electronic
Clearance System.

• Proposed in the Tenth Plan document of the Planning Commission

• Each eligible household be given a subsidy entitlement card that specifies the number of
household members, their age and entitlement. Family size and composition will
determine the number of stamps a household is entitled to get each month.
• A means of narrow targeting or reducing the coverage of food distribution programmes
—Lessons learnt from countries like Sri Lanka, Tunisia, Jamaica-- The Tenth Plan
document notes that the coupon system led to a reduction of 8 lakh white (BPL) cards
• USA introduce Food coupon system in 1937 and had to replace it by Electronic Benefit
transfer
• The administration of a food stamp scheme is complex and costly.
• Problems in respect of issuing food stamps regularly and in respect of retail stores
accepting stamps and being able to reimburse them easily.
• There is nothing to ensure either that there will be a retailer at a suitable location
• If the collection centres are not in the vicinity, this will entail time and expenditure on
the part of the consumer
• Printing Counterfeit coupons
• Misuse of coupons lost in transit
• Coupon can be used to buy non-eligible items (in case FPS dealer sells other stuffs as
well)
• Selling of coupons at discount for cash (trafficking).
• Storing these flimsy paper coupons safely poses another problem—In one instance in
Andhra Pradesh, coupons were issued for 18 months in one go
• Inflationary issue due to erratic supply which is linked to season- not linked to CPI
• An end to procurement, which forms an important institutional support to India's
peasantry.
• Was withdrawn in Tamil Nadu after it apparent failure

Cash Transfer
• Giving cash can reduce transaction costs of the government and lead to faster delivery
and expanded beneficiary choice.
• Food is in the hands of women but cash is controlled by men who have different priorities
 • Food is in the hands of women but cash is controlled by men who have different priorities
on how to spend it
• Inflationary Concern
• An end to procurement, which forms an important institutional support to India's
peasantry.
• Cash transfers are less self-selecting than the PDS. Self-selection means that households
that do not want a particular provision voluntarily withdraw from accessing it

Decentralised PDS
The decentralised Public Distribution System is PDS reimagined; one that is democratic and
involves rural communities at every stage of planning and implementation. The concept of
decentralised PDS rests on the principles of localised procurement, storage and distribution. The
emphasis is on the participation of people — especially the marginalised and women — and on a
holistic approach that integrates biodiversity, natural resource management, rural livelihoods and
empowerment. The inclusion of local knowledge and expertise at every stage would make such a
PDS truly participatory. Such a PDS would focus on the food crops that are locally produced. In
some locations this might be millets, while in others it might be endemic varieties of rice and
wheat. The storage of these grains would also be undertaken by the local communities, at village
or panchayat level, thus reducing storage and transport costs, and generating employment for a
few rural households.
Together, these benefits would enhance incomes and savings of rural households, and strengthen
the rural economy; and hold the potential to decrease distress migration. Further, decentralised
PDS and reviving the traditional systems would restore women’s place in the drivers’ seat, as far
as the production and distribution of the food grains are concerned; give them an opportunity to
develop entrepreneurial and organizational skills and break stereotypical gender roles in relation
to division of labour in agriculture.
Corporate Farming
Four models have been proposed by the Expenditure Reforms Commission of the Government of
India in 2000. All these proposals are based on the Joint Stock Company (JSC) model (a
business entity which is owned by shareholders).
It proposed corporatisation of the agriculture sector and running it like an industry. Four different
models are:
• In the first model joint stock companies will be registered under the company law for
taking up agricultural operations. Compact blocks of 1000-5000 hectares will be
identified and farmers will be motivated to become stakeholders in the joint stock
company set up for managing agricultural production. Share certificates will be issued to
the farmers to the extent of the value of their land holdings. Cultivation of land will be
taken up by the joint stock company, which will vertically integrate all operations relating
to land. They will start with land levelling, land shaping and take up soil testing,
preparation of appropriate cropping patterns, provision of irrigation facilities, application
of appropriate technology, and inputs. Along with setting up of proper harvesting and
storage facilities, the company will also introduce post harvest management through agro
processing and marketing. The company will arrange for requisite credit support for the
operations from financial institutions. Farmerswho are stakeholders will get dividend
income and wage employment from time to time.
• In the second model, the joint stock company will take the land on lease from the
farmers and take up cultivation on its own. The farmers will be buying shares from the
company and derive income from the lease amount to be paid by company and also
dividend income on the basis of shares held by them. They will also get wage
employment from time to time.
• Under the third model, the joint stock company will not take up any cultivation on its
own. The company will provide only services, relating to technology support, credit
support, input support, marketing support and set up facilities for processing and
marketing value added products. The farmers themselves will do the cultivation. They
will also have the freedom to lease additional land and enlarge the size of their holdings.
For all intents and purposes, the farmers will take up contract cultivation through the
joint stock company and their income will consist of the sale proceeds received from the
company for their produce and the dividend income, which will accrue to them on the
basis of the shares held by them in the joint stock company.
• The fourth model envisages setting up of producer companies. This also follows
contract farming framework but with better bargaining power for farmer
Corporate farming refers to direct ownership or leasing in of farmland by business
organisations in order to produce for their captive processing requirements or for the open
market. When it is done for captive purposes, it is referred to as captive farming as well, though
most of the time, the two terms are interchangeably used.
CORPORATE farming is at its apogee in the United States. A handful of companies control the
farm inputs and markets in the U.S.. For example, 10 firms control almost 90 per cent of the
agrochemical market, a small number of firms control the pork-processing industry and two firms
(Cargill and Continental) dominate the grain market.
In case of Monsanto-Mahyco’s Bt cotton where corporatisation may not be seen on the farm or in
a company taking over land or farmers becoming shareholders. But its presence dominates all
activities of cotton growing. Native and hybrid seeds have disappeared and Mahyco virtually
calls the shots, having captured 90 per cent of the cotton seed market and deciding the price of
seeds. Farmers have no option but to return to Bt cotton seed every season. The high cost of
raising Bt cotton forced the farmer to take loans at high interest rates and when the crop failed he
was left with little option but to take his own life. Cotton growers in the State agree that the
was left with little option but to take his own life. Cotton growers in the State agree that the
battle against bollworm was successfully fought with Bt cotton and that production had gone up
phenomenally, but the problem is the cost. The seed sovereignty that they enjoyed was gone
forever and over-production of cotton often brought them misery.
ANDHRA PRADESH can be described as the cradle of corporate and contract farming, with the
seeds of the famous Kuppam project, synonymous with former Chief Minister N. Chandrababu
Naidu’s vision of agriculture, being sown way back in 1995.
Another manifestation of corporate farming is in the recent arrival of its clone, contract farming.
After the failure of the Kuppam project, the government has not involved itself directly in the
promotion of contract farming.
Contract farming is a system based on forward contracts in which agricultural production is
carried out through an agreement between farmers and buyers, that specifies a combination of
features such as price, quality, volumes to be supplied and date of delivery, which farmers as
suppliers are expected to adhere to, and in response to which buyers are expected to redeem their
pledge to acquire supplies at the pre-specified price.

Facts
• Agriculture is an extremely risky business. This is mostly because, despite technological
advances, it is still very much dependent on nature. This is why corporations often stay
away from direct production, leaving the farmers to bear most of the risk of an
increasingly volatile climate. Instead, corporations exert tremendous control both
“upstream” and “downstream”—controlling the inputs farmers purchase [seeds,
chemicals] and the markets where they sell their products.
• Contract farming has been there since the 1960s in seed production, in both private and
public sectors. The recent spate of contract farming in India effectively began with the
case of Pepsi Foods Ltd (hereafter PepsiCo), which entered India in 1989 by installing a
tomato-processing plant at Zahura in Hoshiarpur district of Punjab. PepsiCo subsequently
abandoned tomato procurement, and since then its contract farming model began to focus
on potatoes for making processed potato chips.
• Already, around 100,000 acres (one acre is 0.4 hectare) is under contract farming in
Punjab, with both multinationals and domestic companies involved.
• The thrust of the different Five Year Plans was to establish regulated markets and to
create storage capacity in the form of warehouses and cold storages, grading facilities,
processing units and market intelligence, mainly in the cooperative sector. The private
sector was accorded equal status in agriculture marketing in the Tenth Plan (2002-07) as
private and cooperative sector participation in the marketing of agriculture produce
would break the monopolistic/oligopolistic supply structure. Also, it favoured forward
trading in agriculture commodities.
• Further, the amendments to the APMC Act at the State levels in the last decade, which
made contract farming legal, led to its widespread adoption across crops and regions and
companies.
• There are different types of contract farming, and each type of contract farming will have
its own set of pros and cons. One is simple procurement; in the second, the buyer
provides some inputs and takes the crop according to the terms and conditions of the
contract; and in the third, the buyer provides inputs and planting schedules and is more
involved in the agricultural process. The last one carries the most liability for the
company.
• Instances of contract farming in India have involved companies such as Pepsi (in potato
and groundnut, among other crops), Unilever (tomato and tea), ITC (tobacco and
oilseeds) and Cargill (seeds).
• The idea behind the creation of the APMCs was not only that of providing better
marketing facilities, but of establishing regulated markets in which orderly and
transparent trading conditions permit price discovery by farmers who might otherwise
lose as a result of unequal buyer-seller relationships.
• More recently the Central government has framed a ‘model’ amended version of the
APMC Act, which includes provisions for to bigger role for the private sector, direct
marketing and purchase of agriculture produce from farmers, contract farming and setting
 marketing and purchase of agriculture produce from farmers, contract farming and setting
up of markets by the private sector. Most States have now adopted versions of this model
Act, paving the way for an increase in the contract farming practice. The positive feature
here is that contract-farming agreements have to be registered, allowing in principle for
monitoring and systems of dispute settlement. The APMC Act was amended into the
Model APMC Act in 2003. So far, 16 States have adopted different provisions of this
Act, but none of them has adopted them fully because of local compulsions.
• In the sustainable food movement, we often focus on GM [genetically modified] seed
purveyors such as Monsanto as enemy number one. But supermarket value chains are a
huge factor that is often overlooked. The global concentration of food retail in the hands
of a few supermarket giants [such as Walmart, Tesco and Carrefour] has given them
enormous buying power and the ability to dictate prices, quantity and quality [meaning
uniform shape, size, ripeness, etc., things that are hard to achieve on a small, non-
industrial scale]. Not surprisingly, this concentration of agribusiness power translates into
massive political power (getting policies modified to suit one’s interest).

Challenges to corporate farming

• Legally, corporate farming cannot exist in India. A non-farming entity is not allowed to
own land. The Land Ceiling Act does not permit it. Hence, there is no other way to get
specified produce than through contract farming. States, including Karnataka,
Maharashtra, Tamil Nadu and Gujarat have had corporate-friendly amendments in land
ceiling laws regarding this issue. the governments of Maharashtra and Gujarat have
enacted laws to allow corporate farming on government wastelands by providing large
tracts of these lands (up to 2,000 acres each) to agribusiness companies on a long term
(20-year leases). The Chhattisgarh government has made available about 20 lakh ha of
land for jatropha cultivation (the seeds of the plant are processed to produce biofuel). The
Government of Gujarat has offered up to 2,000 acres of wasteland for horticulture and
jatropha cultivation on a 20-year lease to big corporate houses and resourceful farmers at
the rate of Rs.500-an-acre interest-free security deposit.
• India is a land of small holdings. For corporates, the transaction costs of dealing with so
many small farmers are not viable. Also, they have a history of waging struggles, often
violent, to hold on to their land.
• There are also attendant problems of adequate availability, variations in quality and
timeliness in supply.
• Corporates have demanded further changes to the APMC [Agriculture Produce
Marketing Committee] Act and the Essential Commodities Act, which they believe
prevent easy and direct purchase of agricultural produce from farmers and opening and
controlling of new agricultural markets. The Central government has actually been
forcing the hands of State governments to bring these amendments.
• The government is a direct competitor since there is a procurement policy linked to the
PDS. (That is why there is so much pressure to dismantle the PDS through direct cash
transfer and Aadhaar)
• There have been some companies that have attempted to lease land and cultivate crops
but have not met with as great a reward as expected. Some States have leased out so-
called wastelands to some companies for corporate farming but owing to local
opposition, this has stopped now.
As a result, what you have on a large scale is not “corporate farming” per se, but either “contract
farming”—where companies like Reliance Fresh have collection contracts with farmers—or
corporate interest in agri-processing.

Against the motion

Various studies of experiments with contract farming (such as the famous “Kuppam” project)
have indicated that such schemes have at best mixed results.

• Leaving it to corporates in the private sector will only bring the profit angle above
everything else.
 everything else.
• The relationship is most often unequal, with buyers being large corporations and
suppliers being economically weaker competing farmers. One major problem that was
evident in the past is parties reneging on contracts depending on market conditions. Thus,
when market prices are low, companies (PepsiCo did it in 2000s) have rejected the
produce on the grounds of quality, forcing farmers to sell at lower prices to them or other
buyers. It is also true that there have been instances of side-selling by farmers when
market prices have been higher than those contracted.
• Delays in payments; defaults on contracts in a glut situation, as done by Pepsi in Punjab
and wineries in Maharashtra; and improper legislation.
• The main issue is that it excludes farmers, particularly the small and marginal farmer
(constitute 83 per cent of farm households) who needs the most assistance. Companies
prefer medium and large farmers because of transaction costs. This encourages
acquisition of more land by large farmers those who have established successful
relationships, leading to intensified peasant differentiation and de-peasantisation. Small
farmers also lack the surplus to invest and do not have risk-bearing capacity. The
expansion of contract farming will also force marginal farmers to lease out their lands to
corporates or big farmers at payments below the market price. In a district of Karnataka
where rose is cultivated under corporate farming, Scheduled Caste and Scheduled Tribe
farmers were forced to lease out their land at one-third of the market price
• Nature of work assigned to farmers in company-managed farms will be vastly different
from what they had been doing before their land was taken. Sometimes it leads to the
reduction of large numbers of poor and marginal peasants to the status of agricultural
workers
• There is no logic for contract farming if the open market is doing well as it is a response
to situations of market failure which can be in the form of low quality, poor prices,
inadequate availability, and so on. For example, ordinary wheat and paddy in India do not
need to be contract-produced, unless it is about organic wheat or paddy or durum wheat
which is not produced for the open market.
• Production risk: Production costs in contract farming are higher as the standard
expected is higher. No company offers protection for crop failure. No crop insurance is
given and thus production risk is not covered most of the time. Farmer bears the risk even
when the decision regarding the choice of crop, input, quality and quantity of crop, and
schedule of payment rests with the corporate
• Marketing risk: Many companies take advantage of the clauses in the contract in case
the harvest does not meet their requirement; they tend to buy it at a lower price or reject it
altogether.
• Loss of autonomy: In practice, when small farmers enter corporate farming, control and
management of their landholdings gets transferred to the company. Though farmers
operate their lands, all the management details will be decided by its board of directors.
• Heavily intensive in terms of input (dangers of corporations taking the lions’ share of the
water resources, affecting neighbouring cultivators and adversely impacting the water
table in the area)
• Biased towards high value export oriented crops (horticulture, animal husbandry, dairy,
poultry and fish products);By the way 75% of agri GDP is contributed by these high
value items.
• Success or failure depends upon the nature of the contract management. The model of
cooperative sugarcane factories, functioning with cane cultivated and supplied by
shareholders is successful to a large extent though the problems of payment and
accumulation of dues for the cane supplied persist. This despite these companies
operating under State/Central legislation and regulation. The Anand Cooperative dairy
model (Gujarat) is another success story.
• There is no specific legislation to oversee the operation of contract company farming.
• A large quantum of contract farming is based on oral “contracts” and not on registered
documents. All the papers are in English and the farmers are made to sign them and bind
themselves to the conditions laid therein without knowing what they are.
• Concerns about common lands and pastures being classified as wastelands and handed
 • Concerns about common lands and pastures being classified as wastelands and handed
over to corporations on that basis.
• Increases and accelerates the process of casualisation of labour.
• Other implications of corporate farming include a shift towards mechanisation
adversely affects the need of the locally available/produced labour-intensive goods and
services, a major source of the rural non-farm economy (RNFE). Only a few native
workers were engaged in farming activities. The rest were forced to seek employment
elsewhere
• Another feature of the contract system is cartelisation, where farmers are forced to use
seeds, fertilizers, insecticides and credit of a particular company.
• The grabbing of land and property of farmers by corporate firms during and after the
functioning of the joint stock companies has been a recurring story from the time of the
first contract farming experiment in the late 1990s, in Kuppam in Chittoor district of
Andhra Pradesh, up to the early 2000s. Experiences as recent as five years ago in Uttar
Pradesh and Punjab, too, underscore this aspect. PPP in agriculture could end up as yet
another landgrab programme as the special economic zones
• The inherent danger of corporatisation of the farm sector is price volatility and the
alignment of domestic food prices with international food and oil prices. The prices will
be decided in futures markets rather than in physical markets after corporate takeover of
the purchase and storage of foodgrain.
• Difficulties faced by the Kuppam farmers (first model) in resuming cultivation in their
lands as there were no field boundaries (they were erased when all the fields were
combined)
What is clear is that relying solely on contract framing to solve the current agrarian problems
facing the country is futile. If contract farming is not properly controlled and regulated and if it
adds to the tendency of state actors reneging on their responsibility, it is likely to intensify the
agricultural crisis.

For the motion

• It is a modern system and a much needed one, especially on the technology front. But it
should be implemented in the right way.
• high yields and fixed prices
• Private capital and world-class expertise will ensure the adoption of latest technologies
and practices in all parts of the agriculture and food value chain.
• “shortening of food supply chain” through the “elimination of intermediaries”
• the creation of “back-end infrastructure”
• In Punjab, successive State governments have argued that contract farming is the best
means of crop diversification, in a region where there is a real question of ecological
survival and sustaining natural resources such as water and soil in a reasonably healthy
state. Punjab is characterized by monocropping.
• The government believes that crop diversification is best achieved by promoting
cultivation of high-value export crops, allowing free leasing of land, boosting agro-
processing and developing post-harvest and marketing infrastructure. In this process of
change, it sees the private corporate sector as the leading agent.
• The National Agriculture Policy declares that “private sector participation will be
promoted through contract farming and land leasing arrangements to allow accelerated
technology transfer, capital inflow and assured market for crop production, especially of
oilseeds, cotton and horticultural crops.”
• Government apparently feels that shifting to contract farming will ease the pressure on
state finances by eliminating both subsidies and farm support prices.

Way out
• It can work if there is a collectivisation of small farmers (cooperatives or producer
companies). For instance, 10 to 15 farmers get together, form a group, and sign a group
contract. It has been successful in Thailand.
• They have to be legally protected through process of registration and legislation.
 • They have to be legally protected through process of registration and legislation.
• Cooperative route: In contract farming, a study has shown that the share of farmers in
the final consumer price varies between 24 and 58 per cent. The farmers’ share in the final
produce in the government-controlled sugar sector in Uttar Pradesh is almost 80 per cent,
while in Amul in the cooperative sector, it is more than 80 per cent.
• Another option is producer companies. The idea is that 10 or more farmers come
together to do business. The entity will be treated like a private company for legal
purposes. It is essentially an improvement on the cooperative model. The only thing is
they can’t go to the capital markets to raise money or mobilise equity. This appears to be
getting some encouragement as NABARD is giving loans to producer companies.
Additionally, the Ministry of Agriculture has told State governments to treat these
producer companies on a par with the cooperatives. Further, the annual Union budget has
provided funds to the SFAC to be disbursed as grants to these companies. However, the
formation of farmer producer groups is still in the initial stages even as the government
has allowed the entry of corporates into agriculture.
• Compared with the JSC model, producers’ organisations are better placed with least
social destabilisation. From the point of farm producers, producers’ companies are poor
substitutes to producers’ cooperatives as the farmers’ involvement, and the benefits from
it, are relatively better than those obtained in the producer company model. Farmers
should be allowed to choose between the producers’ company and cooperative
models. The consortium should extend its support to whatever the farmers prefer without
discrimination.
• The contracts need to be more transparent. The terms and conditions of the contract are
crucial. Often the farmer had not even seen the contract and did not know what the terms
and conditions were.
• If farmers are still willing to enter into such arrangements, it is because of the instability
and uncertainty inherent in peasant-based, fragmented and largely rain-dependent
agriculture. If the government wants to do something for farmers, it should concentrate
on building up agricultural infrastructure, especially in terms of building up technology
that is suited for local conditions.
• The case for contract farming has emerged largely because public institutions have failed
to provide farmers with the essential protection and support required for viability on a
sustained basis. What cultivators in rural India need most today is the following
combination: a basic price support mechanism that ensures that costs are covered;
efficient extension services that provide information about possible crops, new inputs and
their implications, new agricultural practices relevant for the particular area, and so on;
and the availability of reliable and assured credit at reasonable rates of interest. These
features were certainly planned for Indian agriculture, and in some regions they were also
delivered in some periods. There is no reason why they cannot be delivered by the public
sector.
• In evolving PPP-based structures for technology development and dissemination with a
pro-nature, pro-poor and pro-woman orientation will be considered seriously by those in
government.
• Crop diversification can be more effectively encouraged through a system relative pricing
policy accompanied by a supportive system of public agricultural extension services. It is
the decline of such public services that has opened up the field for the entry of private
corporations.
• Studies have shown that the most efficient market system for farmers and consumers is
farmers’ markets (direct marketing) such as Apni Mandi, Rythu Bazaar, Uzhavar Sandhai
and Krushak Bazaar.
• The malpractices of intermediaries may be corrected through administrative measures
and the use of modern technology such as e-trading.

PPP in agricultural development (PPPIAD)

• over the past few months, sections of the political class, bureaucrats and technocrats in
the agriculture sector at the Centre and in several States have embarked on a policy blitz
of sorts on public-private partnership (PPP) in agriculture that seeks a paramount role for
 of sorts on public-private partnership (PPP) in agriculture that seeks a paramount role for
the corporate sector in production and all the way up to retail marketing.
• A formal beginning to all this was through the CII-sponsored national conference on
agriculture in December 2012. The conference, inaugurated by President Pranab
Mukherjee, had the proclaimed aim of ushering in a second Green Revolution in India
through PPP.
• This scheme has been conceived of as an alternative mode of implementation under the
RKVY. In this framework, schemes were to be developed “with a view to aggregating
farmers, and integrating the agricultural supply chain, with financial assistance through
the Rashtriya Krishi Vikas Yojana (RKVY), under the direct supervision of State
governments and supported by national-level agencies”. The framework also stated that
“overall, a collaborative effort between the government, farmers and corporates in
agriculture is likely to raise the rate of agricultural GDP growth, thereby directly
impacting rural poverty”.
• The deliberations at the CII-sponsored meet were immediately followed up with
administrative measures to formalise the role of the Small Farmers Agribusiness
Consortium (SFAC) as the national nodal agency for advancing PPP initiatives. The
Agriculture Ministry’s PPP framework had also stated that the SFAC would “provide
technical support and facilitation to States and corporates”. Since January the SFAC has
been active across large parts of the country in trying to set up Farmer Producer
Companies (FPC) as visualised in the framework.
• Main features of the PPPIAD allowed corporates to propose integrated agricultural
development projects across the spectrum of agriculture and allied sectors and also gave
them complete flexibility in design. Corporates would have complete flexibility in
designing a scheme or a programme. It also stated that State governments would provide
financial assistance directly to corporates through the RKVY window after a project had
been approved, subject to a ceiling.
• The primary interface between corporates and farmers in this exercise would be the
Farmer Producer Company. The objectives of the FPC include enabling the incorporation
of cooperatives of primary producers as companies and the conversion of existing
cooperatives into companies.
• PPP programmes will be facilitated through contract farming.

FDI in retail
• The mode of interaction between farmers and the organised retailer will either be through
“direct purchase from farms” or through “contract farming”.
• Direct purchase is a less preferred alternative for the organised retail/corporate sector
because the power of decision rests with the farmer. Various studies done in India and
abroad indicate that the corporate system strongly prefers contract farming.
Food Policy of India
In the backdrop of food scarcity and price fluctuations provoked by drought, floods and
international prices for exports and imports, food and agricultural policy went under massive
makeover in 1960s.
• The broad objective of food policy in India:
o to make food available to the people at reasonable prices
o providing remunerative prices to cultivators;
o supplying food at subsidized prices to the undernourished;
o controlling inflationary pressures;
o stabilizing prices for consumers’ and producers;
o reducing fluctuations in food availability and achieving self sufficiency in
food grains production. ​
• The strategic objectives of agricultural development in India have been changing
over time. During the period up to mid sixties, the basic objective was to maintain
the prices of food grains at low level; in the mid-sixties to early eighties the
objectivity was to maximize food production. In the early eighties to early
nineties the objectives changed to go for a demand driven production pattern.
Since early nineties, the strategic objective was to reduce inputs of agricultural
commodities and ensure sustainable growth of agriculture.
• Change in agricultural strategy in mid 1960s: technological package (HYV etc),
provision of input delivery (fertilizers etc) and assured remunerative prices for
agricultural production. Under this strategy of agricultural development, various
institutional instruments were used. These include fixation and announcement
of minimum support prices for the selected commodities, provision of marketing
facilities, efficient marketing regulations and provision of Public Distribution
System (PDS) of certain commodities like wheat and rice at subsidized price to
poor households in the country

FCI
Role
• 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.
• Specific objectives of FCI are
o Effective price support operations for safeguarding the interests of the farmers.
o Distribution of foodgrains throughout the country for public distribution system
o Maintaining satisfactory level of operational and buffer stocks of foodgrains to
ensure National Food Security
• 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.
• Purchase Centers (Mandies) are supposed to be opened in all corners of the country. The
 Purchase Centers (Mandies) are supposed to be opened in all corners of the country. 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.
• Other than Rice and wheat, FCI has been purchasing coarse grains since 2008-09
• 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.

• Food Corporation of India is also issuing foodgrains under various schemes (other than
TPDS) of the Govt. of India viz. Mid-Day-Meal, Nutrition Programme,SC/ST/OBC
Hostels, Welfare Institutions & Hostels, Annapurna, Sampoorn Gramin Rozgar Yojna
(SGRY), National Food for Work Programme, Scheme for Adolscent Girls, Pregnant &
Lactating Mothersand World Food Programme (WFP) etc. These are collectively known
as Other Welfare Schemes (OWS)

Issues
• FCI’s procurement operations are concentrated in only a few states.
• 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. 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.
• Second farmers of those states where FCI price support operations are not well organized
do not fully get the benefit of the support price.
• The difference between the economic cost of FCI (due to it’s inefficiency) and the market
price also contributes to the higher price.
• As is to be expected of any monopoly, FCI suffers from inefficiency leading to costly
operations..
• Most storage godowns with FCI are small-scale, low-quality structures; sometimes,
grains are also stored in the open (known as covered and plinth storage-CAP) leading to
heavy storage losses and costly operations.
• In 2001, A/c to WB, half of FCI’s grain stocks is at least two years’ old, 30% between 2
and 4 years old, and some grain as old as 16 years.
• Collusion with middlemen result in siphoning of PDS entitlements
• Less covered storage capacity (~34 mmt): Results in storing it in open

Recommendations
• The Food Corporation of India's (FCI) monopoly must be eliminated through greater
competition in food trade from other public, co-operative and private organisations. State
procurement agencies must be allowed to operate in all parts of the country.
• Role of FCI should be changed from procurement agency (give over its role of MSP
• Role of FCI should be changed from procurement agency (give over its role of MSP
related procurement to the private trade) to price stabilizing agency- ensuring price
stability through maintenance of buffer stock and conducting open market operations
(even resorting to export and import to dispense surplus or reduce deficit, respectively).
Removing the price differentials in PDS (APL, BPL, AAY) would enable FCI to
concentrate on its proper role of price stabilization rather than get involved, as it has, with
the complexities of an anti-poverty programme.
• Involvement of private sector would require a comprehensive reform of policies, rules
and procedures to strengthen the role of modern private trade in the matter of storage,
distribution and processing of food grains.
• High transport costs erodes viability of FPS –Pursuant to the PDS Order (2001) it is the
responsibility of State government for doorstep delivery of foodgrains but State govt.
have been shirking from their responsibility. As a result burden is on FPS dealers to
transport the foodgrains. This also leads to greater diversion
• Provisions of Mobile vans for distribution of PDS items
• Its objective should not be to procure all that is offered by the farmers but only to
maintain an optimum level of buffer stock.
• The FCI could also play a role in the international market for food grains by resorting to
imports when stock levels are low and exporting food grains when there are surplus
stocks.
FPI forms about 10% of the GDP of agriculture of the country, while about 9% of that of the
manufacturing sector.

FPI is highly labour absorptive and less capital-intensive. Food Products generated the highest
employment in the industries sector and second was textiles. The capital to output coefficient for
the industry is one of the lowest, implying that it uses less capital to produce one unit of output.
Hence food processing industries
include
Manufacturing Processes
Value-Added Processes

India is the largest producer in a number of agricultural commodities like milk, fruits and
vegetables and occupies top positions in many production of other food materials. These provide
a large raw material base for the food processing industries.
FPI accounts for 13% of the total employment generated by the manufacturing sector in india,
and as such is the huge generator of employment, employing 16 lakh people.
With better and adequate processing such huge losses can be reduced, ensuring better
remuneration to the producer while ensuring better supply to the consumers.

The increase in the value of the agricultural products will allow the farmer to improve his
bargaining power. In the absence of on-farm cooling, sorting and storing facilities (primary
processing), the farmer has to sell his crop in haste to the middleman. Sustainable supply chains
and cooling infrastructure will allow the farmer to demand better prices for his produce.
It is increasingly becoming evident that only a vibrant food processing industry can lead to
increasing farmgate prices, income level of farmers, reduce wastage and improve
employment opportunities.
MEGA FOOD PARKS
• MFPS is expected to facilitate the achievement of the Vision 2015 of Ministry of Food
Processing Industries to raise the processing of perishables in the country from the
existing 6% to 20%, value addition from 20% to 35% and the share in global food trade
from 1.5% to 3% by the year 2015.
• The primary objective of the MFPS is to provide adequate / excellent infrastructure
facilities for food processing along the value chain from the farm to market. It will
include creation of infrastructure near the farm, transportation, logistics and centralized
processing centers. The main feature of the scheme is a cluster based approach. The
scheme will be demand driven, pre marketed and would facilitate food processing units to
meet environmental, safety and social standards.
The scheme aims to facilitate the establishment of a strong food processing industry backed by
an efficient supply chain, which would include collection centers, primary processing
centers and cold chain infrastructure. The food processing units, under the scheme, would be
located at a Central Processing Centre (CPC) with need based common infrastructure required
for processing, packaging, environmental protection systems, quality control labs, trade
facilitation centers, etc.
It is expected that on an average, each project will have around 30-35 food processing units with
a collective investment of Rs 250 crores that would eventually lead to annual turnover of about
Rs 450-500 crores and creation of direct and indirect employment to the extent of about 30,000.
Scheme for cold chain value addition and preservation infrastructure
The food processing sector is critical to India’s development, for it establishes a vital linkage
and synergy between the two pillars of the economy— Industry and Agriculture. India is
the world’s second largest producer of food and holds the potential to acquire the numero uno
status with sustained efforts. The enormous growth potential of this sector can be understood
from the fact that food production in the country is expected to double in the next 10 years,
while the consumption of value-added food products will also correspondingly grow.

Fruits and Vegetables

Horticultural crops in India are currently grown on 12 million hectares representing 7% of the
country’s total cropped area. Annual horticultural production is estimated at 100 million metric
tonnes, which is over 18% of India’s gross agricultural output.
India is the third largest producer of fruits after Brazil and the United States, while its
vegetable production is exceeded only by China.
India’s share of world trade in this sector is still around one per cent.
In 1997–1998, processed fruits and vegetables exported, valued Rs.5,240 million. India’s major
exports are fruit pulp, pickles, chutneys, canned fruits and vegetables, concentrated pulps and
juices, dehydrated vegetables and frozen fruits and vegetables. This sector has attracted a total
investment of Rs.75,000 million in the last six years i.e. since the initiation of the liberalisation
process, including a rise in Foreign Investment from Rs.46.9 million to about Rs.102 million
between 1993 and 1998.
Meat and Poultry
Meat Processing: India has the world’s largest livestock population, accounting for 50% of
buffaloes and 1/6th of the goat population. Such a large population represents a challenge to
retain existing productivity traits by application of modern science and technology. Rigorous
efforts are being made to improve the condition of livestock by providing basic infrastructure
and latest technology.
At present, only a small percentage of the meat produced is converted into value added products
and most meat is purchased by consumers in the fresh/frozen form for conversion into products
at home, restaurants, etc. Maximum conversion takes place in pork products.
With growing urbanisation and increasing quality consciousness, the market for scientifically
produced meat products is expected to grow rapidly.
Poultry: India ranks fifth in the world in egg production with a yield of 1.61 million tonnes a
year. Yet the per capita availability is low. Now, with changing food habits and increasing
availability of eggs, the demand is increasing and growing at 10% a year. The increasing
awareness about balanced nutrition has effected changes in eating habits with vegetarians
accepting eggs as part of their diet.
Simultaneously, purchasing power has increased and more money is allocated for food. Despite
Simultaneously, purchasing power has increased and more money is allocated for food. Despite
this, the egg industry experiences periodic slumps.
There are five modern integrated poultry processing plants in the country, besides a good
number of not-very-modern small plants. These plants produce dressed frozen chicken and cut
parts. While poultry industry is gradually taking shape, poultry dressing and processing is still in
its infancy in the country

Milk and Milk Products

India has the largest livestock population with milch cows and buffaloes being its main
constituent. India is the world’s largest milk producer (72 million tonnes annually) and the dairy
industry has been recognised the world over as its most successful development programme. The
products manufactured by the organised sector are ghee, butter, cheese, ice creams, milk
powders, malted milk food, condensed milk, infant foods, etc. The products also include casein,
lactose and dairy whiteners.
Consumer Products
This comprises product groups like confectionery, chocolates, cocoa products, soya-based
products, ready-to-eat foods, mineral water, high protein foods etc. Soft drinks enjoy the biggest
share in this. Lemon drinks continue to be very popular in the country.
India produces a large range of cocoa and non-cocoa based confectionery items, besides other
cocoa-based products. The production of confectioneries, except chocolates, is reserved for the
small-scale sector. However, there are several large companies with an established market
presence and brands in cocoa and non-cocoa confectionery markets.
Among the ready-to-eat products, the installed capacity in the organised sector is 33,400 tonnes
for manufacture of pasta products like noodles, macaroni, vermicelli, etc. Besides, there are 10
units with an annual capacity of 9,340 tonnes for corn flakes, oat flakes and pearl barley.
Alcoholic Beverages
Liquor made in India is categorised as beer, country liquor and Indian Made Foreign Liquor
(IMFL). The Indian beer market, currently at Rs.7,000 million a year, has been growing by 15%
and now all world famous brands of liquor are available in India.
The country has 212 distilleries with a yearly installed capacity of 1,933 million litres. However,
there are only 24 units producing IMFL and 31 making country liquor.
Fisheries and Sea Food
India boasts of the seventh largest marine landing base in the world with an extensive 7,500 km
coastline and an Exclusive Economic Zone (EEZ) of 2 million sq km, largely untapped, and a
29,000 km stretch of rivers and canals, 145 million hectares of reservoirs and 0.75 million
hectares of tanks and ponds. Though India’s fish potential from the EEZ has been estimated at
3.9 million tonnes, the harvest is only of 2.87 million tonnes. This can be increased to 3.37
million tonnes by intense tapping in offshore and deep-sea grounds using modern technology.
There is also a good scope to improve fish harvest from inland waters which, at present is 2.7
million tonnes. Besides, the fish potential in aquaculture and shrimp farming has also largely
remained untapped.
Marine fish found in India include prawns, shrimps, tuna, cuttlefish, squids, octopus, red
snappers, ribbon fish, mackerel, lobsters, cat fish and countless other varieties.
Domestic per capita consumption of fish is only 5 kg per annum against the world average of 12
kg. India’s per capita consumption is much lower than the Asian maritime countries (e.g. Japan–
86 kg). India’s 60% fish production is from marine sources. It is estimated that only 10% of the
marine catch is accounted by deep-sea resources. Processing of produce into canned and frozen
form is done almost exclusively for the export market.
Grain Processing
The country’s current foodgrain production (including rice, jowar, bajra, maize, ragi, wheat,
barley, gram and pulses) has been put at 225 million tonnes a year. Food processing industries
play a crucial role in reducing post-harvest losses.
Since most operations of this industry are rural based, it has the potential to generate high
employment at low investment. Promotion of food processing also helps in energy conservation
by reducing energy wastages in home cooking.
Grain processing, with a share of 40%, is the biggest component of the food sector. Its basic
feature is pre-dominance of the primary processing sector, sharing 96% of the total value, with
feature is pre-dominance of the primary processing sector, sharing 96% of the total value, with
the secondary and tertiary sectors adding about 4%. This area needs to be viewed as a high
growth potential area.
Plantation
Tea, coffee, cashew, cocoa, etc. are the country’s major plantation crops, which are grown in
different parts for they require specific agro-climatic conditions.
India’s principal plantation crops account for around 5 to 6% of the country’s aggregate export
earnings. Production and domestic consumption of major plantation crops have increased
considerably during the last three decades. India continues to be the world’s largest producer,
consumer and exporter of black tea. Cashew is also an important crop and earns foreign
exchange worth Rs.16,000 million.

Challenges and constraints

Value-addition to food fortification in India is only 7%, while that in China is 23%, 45% in
Philippines and 188% in the UK.

Input
• lack of adequate trained manpower for the industry
• R&D activities in the area have remained confined to a few areas and even in those areas
have largely remained restricted to the labs. With new technology, the risk perception is
higher and financial institutions are wary of supporting such initiatives. There is a lack of
proper insurance schemes for such projects, most of which deal with perishables.
• The sector is characterized by poor marketing, transport and communication
infrastructure. Companies in the processed food manufacturing space face problems on
the inbound supply chain side in terms of inconsistency of inputs quality, high level of
wastages as the product reaches the manufacturing base and unwanted cost additions with
minimal value additions. This is due to the long and fragmented supply chain which
results in these wastages and price escalations. This creates the requirement for
companies to invest in creating backward linkages through contract farming, which
would enable the company to control the inputs at an assured quality level with minimal
wastages.
• The market density of fruits and vegetables is low and facilities for storage and cold
chains in the hinterlands are woefully inadequate. Cold storage capacity in India is
about 25 MT. There is a lack of integration of the local markets with the global ones.
Cold storage facilities now available are mostly for single commodity like potato, orange,
apple, grapes, pomegranate and flowers etc. which result in poor capacity utilization.
Without a strong and dependable cold chain vital sector like food processing industry
which is based mostly on perishable products cannot survive and grow.
Policy
• Food industry is not given enough attention, it is small and not considered attractive.
• While external liberalization has opened new avenues, it also poses threat in the form of
striffer competition under the new world trade order with WTO agreements relaxing
Quantitative and qualitative restrictions.
The inherent strength of a strong raw material base and an emerging market needs to be
buttressed with international-level infrastructure and growing suitable raw materials.
• Taxes on processed food in India is one of the highest in the world, which is a
discouraging factor for the industry. No other country levies excise duty on processed
food or distinguishes between branded and unbranded food.
Any meaningful investment in the food processing industry will reasonably necessitate its
branding, and higher taxes on branded products lead to discouragement of such
investment.
Marketing
• India is the second largest food producer in the world but its share in world trade in agro
products is dismally low (<1.5%)
• Cooperatives and other semi-government organisations are weak and people’s
participation, either through Panchayat Raj institutions, NGOs, farmer organisations or
 participation, either through Panchayat Raj institutions, NGOs, farmer organisations or
industries’ associations in food sector remains extremely inadequate.
• Food quality control and sanitary and phytosanitary standards are another issue related to
the food processing industry in the country.
• Indian brands have yet to acquire an image in the international markets due to their poor
global marketing.
Challenges related to logistics:
i) Road infrastructure in India still faces challenges related to quality and
connectivity: Indian national highways account for only 2% of the total road network
but carry 40% of all cargo. This puts a lot of pressure on the highways due to the high
traffic volumes and, accordingly, results in delays in transit. Further, the balance road
network (not including highways) is not well developed, which impacts transit time
and the extent of damage to cargo.
Normal distance covered by truck/trailers in India is 250-300 km/day vs. International
norm of 600-800 km/day. Most roads in India are designed to carry a maximum gross
weight of 16.2 tons vs. 36 tons in the US.
i) Port Infrastructure: This is a key challenge for external trade. While over last few
years, port capacity may be increasing, lack of connectivity to these ports leads to
cost escalations and delays in the goods transferred. Also, high dependence on
manual labor and low technology usage affects the turnaround times at ports,
impacting the overall supply chain lead time. This can cause adverse effects
especially for food and food products.

Most of the food processing industries come under priority sector lending and are exempt from
industrial lending.
Backward Linkage—Raw Material Supply
a) The concept of backward linkage between farmers and industry would be
promoted to encourage and enable farmers to grow products of appropriate
quality. This will help the poorest of the poor farmers as well as marginal and
medium farmers fetch appropriate and remunerative return for their produce.
b) The existing institutions like local bodies, cooperatives and self-help groups,
which have been in operation for over four decades in different contexts, would
be utilised to strengthen the backward linkage. This way the skill and expertise
acquired by these institutions would be constructively used, while this mechanism
would help quickly create the bridge of trust between farmers and processors.
This would ensure smooth supply of raw material to the processors and help the
farmers (poor, marginal and big) in getting remunerative prices for their products.
Forward Linkage—Marketing (includes Wholesale dealer, retailer, consumer)
a) There is an urgent need to develop forward linkages for fresh and processed food.
Presently, there are a large number of intermediaries operating between the
farmers/processors and the consumers, resulting in high cost to the latter and low
return to the former.
The efforts to cut intermediaries would be made in such a way that the special
skill and expertise required to operate the intermediate links in the system like
transportation and market distribution are not jeopardized.
b) The North Eastern Region, the Hilly States (J&K, HP and UK), the Islands (A&N,
Lakshadweep) and the Integrated Tribal Development Projects (ITDP) areas in
the country need to be given special consideration.
Fiscal incentives like excise duty/sales tax concessions and tax holidays should
be given not only to the units being established here, but also to those set up
outside but processing the produce from these areas.
c) Special attention is to be laid towards setting up regulated markets with the
primary objective to improve market efficiency and achieve equitable
distribution of benefits between producers, traders and consumers.
d) Efforts are to be made to develop packaging technologies for individual products
to increase their shelf life and improve consumer acceptance, both in the domestic
and international markets.
e) Efforts are to be made to harmonise food laws to encourage production of high
 e) Efforts are to be made to harmonise food laws to encourage production of high
quality products with minimum intervention from regulatory authorities.
The complexity of multiple administering authorities for food processing
enterprises is also required to be simplified by developing an integrated and
unified system.
f) Marketing Intelligence
g) Advertising
h) Product design
i) Infrastructure for distribution (transport-road, port, rail, insurance)
Industry Sub-Segments
Fruits & Vegetables
The processing of fruits and vegetables is estimated to be around 2.2% of the total production in
the country. The prominent processed items in this segment are fruit pulps and juices, fruit based
ready-to-serve beverages, canned fruits and vegetables, jams, squashes, pickles, chutneys and
dehydrated vegetables. Some recent products introduced in this segment include vegetable
curries in retortable pouches, canned mushroom and mushroom products, dried fruits and
vegetables and fruit juice concentrates.
The fruits and vegetable processing industry is highly decentralized, and a large number of units
are in the cottage / household and small scale sector, having small capacities of up to 250
tonnes/annum.
The domestic industry is yet to change its preference in favour of processed foods. Consumption
of value added fruits and vegetables is low compared to the primary processed foods, and fresh
fruits and vegetables. The inclination towards processed foods is mostly visible in urban centers.
A significant thrust can be given to this sector by strengthening linkages between farmers and
processors. The weak linkage between farmers and markets, as well as, farmers and processing
companies has brought about inefficiencies in the supply chain and encouraged the involvement
of middlemen. The Government of India’s National Agriculture Policy envisages the
participation of the private sector through contract farming and land leasing arrangements which
not only assures supply of raw material for processing units, but also a market for agriculture
produce, accelerate technology transfer and capital inflow into the agriculture sector.
Milk and Milk Products
India has one of the highest livestock population in the world, accounting for 50% of the
buffaloes and 20% of the world’s cattle population, most of which are milch cows and milch
buffaloes. India’s dairy industry is considered as one of the most successful development
programmes in the post-Independence era.
Milk processing in India is around 35%, (with the organized dairy industry accounting for 13%
of the milk produced) while the rest of the milk is either consumed at farm level, or sold as fresh,
non-pasteurized milk through unorganised channels.
Dairy Cooperatives account for the major share of processed liquid milk marketed in the India.
Milk is processed and marketed by 170 Milk Producers’ Cooperative Unions, which federate into
15 State Cooperative Milk Marketing Federations. Over the years, several brands have been
created by cooperatives like Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan).
Nandini (Karnataka), Milma (Kerala) and Gokul (Kolhapur).
The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk products
is concentrated in these milk surplus States.
Meat & Poultry
Since 1995, production of meat & meat products has been steadily growing at a rate of 4% p.a..
Currently, the processing level of buffalo meat is estimated at 21%, poultry 6% and marine
products 8%. Only about 1% of the total meat is converted into value added products like
sausages, ham, bacon, kababs, meat balls, etc. Production of meat is governed under local by-
laws as slaughtering is a state subject. Processing of meat is licensed under the Meat Food
Products Order, 1973.
Slaughter rate for cattle as a whole is 20%, for buffaloes it is 41%, pigs 99%, sheep 30% and
40% for goats. The country has 3,600 slaughter houses, 9 modern abattoirs and 171 meat
processing units licensed under the meat products order. Meat exports have been growing at
close to 30% p.a. in quantity terms, largely driven by poultry, buffalo, sheep and goat meat.
close to 30% p.a. in quantity terms, largely driven by poultry, buffalo, sheep and goat meat.
Exports of value added meat products are insignificant. In the domestic market, the growing
number of fast food outlets in the country has had a significant impact on the meat processing
industry.
Marine Products
India is the third largest fish producer in the world and ranks second in inland fish production.
India’s vast potential for fishes, from both inland and marine resources, is supplemented by the
8,000 km coastline, 3 mn hectares of reservoirs, 1.4 mn hectares of brackish water, 50,600 sq km
of continental shelf area and 2.2 mn sq km of exclusive economic zone.
Processing of marine produce into canned and frozen forms is carried out almost entirely for the
export market.
Processed fish products for export include conventional block frozen products, individual quick
frozen products (IQF), minced fish products like fish sausage, cakes, cutlets, pastes, surimi,
texturised products and dry fish etc.
Exports of marine products have been erratic and on a declining trend which can be owed to the
adverse market conditions prevailing in the EU and US markets. The anti-dumping procedure
initiated by the US Government has affected India’s shrimp exports to the US.
Grain Processing
Grain processing includes milling of rice, wheat and pulses.
Primary milling of grains is the most important activity in the grain processing segment of the
industry. However, primary milling adds little to shelf life, wastage control and value addition.
Around 65% of rice production is milled, mostly in modern rice mills. Dal milling is the third
largest in the grain processing industry. Oilseed processing is another major segment, an activity
largely concentrated in the cottage industry.
Indian rice, especially Basmati rice, has gained international recognition, and is a premium
export product. Branded grains as well as grain processing is now gaining popularity.
Beer & Alcoholic Beverages
India is the third largest market for alcoholic beverages in the world, and the domestic market is
largely dominated by United Breweries, Mohan Meakins and Radico Khaitan. The demand for
beer and spirits is estimated to be around 373 mn cases per year. There are 12 joint venture
companies having a licensed capacity of 33,919 kilo-litres p.a. for production of grain based
alcoholic beverages. Around 56 units are manufacturing beer under license from the Government
of India.
The two segments in the liquor segment, country liquor and Indian Made Foreign Liquor, both
cater to different sections of society. The former is consumed in r ural areas and by low-income
groups, while the latter is consumed by the middle and high income groups.
The wine industry in India has come into prominence lately and has been receiving support from
the Government as well. The market for this industry has been estimated to be growing at around
25% annually. Maharashtra has emerged as an important state for the manufacture of wines.
There are more than 35 wineries in Maharashtra, and around 1,500 acres of grapes are under
cultivation for wine production in the state. The Maharashtra Government has declared wine-
making business as small-scale industry and has also offered excise concessions.
Consumer Foods
This segment includes packaged foods, aerated soft drinks, packaged drinking water and
alcoholic beverages.
There are around 60,000 bakeries, 20,000 traditional food units and several pasta food units. The
bakery industry is among the few processed food segments whose production has been
increasing steadily in the country in the last couple of years. Bakery products include bread,
biscuits, pastries, cakes, buns, rusk etc. This activity is mostly concentrated in the unorganized
sector. Bread and biscuits constitute the largest segment of consumer foods with an annual
production is around 4.00 mn tonnes. Bread manufacturing is reserved for the small scale sector.
Out of the total production of bread, 40% is produced in the organized sector and the remaining
60% in the unorganised sector. Similarly, in the production of biscuits, share of unorganized
sector is about 80%.
SWOT Analysis of Food–Processing Industry
Strengths
• Abundant availability of raw material
• Priority sector status for agro-processing given by the central Government
 • Priority sector status for agro-processing given by the central Government
• Vast network of manufacturing facilities all over the country
• Vast domestic market
Weaknesses
• Low availability of adequate infrastructural facilities
• Lack of adequate quality control & testing methods as per international standards
• Inefficient supply chain due to a large number of intermediaries
• High requirement of working capital.
• Inadequately developed linkages between R&D labs and industry.
• Seasonality of raw material
Opportunities
• Large crop and material base offering a vast potential for agro processing activities
• Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield
projects
• Rising income levels and changing consumption patterns
• Favourable demographic profile and changing lifestyles
• Integration of development in contemporary technologies such as electronics, material
science, bio-technology etc. offer vast scope for rapid improvement and progress
• Opening of global markets
Threats
• Affordability and cultural preferences of fresh food
• High inventory carrying cost
• High taxation
• High packaging cost
Address Infrastructure bottlenecks to give further impetus to the sector
Overcoming long & fragmented supply chain:
To overcome the long and fragmented supply chain, contract farming can emerge as a significant
opportunity for companies whereby they can create direct farm linkages to source appropriate
quality, quantity and varieties of inputs. Currently, contract farming is supported by the
governments of few key producing states in India. A few companies have been successful in
linking up with farmers, and some models of contract farming based on profit sharing or social
investment may emerge in the future.
Providing impetus to logistics & supply chain sector:
Focus should be on Improving road, rail, port and air infrastructure
1. Dedicated freight corridors in rail supplemented by concretized dual carriageways for the
State & National highways, will directly reduce the cost of goods supplied.
2. There is a need to develop a single entity of all multi-modal transportation, instead of
splitting into rail, surface and air as separate Ministries & entities. This entity needs to remain
customer & industry centric rather than as the Governmental control mechanism.
3. Support to private rail operators by providing access to infrastructure of Indian railways at
concessional rates; tax holidays for purchase of wagons and creation of infrastructure, especially
that of rail terminals for cargo consolidation and aggregation.
4. Provide further incentives to FTWZs (Free Trade Warehousing Zone), one of the major
drivers of warehousing business. The Free Trade and Warehousing Zones (FTWZ) is a special
category of Special Economic Zone and is governed by the provisions of the SEZ Act and the
Rules.
FTWZ is designated as a deemed foreign territory and are envisaged to be integrated zones and
to be used as International Trading Hubs. FTWZs will be fully independent mega-trading hubs
integrated with state-of-the-art warehouse and special storage infrastructure, Container Freight
Stations, Environment friendly equipment, Rail sidings for hinterland connectivity, Commercial
complexes for offices, Independent utility stations, banks and insurance corporations added to
recreational and eventual residential complex for the FTWZ workforce
5. The Government should provide industry status to this sector and formulate a separate
Ministry for Supply Chain & Logistics sector.
6. Support development of organized strategic logistics hubs by helping in land acquisition and
by providing tax incentives/ tax holidays
7. Tax incentives to Multi modal Logistical Centres which also have manufacturing/exporting
7. Tax incentives to Multi modal Logistical Centres which also have manufacturing/exporting
capabilities.
8. Incentivize 3PL operators in setting up end-to-end logistics and warehousing set-up. A third-
party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides service to its
customers of outsourced (or "third party") logistics services for part, or all of their supply chain
management functions.
9. Incentives for setting up warehousing/cold storage infrastructure and customized
transportation network development
Open up multi brand retail to bring in more global investments in the infrastructure and
logistics domain; and in turn contribute to the growth of supply chain & logistics sector in
particular and economy in general
Lower Rates of taxation as well as implementation of GST will result in location of plants
on the basis of demand rather than tax implications
This means that total landed costs and infrastructure considerations would govern the location of
manufacturing plants rather than tax implications. This would thereby spurt growth for
infrastructure as well as transportation and logistics.

Misc

• Basic problems that necessitate “supply chain management” : Variability, Perishability

and Seasonability
• Scope of FPI : Mention Potential of each sector (raw material) and drivers of food
processing demand (market)
• Significance: Page 1 (inflation control, food security, employment, poverty reduction,
reduction in subsidies etc.)
Provisions
• Up to 75 per cent of the rural population and up to 50 per cent of the urban population
will have uniform entitlement of 5 kg foodgrains per month at highly subsidized prices of
Rs 3, Rs 2, Rs 1 per kilogram for rice, wheat, coarse grains, respectively.
• The poorest of the poor will continue to get 35 kg grains per household under the
Antyodaya Anna Yojana at subsidised prices of Rs 3, Rs 2 and Rs 1.
• Children in the age group of 6 months to 14 years will be entitled to take home ration or
hot cooked food as per prescribed nutritional norms.
• Provision of wheat flour instead of wheat in case State govt agrees
• Maternity benefits of Rs. 6000
• nutritional guarantees in the form of a cooked meal for pregnant and lactating women,
including for mothers for six months after childbirth. These are universal free-of-cost
benefits
• Free meal through anganwadi for child aged 6 months to 6 years and beyond that upto 14
years through MDM
• Community kitchen for homeless for food at affordable price and one meal per day free
for destitute
• Two meals per day in disaster struck areas
• Food security allowances in case any of the entitlements mentioned above not provided
• Coverage in each state to be decided by Centre
• Reforms suggested in TPDS (doorstep delivery, use of ICT & Aadhar, transparency in
records, cash transfer& food coupons)
• Women empowerment: women to be head of household (for issue of ration card)
• Grievance redressal mechanism, District grievance redressal officer, State food
Commission, National Food commission
• Obligation of cenral govt: To provide foodgrains from central pool, compensation in case
food grains not provided
• Obligation of state govt. : picking up food from the depot and delivery to FPS,
implementation and monitoring, providing food security allowance, reforming TPDS
• Social audit and vigilance committees for evaluation, feedback and ensuring
accountability
• Flexibility to state to provide entitlements over and above mentioned in the Act

Criticism
• By providing only 5 kg of grain per person a month, the much-touted PDS [public
distribution system] will be providing only 166 grams per person per day in the name
food security.
• It is cereal-based only, leaving the question of nutritional security out of the purview of
government accountability.
• It criminalises mothers with more than two children and children of higher birth-order by
not provisioning for maternal entitlements for them.
• It has no provisions for community kitchens in urban areas or for feeding of the most
hungry or to deal with starvation deaths, leaving Gandhiji’s ‘last man’—the starving
millions— unaddressed in the law.
• Finally, the so-called ‘right of food security’ will be completely compromised with an
ineffective and weak grievance redress mechanism.”
• The government is in a hurry to identify the beneficiaries even though the results of the
Socio-Economic and Caste Census are awaited. This hurry will lead to a lot of exclusion
• it will also leave no scope for community participation and monitoring
 • it will also leave no scope for community participation and monitoring
• A clause that enables a government to escape liability to provide compensation during
floods, droughts, fires, earthquakes, and so on.
• One powerful objection to the bill was its implications for federalism.
• depends on a famously corrupt and leaky public distribution system
• will distort the agriculture market
• worsen food inflation
• Around 10 State governments have established a system where BPL families get rice at
Rs. 2 a kg. In Tamil Nadu, rice is being provided at Re. 1 a kg and to some sections free
of cost. The Bill ignores these existing price benefits. In the Bill, the price of rice for BPL
families is Rs. 3, not Rs. 2 a kg.
• No roadmap for revitalisation of the agriculture sector
• disabled persons are once again left out
• What the proposal does not specify is investments required for augmenting storage,
freight capacity given that the railways are already stretched, and setting up a mechanism
for running welfare schemes packaged with food grain entitlements, such as maternity
benefits and free meals to the needy
• no time-frame for completing SECC exercise
• differences between the Food Ministry and the Law Ministry over the grievance redressal
mechanism
• From the legal rights viewpoint, the draft Bill addresses the issue of economic access to
food. The other two components of food security — namely, availability of food, which
is a function of production, and absorption of food in the body, which is a function of
clean drinking water, sanitation and primary health care — cannot easily be made legal
entitlements.
• Procurement nightmare: To begin with, the government must remember that foodgrain
procurement had peaked to an average of 50 million tonnes during the last three years
because of reasonably good rainfall and good crop. if you take the average of the last
seven years, the procurement of foodgrains has been less than 35 million tonnes a year. If
for some reasons we have a couple of years of bad monsoon and the average procurement
is down to about 35-40 million tonnes, the key question is, where will the government get
the remaining 25-30 million tonnes of foodgrains to meet its legally mandated
distribution of food
• Serious doubts over the FCI’s capacity to efficiently manage procurement and
distribution on such a large scale. the food ministry revealed that in 2002-04 it cost Rs
134 per quintal to procure wheat but the cost of moving the same quintal of wheat was
over Rs 289
• In Force Majeure (greater force) Clause 52 in which lies the sting. The clause absolves
the Central or State governments of performing any of their obligation or giving
compensation to any party under the Act “when such failure of supply is due, either
directly or indirectly, to force majeure conditions, such as war, flood, drought, fire,
cyclone, earthquake or any act of God. In a country where 60 per cent agriculture is rain-
fed, this clause signals the “end of the contract”
Certainly, redistribution of income through subsidies to the poor is an objective of a welfare
economy, and we cannot dismiss such actions simply on the basis of financial implications.
However, the concern is whether such redistribution could threaten to retard the growth process
itself.

Way out
The bill was a missed opportunity in that it did not bring clarity on some vexed issues,
particularly our contorted targeting strategy.
• The Right to Food Campaign has been consistently demanding a comprehensive food
security law that incentivises agriculture production, provides for local procurement and
local storage, along with a decentralised and deprivatised universal PDS; special
entitlements for children, mothers, the aged, the disabled, widows, migrants and destitute
persons including universalised ICDS [Integrated Child Development Services]; monthly
pensions, community kitchens and destitute feeding programmes; effective measures for
 pensions, community kitchens and destitute feeding programmes; effective measures for
grievance redress, transparency and accountability and safeguards against commercial
interference including GMs [genetically modified foods] in any of the food/nutrition-
related schemes and against the introduction of cash transfers in place of PDS.
• The right's position on many of these issues stems from defeatism about the state's
capacity: that the state can never deliver.
• Decentralise substantial portions of all new procurement and distribution to gram
panchayats. There is already a constitutional mandate to do this. Small storage capacities
can come up faster at the panchayat level. The panchayat administration could go one
step further by creating community-led, labour-intensive food processing enterprises that
sell semi-processed items, such as packets of wheat flour fortified with iron and other
vitamins under the same subsidised programme. This will meet the needs of nutrition and
generate employment. Such decentralisation at the panchayat level will cut logistical
costs for the FCI and create new value-added economic activity at the grassroots level.

Misc
• The entitlements would cost the government about Rs. 94,973 crore per annum, as
against the existing food subsidy bill estimated at Rs. 67,310 crore. The foodgrains
required to be procured to meet the obligations under the Bill is estimated at about 65
million tonnes, up from the average 50 to 55 million tonnes at present.
• Agriculture (Rs 1.10 lakh crore), and WCD (Rs 35,000 crore) have indicated an
investment of over Rs 1.45 lakh crore for long-term sustainability of the food law’s
provisions.
Food Problems
Food system comprises of:
• Production “up to the farm gate” (R&D, inputs, production, farm management),
• Post-harvest supply chain “from the farm gate to retailer” (marketing, storage, trade,
processing, retailing) and
• Consumers (Consumption problems: Nutritional problems, Food security issues, Food
poisoning due to contamination)

Malnutrition (Nutrition problems)

A/c to FAO malnutrition is an abnormal physiological condition caused by inadequate,
unbalanced or excessive consumption of the macronutrients that provide dietary energy
(carbohydrates, protein and fats) and the micronutrients (vitamins and minerals) that are essential
for physical and cognitive growth and development. Different types of malnutrition may coexist
within the same country, household or individual
• Undernutrition
• Overnutrition
The double burden of malnutrition refers to the dual burden of under- and overnutrition
occurring simultaneously within a population.
• Poor nutrition causes nearly half (45%) of deaths in children under five - 3.1 million
children each year.
• One out of six children -- roughly 100 million -- in developing countries is underweight.
• One in four of the world's children are stunted. 80 percent of the world's stunted children
live in just 20 countries.
• More than 60 percent of these food insecure people live in South Asia and Sub-Saharan
Africa, which form hunger’s centre of gravity.
• WFP calculates that US$3.2 billion is needed per year to reach all 66 million hungry
school-age children.
Causes
It is caused by a complex interplay of economic, social, environmental and behavioural factors
that prevent people from consuming and fully benefiting from healthy diets.

Effects
• Biological (mentioned later)
• Socio-demographic: Poor performance in school, social unrest (food riots), high birth
rate to compensate high IMR, high MMR, gender inequality (in situation of scarcity,
females are neglected), high dependency ratio, Inferiority complex, subject of ridicule
among peers (esp. when overweight)

Child and maternal malnutrition –impose by far the largest nutrition-related health burden
 Child and maternal malnutrition –impose by far the largest nutrition-related health burden
at the global level, responsible for almost twice the social costs of adult overweight and
obesity.
The social burden due to child and maternal malnutrition has declined almost by half
during the last two decades, while that due to overweight and obesity has almost doubled,
yet the former remains by far the greater problem, especially in low-income countries.
• Economic: lost productivity , additional burdens to the education system and direct
health care costs
It accounts for as much as 5 percent of global gross domestic product (GDP), equivalent
to US$3.5 trillion per year or US$500 per person. The costs of undernutrition and
micronutrient deficiencies are estimated at 2–3 percent of global GDP, equivalent to
US$1.4–2.1 trillion per year. Although no global estimates of the economic costs of
overweight and obesity exist, the cumulative cost of all non-communicable diseases, for
which overweight and obesity are leading risk factors, were estimated to be about US$1.4
trillion in 2010.

Undernutrition
• Undernourishment/Hunger
• Macronutrient (Protein, carbohydrate, fat) deficiency-mainly protein deficiency
• Micronutrient Deficiency/Hidden hunger (Vitamins and Minerals)- Most common is
Vitamin A, Iron and Anaemia
Sometimes first two is combined and mentioned as undernourishment or Protein Energy
Malnutrition
FAO defines food deprivation, or “undernourishment,” (hunger) specifically as the
consumption of fewer than about 1,800 kilocalories a day—the minimum that most people
require to live a healthy and productive life.
FAO considers the composition of a population by age and sex to calculate its average minimum
energy requirement, which varies by country (from about 1,690 kilocalories per person per day
in Eritrea to 2,000 kilocalories per person per day in the Netherlands for 2006–08). The
country’s average minimum energy requirement is used to estimate under-nourishment.
“Hunger” the body's way of signaling that it is running short of food and needs to eat something.
Hunger can lead to malnutrition
“Undernutrition” goes beyond calories and signifies deficiencies in any or all of the following:
energy, protein, or essential vitamins and minerals. It afflicts 12.5% of world population (880
million people)-excluding micronutrient deficiency
Starvation is a severe deficiency in caloric energy, nutrient, and vitamin intake. It is the most
extreme form of malnutrition. In humans, prolonged starvation can cause permanent organ
damage and eventually, death. Can be cause due to undernutrition exacerbated by circumstantial
reasons (famine, poverty, unsupervised fasting) or medical reasons (Diabetes, celiac disease,
constant vomiting etc.)
High risk groups
• Pregnant and lactating women
• Infants
• Adolescent girl
• Elderly (more common in the elderly than in adults of other ages)
• Socially deprived
High (>20%): Sub Sahara, South Asia + Indochina (Cambodia, Laos)+north korea+
Mongolia+Bolivia
Moderate (5-20%): North Africa, Rest of Asia, LNorthern South America
Effects
Biological
• Retard growth and development (stunting, measured in height), wasting and underweight
• deficiency diseases- Kwashiorkar and Marasmus (PEM)
• Reduce physical activity
• impair resistance to infection and increases nutrient requirements and further weakens the
immune system
• delay recovering from disease
• increase morbidity and disabilities
• Adversely affects pregnancy and lactation in women- low weight at birth
• nutrition disorders may arise, depending on which nutrients are under- abundant in the
diet
Economic and Social as mentioned earlier in Malnutrition section
Causes
There is abundant food in the world. There are sufficient kcal for 10 billion persons being
produced each year by the world agricultural system. Hence, undernutrition is not primarily
caused by the scarcity of food. It is a problem of distribution which result in inadequate intake of
food—in terms of either quantity or quality. The goal of food distribution is not only to connect
the producers, such as farmers and fishermen, to consumers, but also to allocate the food
accordingly. This allocation and connection is decided by host of factors mentioned below.
When asked of “distributional” problem, don’t mention biomedical
Biolomedical
• inadequate maternal health
• poor health
• poor utilization of nutrients due to infections or other illnesses as diarrhoea, pneumonia,
malaria and HIV/AIDS
• Genetic disorder
 • Genetic disorder
Socioeconomic and cultural
• Gender inequality: If women farmers had the same access to resources as men, the
number of hungry in the world could be reduced by up to 150 million.
• Poverty
• Poor feeding practices such as lack of optimal breastfeeding and responsive
complementary feeding, consumption of wrong food- the most common cause. Globally,
only an estimated 38 per cent of infants are exclusively breastfed for six months. Mothers
are often inundated with incorrect and biased information both directly — through
advertising, health claims, information packs and sales representatives — and indirectly
— through the public health system, the report notes.
• for adults, poor food choices
• Household food insecurity
• Poor primary health structure (poor immunisation)
• Large family size (more number of siblings)
• unsafe drinking water, poor sanitation and hygiene
• Peculiar problems with elderly (discussed later)
• High meat intake in reduce overall food availability (inadequate allocation)
• Uneven distribution of agricultural resource (though geodemographic load is decided by
the ability of the land to support, but this hasn’t been the case. Ex- Nigeria population
explosion)
• Taboos and superstition (in protein deficient African countries women are not supposed
to eat eggs lest they would become sterile)
Politico-Institutional
• Poor food system (include production, storage, transportation and marketing)
• Wars (Food sometimes becomes a weapon, cutting off the supply chain)
• Civil strife and conflicts(Ethiopia): Sudan civil war displace more than a million people
precipitating one of the worst food crisis
• Ineffective policy (India)
• Dictatorial regimes (North Korea, Khmer regime in Cambodia)
• Whimsical political decisions (Great leap forward by Mao Zedong is supposed to have
cause 18-45 million deaths)
Environmental
• Unsustainable agriculture leads to decrease in agricultural productivity (most of the
farmers are subsistent farmers)
• Increase in extreme events due to climate change pulls people at margin below the
poverty line
• Natural disaster (floods, tropical storms and long periods of drought)- earthquake in Haiti,
Nargis cyclone in Myanmar. Haiti, the poorest and most food-insecure country in the
Western hemisphere, is still feeling the effects of the January 2010 earth-quake, which
killed more than 300,000 people and affected 3 million—about one in three Haitians.
• erosion, salination and desertification.
Elderly
Multiple studies note that malnutrition and being underweight are more common in the elderly
than in adults of other ages. Rates of malnutrition tend to increase with age in the elderly
population; a study in Clinical Nutrition noted that less than 10 percent of the “young” elderly
(up to age 75) are malnourished, while 30 to 65 percent of the elderly in home care, long-term
care facilities, or acute hospitals are malnourished
• Changes in body composition, organ functions, adequate energy intake and ability to eat
or access food are associated with aging
• Sadness or depression can play a role, causing changes in appetite, digestion, energy
level, weight, and well-being
• gastrointestinal and endocrine system disorders, loss of taste and smell, decreased
appetite and inadequate dietary intake
• Poor dental health, ill-fitting dentures, or chewing and swallowing problems can make
eating difficult
Micronutrients
Micronutrient - vitamin and mineral - deficiencies are very important, afflicting nearly two
billion people worldwide. According to the World Health Organization, deficiencies of iron,
vitamin A, and zinc rank among the top ten leading causes of death through disease in
developing countries.
• Iron deficiency (Anaemia) is the most prevalent form of malnutrition, affecting billions
of people worldwide. Iron deficiency damages a country's productivity and impedes
cognitive development.
Vitamin A deficiency is a leading cause of child blindness across developing countries. It
affects 140 million pre-school children in 118 countries. Deficiency in vitamin A can
increase the risk of dying from diarrhoea, measles and malaria.
Iodine deficiency affects 780 million people worldwide. Some 20 million children are
born mentally impaired because their mothers did not consume enough iodine during
pregnancy.
Zinc deficiency contributes to growth failure and weakened immunity in young children;
it results in some 800,000 child deaths per year.

Overnutrition
1.4 billion people are overweight, of whom 500 million are obese
In this case, nutrients are oversupplied relative to the amounts required for normal growth,
development, and metabolism.

Causes
Biomedical
• psychiatric illness
• genetic predisposition,
• viral or bacteriological infections that alter energy requirements
• endocrine disruptors
• the use of certain pharmaceutical products,
Sociocultural-economic factor
• Characteristics of affluent people (hence can be correlated with standard of living)- more
than half of all adults are now overweight. Also, occurring in developing countries in
areas where income is on the rise.
• increased availability and accessibility of highly processed, energy-dense, micronutrient-
poor foods
• Lack of information and awareness results in overconsumption of nutrient
• Changed lifestyle (Sedentary, late nights, smoking) results in change in metabolism of the
body
• Food fads
Effects
Biological
• nutrition disorders may arise, depending on which nutrients are over-abundant in the diet
(Hypervitaminosis, Iron poisoning)
• Overweight and obesity
 • Overweight and obesity
• Lifestyle and non-communicable disease (diabetes, cardiovascular disease etc)
• Increase morbidity
Social and economic effects as mentioned in Malnutrition

Solution
Solution can follow from the problem, grouped into politico-Institutional, sociocultural-
economic and sustainability
• Enforcement of WHO recommendations on breastfeeding and regulation of advertising.
Only 37 of the 199 countries (19 per cent) reporting to WHO on the Code have passed
laws incorporating all of its recommendations on breastfeeding. Prohibition on
advertising of breast-milk substitutes; prohibition on free samples or low-cost supplies
for health services; prohibition on gifts of any kind from relevant manufacturers to health
workers; message about the superiority of breastfeeding on breast-milk substitute labels;
and a functioning implementation and monitoring system.
• Revamping Food System: Production “up to the farm gate” (r&d, inputs, production,
farm management), Post-harvest supply chain “from the farm gate to retailer” (marketing,
storage, trade, processing, retailing) and Consumers (advertising, labelling, education,
safety nets)

• Innovation: Ready-to-use Therapeutic Food (RUTF), provided by WHO, has

revolutionized the treatment of severe malnutrition – providing foods that are safe to use
at home and ensure rapid weight gain in severely malnourished children of Congo,
Ethiopia, Malawi and Niger.
• dietary diversification, food fortification, and supplementation with vitamin and minerals
and for micronutrient deficieny
• Increasing world food production
 • Increasing world food production
◦ Increase amount of agricultural land
◦ Increase crop yields
◦ Increase frequency of cropping cropping
◦ Reduce post-harvestlosses
◦ New/alternative food sources
• ` Controlling world population growth
• ` Changing food consumption patterns

GHI
GHI combines three equally weighted indicators in one index:
• Undernourishment:
• Child underweight: the proportion of children younger than age five who are
underweight (that is, have low weight for their age, reflect-ing wasting, stunted growth,
or both), which is one indicator of child undernutrition
• Child mortality: the mortality rate of children younger than age five
•
Evaluation
• Unfortunately, the term "global hunger index" is a misnomer as it does not, in its
construction, take into account the "hungry". The GHI takes into account, in equal
weights, undernourishment, child underweight and child mortality. The indicator,
undernourishment, is based on the share of the population with insufficient (relative to a
norm) calorie intake. Child underweight is defined in terms of wasting and stunted
growth and child mortality in terms of death rates, both reflecting an unhealthy
environment.
• It is much too simplistic to assume that either being underweight or mortality is due to
undernutrition (signifying deficiencies in energy, protein, essential vitamins and
minerals). Child stunting and wasting, and mortality, is equally if not more likely to be
due to infections and illnesses due to insanitary conditions that result in inadequate
absorption of nutrients. These in turn may be linked to inadequate maternal health or
childcare practices, inadequate access to health services, safe water and toilet facilities.
Thus, supply of food may be a necessary but not a sufficient condition for the
improvement of a part of the hunger index.
• The index is also prone to dramatic change in case of unreliable data of even a single
partial indicator. For example, the cause of such a dismal GHI for India is mainly data on
child underweight, which is the worst, next only to Timor-Leste.
• To improve India's ranking (currently ranked 65) on the GHI, we have to identify the
causes of stunting and wasting and to eliminate them.
• Solution is to improve the supply/ availability of clean-safe drinking water; improved
sanitation, preferably piped sewerage system, septic tanks or pit latrine with slabs, to
avoid the outbreak of waterborne diseases like diarrhoea, dysentery and cholera; and
improved personal hygiene. According to the WHO, less than 30 per cent of households
had access to piped drinking water and nearly 60 per cent of Indians still practised open
defecation in 2006. We also need better governance of medical facilities in rural areas,
providing more effective primary health centres for maternal and childcare. Even with
respect to food, though per capita availability of cereals has improved, that of pulses has
declined from 69 grammes per day in 1961 to 39 grammes in 2011. Pumping free cereals
into a leakage-prone system will not improve even calorie intake as these have a near-
zero price elasticity and low income elasticity.

Food Security
Commonly, the concept of food security is defined as including both physical and economic
access to food that meets people's dietary needs as well as their food preferences.
A/c to FAO, Food security is built on following pillars:
• Food availability: sufficient quantities of food available
• Food access: having sufficient resources to obtain appropriate foods for a nutritious diet.
• Food utilization and assimilation: appropriate use based on knowledge of basic nutrition
and care, as well as adequate water and sanitation
• Food stability (not vulnerable to disruptions and disturbance)

Component of food security

• National food security
• Household food security
• Individual food security
 Reasons for food insecurity

With regard to food availability, present global food supplies are more than adequate to provide
everyone with all the calories he or she needs for an active and healthy life, if the food were
equally distributed. As Figure above indicates, per capita daily calorie availability currently
exceeds 2,100 (the average energy requirement for adults undertaking light activity) in all global
regions, though barely so in Sub-Saharan Africa. However, this abundance of food is not, in fact,
equally distributed
There is a great deal of debate around food security with some arguing that:
• There is enough food in the world to feed everyone adequately; the problem is
distribution.
• Future food needs can - or cannot - be met by current levels of production.
• National food security is paramount - or no longer necessary because of global trade.
• Globalization may - or may not - lead to the persistence of food insecurity and poverty in
rural communities.
The Integrated Food Security Phase Classification (IPC), also known as IPC scale, is a tool
for improving food security analysis and decision-making. It is a standardised scale that
integrates food security, nutrition and livelihood information into a statement about the
nature and severity of a crisis and implications for strategic response

​ ​ ​ ​Phases of food insecurity

 'Extreme' food insecurity map for 2010 ​ ​Food Security Index
Related issues include:
• What is the net impact of the further liberalization of food and agricultural trade,
considering the widely differing situations in developing countries?
• To what extent can domestic economic and social policies - and food, agricultural and
rural development policies - offset the diverse (and possibly negative) impacts of
international policies, such as those relating to international trade?
• How can the overall economic gains from trade benefit those who are most likely to be
suffering from food insecurity?
• Do gains “trickle down” to enhance economic access to food for the poor?
• How can food and agricultural production and trade be restrained from the over-
exploitation of natural resources that may jeopardize domestic food security in the long
term?
• How to ensure that imported food products are of acceptable quality and safe to eat?

Challenges
Up to 2 billion people lack food security intermittently due to varying degrees of poverty
Social
• agriculture-poverty-hunger nexus: Agriculture remains the largest employing sector
(greater than 60%) in most developing countries
• Changing dietary pattern: Increased meat consumption due to rise in affluence
• Gender inequality: As producers, women are sometimes relegated to the production of
subsistence crops on marginal land. In comparison, men tend to produce cash crops on
land nearer to the home or marketplace for ease of access
• Whatever can be mentioned from “undernutrition
• Population explosion (Nigeria, Niger, Congo): Rapid population growth across Africa is a
major problem for food insecurity – demand for food staples is expected to double by
2020;Due to various reasons (mentioned in this section) food production could be as
much as 25 percent less than demand by 2050 (A/c to UNEP)
Economic
• prime farmland is going out of agriculture for non-farm purposes such as real estate and
biofuels (increased GHG emissions, water scarcity and reduced food availability and
associated price effects)- 24 percent of the 2008 U.S. maize crop projected to go into
ethanol production
• Increase in cash crop cultivation and diversion of food for feed
• Trade liberalization may reduce a country's food security by reducing agricultural
employment levels. Concern about this has led a group of World Trade Organization
(WTO) member states to recommend that current negotiations on agricultural agreements
allow developing countries to re-evaluate and raise tariffs on key products to protect
national food security and employment. They argue that WTO agreements, by pushing
for the liberalization of crucial markets, are threatening the food security of whole
communities.
• Fossil fuel dependence
Political and Institutional
• International agriculture agreements are crucial to a country's food security but has been
difficult to materialize
• Land grabbing (rampant in Africa)
• Mention rest from “undernutrition”
Environmental
 • Global warming and climate change (reduced growing length, extreme climate events):
will impact crops of colder climate (wheat)
• Land degradation (mention several reasons for this)- By 2020, 30 percent of arable land
may be salinated and as much as 50 percent by 2050
• water crisis (falling water table, changing river regime)
•

Solution
• Environment specific policies
• Population Specific policies
• Food specific policies
• International Collaboration

Climate Change
Climate change will affect all four dimensions of food security, namely food availability (i.e.,
production and trade), stability of food supplies, access to food and food utilization.
A/c to IPCC climate change will accompany
• more intense and longer droughts, particularly in the tropics and subtropics
• frequency of heavy precipitation and heat waves has increased over most land areas
• Global warming
Threat to food security
• Crop failure due to droughts
• risk of flooding of human settlements may increase, from both sea-level rise and
increased heavy precipitation in coastal areas
• loss of biodiversity may affect agriculture (microbes might not be able to adapt)
• Increase in pest and diseases attacks on crops
• Changes in hydrological systems and the supplies of freshwater
• Accelerate land degradation
 Accelerate land degradation
• Reduction in productivity of wheat (7-10% for 1°C) and similar crops, including
reduction in length of growing period and poleward shift of growing region

Vulnerable regions: The regions likely to be adversely affected by climate change are those
already most vulnerable to food insecurity and malnutrition, notably Sub-Saharan Africa, which
may lose substantial agricultural land. The numbers of people affected will be largest in the
mega-deltas of Asia and Africa, while small islands are especially vulnerable. Also, coastal and
polar areas
Vulnerable People: women, poor, smallholder and subsistence farmers, pastoralists, traditional
societies, indigenous people, coastal populations and artisanal

Famines
A famine is a widespread scarcity of food. While there are various definitions of famine, UN says
that there must be evidence of three specific outcomes before a famine can be declared:
• At least 20 percent of households face extreme food shortages (less than 2100 calories)
with limited ability to cope.
• The prevalence of acute malnutrition must exceed 30 percent
• Death rates must exceed 2 deaths per 10,000 people per day.

Historic famine
• Colonial India, prior to independence, had severe famines, for example in 1769/70 when
it is believed that 10 million persons died (some one-third of the population). In 1943
another disastrous famine in Bengal killed over 1 million people (more than the total
British and American war dead from the Second World War), affected 60 million people
and made many destitute. A severe famine in Bihar in 1966/67, after Indian
independence, has been much described; the government's handling of that famine
provides lessons of how appropriate measures can greatly reduce suffering and deaths.
• In China, the famine of 1958-1961 was caused mainly by Mao’s Great Leap Forward.
inflated 1958 grain statistics led the government to reallocate acreage coercively to
nongrain production in 1959, while at the same time increasing purchases from the rural
areas. In addition, technical mismanagement on the part of overzealous and poorly
qualified cadres and officials brought on serious damage to farmlands by deep plowing,
close planting, and water conservation errors. When 2 years of terrible weather hit the
country in 1960 and 1961, the famine took on unprecedented proportions (although it was
compounded by natural disasters)
• In Ethiopia, the famines of 1974 and 1984-1985 were caused respectively by the
misguided policies
• In Ireland, the Great Famine of 1845-1849 was caused by potato blight… and by Sir
Charles Trevelyan limiting relief from UK to Ireland because he God had sent blight to
 Charles Trevelyan limiting relief from UK to Ireland because he God had sent blight to
“teach the Irish a lesson”
• The current Ethiopian famine has been caused by embargo put up by al-Shabab on rescue
efforts

Causes
The conventional explanation until 1981 for the cause of famines was the Food availability
decline (FAD) hypothesis. The assumption was that the central cause of all famines was a
decline in food availability. However, FAD could not explain why only a certain section of the
population such as the agricultural laborer was affected by famines while others were insulated
from famines.
Now, it has been suggested that the causal mechanism for precipitating starvation includes many
variables other than just decline of food availability. According to this view, famines are a result
of entitlements, the theory being proposed is called the "failure of exchange entitlements" or
FEE. A person may own various commodities that can be exchanged in a market economy for the
other commodities he or she needs. The exchange can happen via trading or production or
through a combination of the two. These entitlements are called trade-based or production-based
entitlements. Per this proposed view, famines are precipitated due to a breakdown in the ability
of the person to exchange his entitlements. An example of famines due to FEE is the inability of
an agricultural laborer to exchange his primary entitlement, i.e., labor for rice when his
employment became erratic or was completely eliminated.
Amartya Sen advances the theory that lack of democracy and famines are inter-related.
According to him “No famine has taken place in the history of the world in a functioning
democracy”. Citing the example of the Bengal famine of 1943 (3 million people perished), he
states that it was made viable only because of the lack of democracy in India under British rule.
He further argues that the situation was aggravated by the British government's suspension of
trade in rice and grains between various Indian provinces
India and Bangladesh have succeeded in controlling famines in recent years, but problems in
most of Africa remain intractable
Although the underlying cause of famines is crop failure, the human factors cause the natural
disaster to mature into famine. Hence, famines result from a combination “triple failure”:
Production failure (crop failure), Access failure and Response failure. These are cause due to:
Human
• Poor food system (include production, storage, transportation and marketing)
• Wars (Food sometimes becomes a weapon, cutting off the supply chain-Netherland in
WW II-Nazis blocked the food import)
• Civil strife and armed conflicts(Ethiopia, Sudan): Sudan civil war displace more than a
million people precipitating one of the worst food crisis- disrupts agriculture and
distribution system
• Ineffective policy (focus on response and relief rather than on mitigation and prevention)
• Dictatorial regimes (North Korea, Khmer regime in Cambodia)
• Whimsical political decisions (Great leap forward by Mao Zedong is supposed to have
cause 18-45 million deaths)
• exacerbated by market disruptions due to hoarding, inflation etc. due to crop failures
Wars and civil strifes-drawing labor from food production, disrupting the marketing of
agricultural inputs and crops, destroying fields, creating refugees, and hindering response efforts
Natural causes
• Inadequate rainfall, which is termed drought (succession of poor crop years),-most
common. Seldom does famine arise from a single bad growing season. India could
prevent famine in 1966-67 only because of bumper crop (green revolution) in the year
before. Failure of agriculture has a multiplier effect- increase in price, unemployment
(agri labourers etc.)
• flooding, earthquakes (Haiti), volcanoes,
• insect plagues that destroy crops
• widespread plant disease
Vulnerability to famines increase due to human causes
• poverty
 poverty
• population growth
• an inappropriate social infrastructure
• a weak or under-prepared government
• lack of good governance
Famine should be distinguished from chronic hunger. Although both are symptoms of poverty
and a lack of food, famine is an extreme on the hunger continuum.
Symptoms include
• migration
• distress sales of land, livestock, and other productive assets
• the division and impoverishment of society's poorest families
• crime
• disintegration of customary moral codes
Vulnerable group
• subsistence farmer (robbed of his sole source of income)
• other poor groups, such as landless laborers, wage earners, (distorted prices increase
vulnerability)
• pastoralists (livestocks are generally the first casualties)

Consequences
Demographic
• large-scale loss of life
• Emigrating to areas where famine has not stricken- creates problems of refugees also
Social
Women and children are more hit
• social disruption due to migration, unrest and widespread losses
• psychological or mental damage
• All health related issues mentioned in “undernutrition”
• epidemics or increased rates and seriousness of infectious disease
• Rise in crime (stealing, theft etc.)
• Giving up children, the sick, or the elderly.
• Going into prostitution, or selling children into prostitution
• Begging
Behavioural changes
• Eating foods they would not normally eat, such as pork or other animals one would not
think of as food.
• Reducing their food intake, especially the food intake women and girls within their
households.
• Cannibalism (in very extreme case)
Economic
• an economic chaos that reduces productivity and destroys production potential
• Selling family assets.
• Poverty due to loss of livelihood (livestocks die or when they return after initial
migration their lands might have been seized)

Remedies
Breaking this downward spiral requires special efforts to eliminate the causes of famine and
mitigate its effects. Indeed, progress against famine is evident today. Mortality estimates indicate
that in much of the world, famines are lessening in their frequency and intensity. More areas of
the world are famine free, and even the severest droughts in developed countries do not lead to
famines. Furthermore, India and Bangladesh have demonstrated that with careful planning and
management, very poor developing countries can block the chain of events that traditionally
leads from crop failure to widespread death.
Preparedness and Prerevention
• Famine has its own momentum, modulated by climatic and economic factors. It does not
suddenly appear overnight, but develops gradually. Few famines are the immediate result
of a single event. Hence the idea of an early warning system (symptoms mentioned
earlier)whereby a series of indicators are identified to detect impending famine as quickly
 earlier)whereby a series of indicators are identified to detect impending famine as quickly
as possible.
• Prevention returns us to the underlying cause of famine— prevent imbalance between
both the supply side and the demand side. This process requires economic development
and political stability.
• Efficient food system (production, storage, distribution, marketing, transportation)
focused on higher productivity, achieved sustainably, causes food to become a smaller
portion of the household budget.
• Transportation, communications, and administrative capacity are obviously essential
in the long run for preventing famines and in the short run for relieving them.
• targeted safety-net programs and wider interventions that are consistent with and
supportive of the goal of building long-term community resilience
• Institutional arrangement:
o Dedicated officials, especially in drought prone areas to monitor the indicators
and launch instant relief operation
o Well prepared Standard operating procedure in case of indications of famine
(must include employment provisions, increase food supply)
o Cooperation with international aid agencies-WFP,UNO etc
o Dedicated fund
o Buffer stock
Mitigation and relief
• Once the indicator raises red alert Standard operationg procedures must automatically set
in
• Agricultural support: Loan waiver, insurance
• Employment opportunities
• Reaching to people through network of NGOs, govt machinery and CSO
• International collaboration
• Price control of food through open market operations and strict control
• Food-for-work
• Livestock support projects ( Veterinary care, Fodder distribution, Water schemes)

Case study of Somalia (2011-12)

• Al-Shabab’s intransigence to allow aid

• Recurrent droughts (worst drought in East Africa in 2010 since 1950s)
• Collapse of livestock based economy during 1980s due to misguided policies (sectoral
adjustment-shifting to agriculture from livestock) imposed by Bretton Woods institutions
• Heavy reliance on imported food—both commercial imports and, for many years, food
aid-makes it vulnerable to global food price, which actually rose in 2010-11
• not had an effective central government since the overthrow of the Siad Barre regime in
1991,
• Loss of livestock population exacerbated the problem as majority of the population is
pastorilst

2010 Sahel famine

 Famine affected areas in the western Sahel belt during the 2012 drought

• The Sahel is the zone of transition between the Sahara desert in the north of Africa and
the Sudanian savannas in the south.
• It was one of many famines to have hit the region in recent times.
• Causes: Lake Chad has shrunk by 95% in 1960s, overusing natural resources
(characterized by marginal productivity) in the region through overgrazing, deforestation
and poor land management, population explosion
• Followed by 2012 drought
Kudumbashree is a network of 4 million women, mostly below the poverty line. It is not a mere
‘project' or a ‘programme' but a social space where marginalised women can collectively pursue
their needs and aspirations. The primary unit of Kudumbashree is the neighbourhood group
(NHG). Each NHG consists of 10-20 women; for an overwhelming majority, the NHG is their
first ever space outside the home. NHGs are federated into an Area Development Society (ADS)
and these are in turn federated into Community Development Societies (CDSs) at the panchayat
level. Today, there are 213,000 NHGs all over Kerala. Kudumbashree office-bearers are elected,
a crucial process for its members.
The NHG is very different from a self-help group (SHG) in that it is structurally linked to the
State (through the institutions of local self-government). It functions as the interface of local
communities in grama sabhas and other such bodies of local governments. It is unique in the way
it is integrated with panchayats and municipalities, and left largely free of political interference
so far. Its crucial link with the local bodies ensures social audit and control over delivery of
services, utilisation of funds and repayment of loans, and acts as a deterrent against corruption.
This ensures that local development reflects the needs and aspirations of communities. What is
sought is a synergy between democratisation and poverty reduction; with Kudumbashree, this
occurs through the mobilisation of poor women's leadership and solidarity. “Sangha Krishi” or
group farming is just one example of how this works. It is transforming the socio-political space
that women inhabit — who in turn transform that space in vital ways. This experiment is having
three major consequences.
First, there is a palpable shift in the role of women in Kerala's agriculture. This was earlier
limited to daily wage work in plantations — at wages much lower than those earned by men.
Thousands of Kudumbashree women — hitherto underpaid agricultural labourers — have
abandoned wage work to become independent producers. Since the farmers are primarily poor
women, they often decide to use a part of their produce to meet their own needs, rather than
selling it. Every group takes this decision democratically, depending on levels of food insecurity
of their members.
Second, “Sangha Krishi” has enabled women to salvage their dignity and livelihoods amidst
immense adversity.
Third, “Sangha Krishi” is producing important consequences for the Mahatma Gandhi National
Rural Employment Guarantee Scheme in Kerala. Because of Kerala's high wages for men, the
MGNREGS in Kerala has become predominantly a space for women (93 per cent of the
employment generated has gone to women where the national average is 50). From the
beginning, synergies were sought between the MGNREGS, the People's Plan and
Kudumbashree. Kudumbashree farmers strongly feel this has transformed MGNREGS work.
Kudumbashree became a deliberate alternative to the micro-finance model recommended by
global financial agencies and implemented in many States through transfer of poverty reduction
funds directly to NGOs, bypassing elected governments and their monitoring mechanisms.
However, serious challenges remain. Kudumbashree farmers are predominantly landless women
working on leased land; there is no certainty of tenure. Lack of ownership also restricts access to
credit, since they cannot offer formal guarantees on the land they farm. Whenever possible,
Kudumbashree collectives have started buying land to overcome this uncertainty. But an
alternative institutional solution is clearly needed. It is also difficult for women to access
resources and technical know-how — the relevant institutions (such as crop committees) are
oriented towards male farmers. There is also no mechanism of risk insurance.
Is this a sustainable, replicable model of food security? It is certainly one worth serious analysis.
First, this concerted effort to encourage agriculture is occurring when farmers elsewhere are
forced to exit farming — in large numbers. But more importantly, the value of Sangha Krishi lies
in that it has become the manifestation of a deep-rooted consciousness about food justice
amongst Kerala's women.
Kudumbashree farmers plan to protest the commercialisation of land. Even in the tough terrain
of Idukki's Vathikudy panchayat, women were taking a census of fallow land in the area that they
of Idukki's Vathikudy panchayat, women were taking a census of fallow land in the area that they
could cultivate. Some 100,000 women practise organic farming and more wish to.
Kudumbashree farmers speak passionately about preventing ecological devastation through
alternative farming methods.
In the world of Sangha Krishi, food is a reflection of social relations. And only new social
relations of food, not political manoeuvres, can combat the twin violence of hunger and injustice.
NFSB
The stated aim of the draft Bill is “to provide for food and nutritional security, in human life
cycle approach, by ensuring access to adequate quantity of quality food at affordable prices, for
people to live a life with dignity.” To realise this, we must ensure that every child, woman and
man has physical, economic and social (in gender terms) access to a balanced diet (that is, the
needed calories and protein), micronutrients (iron, iodine, zinc, Vitamin A, Vitamin B12 and so
on), as well as clean drinking water, sanitation and primary health care. A life cycle approach to
food security will imply attention to the nutritional needs of a human being from conception to
cremation.

Socio-Economic and Caste Census (SECC)

The SECC is supposed to “rank” rural households on a scale of 0 to 7. A household's score is
simply the number of “deprivations” it has from the following list of seven:
(1) living in a single-room kaccha house;
(2) having no adult member between the ages of 16 and 59;
(3) being a female-headed household with no adult male member aged between 16 and 59;
(4) having a disabled member and no able-bodied member;
(5) being a Scheduled Caste or Scheduled Tribe;
(6) having no literate adult above 25 years; and
(7) being a landless household deriving a major part of its income from manual casual labour.
None of these criteria apply in the above examples.
The odd nature of this scoring system can be appreciated in more general terms by considering
Adivasi (tribal) households — the most disadvantaged section of the rural population. Since most
Adivasi households possess a little bit of land, however unproductive, and a mud house with at
least two rooms, the first and last “deprivations” in the list will not apply to them (note that even
land possessed as a matter of traditional rights, without legal title, is to be counted as “owned” by
the SECC). Further, a large majority are likely to have at least one able-bodied male adult aged
between 16 and 59 years — the second, third and fourth criteria will not apply to them either. It
follows that most Adivasi households will have a score of only one, unless they are “lucky”
enough to have no literate adult, in which case their score will shoot up to two.
The five-point automatic inclusion category is so absurdly narrow that it is unlikely to cover even
5 per cent of the rural poor. Destitute people have been defined as those living on alms. Who do
not beg but have meager income will not be included as destitute. Others include “households
without shelter, manual scavengers, primitive tribal groups, legally released bonded labourers.”
Presumably, if the worker has run away from bondage he or she is not legally released and
therefore does not deserve automatic inclusion. Even social categories such as Scheduled Castes
and Scheduled Tribes, the disabled, widows, and casual manual workers are not automatically
included.
13 categories would qualify for automatic exclusion to a much higher percentage of the total.
The list “automatically excludes peasants with 2.5 acres of irrigated land who own a tubewell.”
Given the unpredictability of the income this is a questionable exclusion. Another questionable
exclusion is that of a household with “a non-agricultural enterprise registered with the
government.” Even micro-enterprises run by women's self-help groups, for example, are
registered with the government.
This state of affairs is all the more absurd as the distinction between “Priority” and “General”
households in the NFSB is wholly unnecessary and counter-productive. If the proportion of
excluded households is as high as 25 per cent (instead of 10 per cent as the National Advisory
Council had proposed), it is absolutely pointless to split the rest into two groups. It would be
much simpler and more sensible to give common minimum entitlements to all households that do
not meet the exclusion criteria. This approach would reinforce, instead of undermining, the
not meet the exclusion criteria. This approach would reinforce, instead of undermining, the
positive trend towards a more inclusive PDS in many States.

Food justice
It’s scope spreads beyond mere food security. People must have the right to produce food with
dignity, have control over the parameters of production, get just value for their labour and their
produce. Food justice must entail both production and distribution.

Saemaeul vs India
South Korea provides an instructive case study — there, the Saemaeul movement managed to
eliminate absolute poverty from rural areas through a participative approach. For instance,
cement was provided to villages, to be used for the common good of the community. Villagers
added their labour and capital to the distributed cement to build what they collectively decided.
Village achievements were analysed by state officials on various criteria—the village roads’
capacity, the transformation of traditional thatched roofs into modern roofs, the construction of a
village hall, irrigation net-works and waterways. The next year, President ordered that more
cement and steel frames be provided for the half that performed better. The discriminatory
reward policy drove villages to compete for the state’s rewards. The state provided 2.7 trillion
won, from 1971 to 1980, in support of the Saemaul movement. Rural labour was mobilised to
carry out the objectives set by state elites.
Contrast this with our approach. In fact the only substantial scheme for community welfare in
rural areas, the MNREGS has also not been able to generate any noteworthy assets in the rural
areas because of its emphasis on labour-oriented, low-capital projects that produce temporary
assets like moorum roads, mud water tanks, etc. Poverty can only be eliminated by creating
opportunities for each individual to realise their potential and work themselves out of poverty, as
in South Korea. A direct subsidy-oriented approach that seeks to feed “those hungry mouths” is
a form of neo-colonialism, which will only seek to cripple our poor and ensure that they remain
poor for generations.
The concept of decentralised PDS rests on the principles of localised procurement, storage and
distribution. The emphasis is on the participation of people — especially the marginalised and
women — and on a holistic approach that integrates biodiversity, natural resource management,
rural livelihoods and empowerment. The inclusion of local knowledge and expertise at every
stage would make such a PDS truly participatory. Such a PDS would focus on the food crops that
are locally produced. In some locations this might be millets, while in others it might be endemic
varieties of rice and wheat.
The revival of traditional agricultural systems would mean that a diverse range of cereals, pulses,
oilseeds and vegetables would be available close on hand to the rural communities. The
combination of such crops would ensure that the nutritional needs of the communities are locally
met at a reasonable price. This is likely to enable rural households to spend less on food and use
the money thus saved for other purposes.

Land rush
Even with all the advances made in capture and culture fisheries, nearly 90 per cent of food
requirements will have to come from the soil. It has been estimated that 50 mil-lion to 80
million hectares of farmland in developing countries has been the subject of negotiations by
international investors in recent years, two-thirds of them in sub-Saharan Africa, widely
recognised as a “hot spot” for endemic hunger.

The loss of land for food security has to be measured not only in quantitative terms but also in
respect of land use. According to the U.S. Department of Agriculture, American farmers will, for
the first time, harvest during 2011 more maize for ethanol production than for food or feed.
In Europe, about 50 per cent of rapeseed is likely to be used for bio-fuel production. The plant-
animal-man food chain (particularly beef and poultry products) will need several times more
land for producing a calorie of meat, as compared to a calorie of cereal or vegetable.
Asian Enigma
In the public imagination, the home of the malnourished child is sub-Saharan Africa. But the
worst-affected region is not Africa but South Asia. Just over 30% of Africa's children are
underweight, but the corresponding figure for South Asia is over 50%. And in Bangladesh and
India, the proportion of children malnourished is very significantly higher than in even the
poorest countries of the sub-Sahara.
Measured by absolute numbers, it is to be expected that problems of poverty will be concentrated
in South Asia, simply because of the sheer size of its populations (India alone has 50% more
people than 47 countries of sub-Saharan Africa put together). But when the proportion affected is
also far higher, as is the case with child malnutrition, then the centre of gravity of the problem
shifts still further. That is why half of the world's malnourished children are to be found in just
three countries - Bangladesh, India, and Pakistan.
The key to South Asia's high rates of child malnutrition is not to be found in the obvious.
Poverty, agricultural performance, income inequality remain almost similar or even better the
sub-sahara. Government neglect also cannot be accounted for this as ICDS is almost 40 yrs old
now.
So what factors, among the many that are associated with malnutrition, are so different in South
Asia as to account for the very much poorer nutritional levels of its children?
Birth weight is an obvious place to begin the search. In all countries and cultures, low birth
weight is the best single predictor of malnutrition; birth weights below 2,500 grams have been
found to be very closely associated with poor growth not just in infancy but throughout
childhood. And it is when we close in on this subject that we find the first really significant clues
to the South Asian enigma.
Approximately one third of all babies in India are born with low birth weight. In Bangladesh, the
proportion is one half. In sub-Saharan Africa, the proportion is about one sixth (some of which
can be put down to malaria). These variations alone go some of the way towards explaining the
different rates of child malnutrition in the two regions. But why should low birth weight be so
much more common in South Asia?

Low birth weight indicates that the infant was malnourished in the womb and/or that the mother
was malnourished during her own infancy, childhood, adolescence, and pregnancy. The
proportion of babies born with low birth weight therefore reflects the condition of women, and
particularly their health and nutrition, not only during pregnancy but over the whole of their
childhood and young lives. this means that girls and women in South Asia are less well regarded
and less well cared for than in sub-Saharan Africa.
During the pregnancy itself, the average woman should gain about 10 kilos in weight. What
evidence there is suggests that most women in Africa probably come close to that figure, whereas
most women in South Asia probably gain little more than 5 kilos.

Food security
three factors which played a significant role in changing our agricultural destiny from the “ship
to mouth” situation which prevailed during 1950-70, to the “right to food” commitment of 2013:
• First, the Nehru era marked the development of the scientific infrastructure essential
for improving farm productivity, such as major and minor irrigation projects, fertilizer
factories, agricultural universities, farm extension services and marketing facilities. To
get the benefit from the investment in these areas, an Intensive Agricultural District
Programme (IADP) was started in 1960-61. The package of practices missed one
important ingredient, namely a genetic strain which can respond to the rest of the
package, particularly irrigation water and fertilizer.
Search led to our getting seeds of semi-dwarf wheat germplasm from Dr. Orville Vogel of
the U.S. and Dr. Norman Borlaug of Mexico, and semi-dwarf rice strains from Taiwan
and the International Rice Research Institute, the Philippines. The new plant architecture
helped to convert nutrients and water more efficiently into grains. Consequently, they
came to be referred to as high-yielding varieties.
• The second transformational factor was procurement of food grains from farmers at a
 • The second transformational factor was procurement of food grains from farmers at a
minimum support price fixed on the basis of the advice of the Agricultural Prices
Commission.
• A third important factor was the synergy brought about among scientific know-how,
political do-how and farmers’ toil, often referred to as the “green-revolution
symphony”.

Three threats to the future of food production and our sustained capacity to implement the
provisions of the Food Security Bill:
• First, prime farmland is going out of agriculture for non-farm purposes such as real estate
and biofuels.
• The second threat comes from global warming and climate change.
• A third threat comes from the proposal to provide cash instead of grain to those needing
protection against hunger. Such a shift may lead to a loss of interest in procurement and
storage by public agencies like the Food Corporation of India. If procurement goes down,
there will be distress sales and production will go down. We should remember that the
green revolution has been sustained only by assured and remunerative marketing
opportunities.

Misc
• poor nutrition is the single biggest contributor to child mortality
• devastating combination of poverty, poor status of girls and women, food insecurity,
especially in vital nutrient-rich foods, poor health services, and abysmal sanitary
conditions simply cannot sustain healthy child growth and nutrition
• The Asia Development Bank has just released a report on Social Protection in Asia
covering 35 countries. It compares India with the other 18 lower middle income countries
in Asia. In lower middle income countries, relevant expenditures (on social insurance,
social assistance, and labour market programmes) are, on average, 3.4 per cent of GDP.
India’s is a mere half of that at 1.7 per cent. Even that low level is reached largely
because of MGNREGA, not existing food security costs. Among low income countries,
the Kyrgyz Republic (whose GDP per capita is only $871 (2009)), invests eight per cent
of GDP in social protection. Upper middle income countries spend four per cent of GDP
on average, and high income countries spend 10.2 per cent. Japan spends a massive 19.2
per cent of GDP on social protection and China 5.4 per cent. Even Singapore — which
can hardly be called populist — still spends more than twice as much as India, at 3.5 per
cent of GDP.
• There are two important leakages in food subsidy expenditures. (A leakage is defined
as expenditure that does not reach the intended poor beneficiary.) The first leakage is in
the quantity of foodgrains the government (FCI) states it has delivered to people, rich or
poor, versus what the people actually receive (NSS data). Both in 2009-10 and 2011-12,
this leakage amounted to Rs 30,000 crore (with quantities valued at market prices of
foodgrains). Leakage suspects include theft, food rotting (and rotten wheat going to the
liquor trade?), PDS food diversion to non-ration shops, etc. The second leakage is food
going to the non-poor.
• In India, 46 per cent of infants are exclusively breastfed in their first six months and there
are stringent laws against marketing of breast-milk substitutes.
• Experts say breast milk gives infants all the nutrients they need for a healthy
development. It is safe and contains antibodies that help protect infants from common
childhood illnesses. Breastfeeding also benefits mothers. Exclusive breastfeeding is
associated with a natural (though not fail-safe) method of birth control (98 per cent)
protection in the first six months after birth). It reduces risks of breast and ovarian cancer.
• Changing food composition: In 1980s the Indian average of annual per capita
consumption of chicken was 200-300 gm. The annual per capita consumption of poultry
in the country is now 3 kg. In developed countries, the total per capita consumption of
meat is 70-80 kg. Even in developing countries, where meat is a daily food, it is 30-40
kg.
 National Centre for Cold Chain Development (NCCD)

The gap in the Cold Chain infrastructure necessitates focused

interventions of its establishment at par with global standards and protocols
so that F&V produce has a longer shelf life, benefitting not only producers
(farmers, processors), consumers and exporters but also enabling a
specialized industry to come up with a host of allied and ancillary activities
and service providers. With this perspective, during 11th Plan Period,
National Centre for Cold Chain Development (NCCD) has been promoted
jointly with stake-holders for promotion of quality regime in cold chain
infrastructure development and management. NCCD has been mandated to:
(a) Provide an enabling environment for the cold chain sector to gain
prominence and invite the much needed private sector
involvement.
(b) To establish standards and protocols related to cold chain testing,
verification, certification and accreditation as per international
standards.
(c) To provide technical assistance to financial institution, government
departments/agencies, and industry for selection of cold chain
component such as refrigeration units, refrigerated transport
equipment, display cabinets, milk tanker etc.
(d) To offer HRD and technical advisory services to personnel engaged
in this sector.

NCCD has been constituted as an autonomous body and has been

registered as a Society under the Societies Registration Act, 1860.

The aims and objectives of the Society are:

i. To recommend standards and protocols for cold chain

infrastructure/building including post harvest management so as to
harmonize with international standards and best practices and
suggest mechanism for bench marking and certification of
infrastructure/building, process and services provided by cold chain
industry.

ii. To suggest indicative guidelines for preparation of project reports for

potential investors/entrepreneurs.

iii. To assess and develop appropriate IT-based management

information system for the cold chain infrastructure

iv. To undertake and coordinate Research and Development (R&D) work

required for development of cold chain industry in consultation with
stakeholders.

18
 v. To undertake and coordinate the task of Human Resource
Development (HRD) and capacity building. It may also conduct in-
house training, short-term/long courses relevant for cold chain
development.

vi. To launch publicity campaign to educate the stakeholders including

awareness building about the benefits of integrated cold chain.

vii. To recommend appropriate policy framework relating to

development of cold chain.

viii. To facilitate and foster the development of multi-modal

transportation facilities for perishable agricultural, horticultural and
allied commodities and establishment of National Green Grid
Perishable Commodities.

Progress made by NCCD

2nd meeting of Executive Committee of NCCD held on 16.07.2012

under the chairmanship of Secretary (DAC).
An interactive conclave was organized with a huge industry
participation to work out a road map on 17.07.2012.
Steps for having collaboration with Cemafroid (French Cold Chain
regulatory agency) has been initiated.
Membership of International Institution of Refrigeration (IIR), Paris has
been obtained. Director, NCCD is Indian delegate in IIR.
Process is underway to secure World Bank support for HR
Development.
Communication with HRD Ministry has been initiated started to
develop a B. Tech course in refrigeration technology in IITs.
IIT, Delhi requested to provide specialized vocational training to
technical manpower (technicians) of cold chain sector.
Technical Committees constituted to provide recommendations on
a) Technical Specification, Standards, test laboratory and product
certification Committee, b) Training, HRD and R&D Committee,
c) Application of Non-conventional Energy Sources in Cold Chain
Infrastructure and d) Supply Chain & Logistics for Post Harvest
Marketing.
Process for hiring office accommodation at NCDC Complex and hiring
of staff for NCCD is in final stage.

19
 Agricultural in the
UNIT 20 AGRICULTURAL TAXATION AND Context of Globalisation
of the Economy
SUBSIDIES
Structure
20.0 Objectives
20.1 Introduction
20.2 Types and Effects of Taxes
20.2.1 Lump-sum Taxation
20.2.2 Per Unit Tax
20.2.3 Ad Valorem Taxation
20.2.4 Tax on the Income of the Producers
20.2.5 Taxation under Imperfect Competition
20.3 Existing Indian Tax Policy for Agricultural Income
20.4 Subsidies
20.4.1 Rationale for Subsidies
20.4.2 Types of Subsidies
20.5 Subsidies: Effectiveness, Extent and Future Problems
20.6 Let Us Sum Up
20.7 Key Words
20.8 Some Useful Books
20.9 Answers/Hints to Check Your Progress Exercises

20.0 OBJECTIVES
After going through this unit you will be in a position to:
• explain the types of taxation and their impact on output and prices;
• appreciate Indian policy towards taxation of agricultural income and the political
economy of it;
• explain the concept and rationale for agricultural subsidies; and
• examine the extent of agricultural subsidies and their impact on agricultural
production and pricing.

20.1 INTRODUCTION

You may be aware that taxes take away money from people and subsidies give
money to people. Naturally, the persons who pay taxes are not necessarily the
persons who benefit from subsidies. In that sense taxes and subsidies involve transfer
of money between people. The main aims government seeks to achieve through a
policy combination of taxation and subsidies are to

• generate income for financing its expenditures by imposing reasonable taxes on

people who are capable of paying, and
• provide support to people who are less endowed and need assistance to carry out
their production and consumption activities through subsidies.

Thus taxes and subsidies result in a re-distribution of income in the society. Besides
these two direct objectives, taxes and subsides affect economic activity in many
different ways. As we will see in the following sections, taxes and subsidies affect
the price and output levels as well. Therefore, the government should try to formulate
tax policies in such a way that is conducive for economic growth and social welfare.

Keeping these in mind we may ask the question as to whether the government in
India has used these instruments efficiently. 19
Issues Before Agricultural
Development 20.2 TYPES AND EFFECTS OF TAXES

There can be four types of taxes. These are:

• Lump-sum tax
• Per unit of output tax
• Ad-valorem tax
• Profit tax

In the following paragraphs we shall see how each of these taxes affect the output
and price decisions of the producer. The market form we have assumed to be
perfectly competitive. This implies that an individual producer cannot influence the
price in the market because he is too small in comparison to the entire size of the
market. Secondly, there is no product differentiation, i.e., the product sold by a
producer is identical to that of any other producer. We would look into the case when
there is monopolistic power in the hands of the producers later in this section. Let
us begin with the analysis of the impact of taxes in the presence of perfect competition.

In a perfectly competitive market the producer (farmer in this case) is a price taker
in the sense that he accepts the prevailing market price. At the on-going price he is
free to sell as much as he can. On the other hand, monopoly power enables the
producer to influence the price by restricting supply to the market.

Indian agriculture if we ignore government intervention in agricultural products markets

meets the conditions of perfect competition. There are a large number of farmers,
each supplying a negligible fraction to the market. Moreover, the products are more
or less homogeneous in quality so that product differentiation is almost absent.
Therefore, no individual farmer is in a position to influence the market price.

20.2.1 Lump-sum Taxation

Lump-sum taxes are imposed on the producers irrespective of the level of price or
output. Let us analyse the effects of such a tax on price and output of the producer
in Fig. 20.1.

In Fig. 20.1, the output produced is represented along the horizontal axis; the price
m
and cost are measured along the vertical axis. The market price is P , given as a
horizontal straight line. The AC curve in the figure measures the average cost of
production and MC is the marginal cost of production. You may remember from the
course ‘EEC 11: Fundamentals of Economics’ that AC is defined as the total cost
divided by the units of output produced. On the other hand, MC measures the rate
of change in the total cost if the producer decides to increase the level of output. You
can observe from Fig. 20.1 that the producer will be in equilibrium at the level of
output where MC and MR are equal (q* corresponding to point E in Fig. 20.1). This
is because the objective of the producer is to maximize profits. If he produces any
output for which MC < Pm (to the left of E), he can increase profits by producing
more because it adds more to his revenue (Pm) than to his cost (MC). On the other
hand at a level of output where MC > Pm (to the right of E), he can raise his profits
by reducing the output level. Thus the producer will produce q* level of output.

At Oq* level of output the profit per unit is the difference between the average cost
(AC) and the price, which is EB. Hence the total profit earned is EB.Oq* = area
ABEPm. Now, suppose a lump sum tax, of amount T, is imposed on the producer.
This can be treated as a sort of fixed cost as the farmer has to pay it irrespective
of his output level. Thus imposition of a lump sum tax increases the total cost of
production by an amount T. Consequently, the AC curve in Fig. 20.1 shifts upward.
However, the MC curve does not change. Thus the intersection point of the Pm line
20
and the MC curve does not change and there is no change in the quantity produced Agricultural in the
and the price charged. However, the profits earned decreases by an amount of T. If Context of Globalisation
of the Economy
T is relatively small so that the producer has profits even after payment of the tax,
he will continue production. But, if T is large enough, so that the revenue after tax
does not cover the variable costs, the producer will stop production. Output will drop
to zero. This happens because if he stops production he incurs a loss equivalent to
fixed cost; if he does not, his loss is more than that. Thus we conclude the imposition
of lump sum tax does not affect output or price unless it is very high.

20.2.2 Per Unit Tax

By per unit tax we mean that tax is imposed as a levy on the units of output produced.
Here we observe that such a tax will affect both the marginal and the average cost
of production, both will increase by the amount of per unit of tax imposed. In Fig. 20.2
the MC and AC curves shift upward to MC' and AC'.

Price AC

MC

m
P E

A
B

O q* quantity
Fig. 20.1
Price MC'
MC

AC' AC
Pm E' E
B'
A'
B
A
(1-t)p

O q' q* quantity
Fig. 20.2 21
Issues Before Agricultural The result is that the new point of interaction between the Pm and the MC’ now shifts
Development to E’ which is to the left of the previous point E. Therefore, the output level falls to
Oq’, which is less than the previous level of Oq*.

MC

AC
E
P
"
E
(1-t)P

O q" q*

Fig. 20.3

We conclude that tax imposed on the basis of per unit of output produced leads to
a fall in the output level. It also leads to fall in the profits earned by the producer as
m
can be seen that the new level of profits, A’B’E’P is less than that earned previously,
m
i.e., ABEP . And this happens no matter how high or low the tax rate is.
20.2.3 Ad-valorem Taxation
Here the tax is imposed not on the output level but on the price charged in the market.
The price here is given by p. Therefore, after the imposition of the tax the price that
is received by the producer becomes (1-t)p, where t is the rate of tax that has been
imposed on the price level. Note that in this case nothing happens to the cost curves,
only the price line p shifts down to (1-t)p. Therefore, from the initial situation of E,
the new equilibrium point becomes E" (see Fig. 20.3) and the equilibrium output falls
from Oq* to Oq". The profits have also decreased in the new situation.
20.2.4 Tax on the Income of Producers
The income of the producers is the profit earned, which is equal to total revenue
minus total cost. If tax t per unit of profit is imposed then the producer is left with
(1-t)(total revenue - total cost). Observe that due to imposition of this tax, the output
decision is not going to get affected. Neither the price nor the MC curve is undergoing
any change since both total revenue and total cost are unaffected. So here also Oq*
is unchanged. However, the income to the producer which was (revenue - total cost)
falls to [(1-t) (total revenue - total cost)]. And if it falls below some sustainable level
then the producer may stop production and exit out of business. In that case output
produced falls to zero. This case is similar to the lump-sum tax case covered in
Section 20.2.1
20.2.5 Taxation under Imperfect Competition
Let us now turn to an imperfectly competitive market where there is only one
producer of a commodity. This producer has monopoly power to influence the market
22 price. We shall take the case of only per unit tax to show how it affects price and
output.
Here in Fig.20.4 the average revenue curve is plotted as a downward sloping line, Agricultural in the
AR. It measures the price that a producer can charge if he wants to produce the Context of Globalisation
of the Economy
corresponding output level. For example, if he decides to sell Oq* amount of output
he cannot charge more than OA price. And if he wants to sell more, say Oq’, he must
charge a lesser price. This price is given by OA’ in Fig. 20.4. Below the AR line we
have the marginal revenue (MR) line. This measures the change in the total revenue
if the producer decides to produce one extra unit. The MR also is downward sloping
and it is below the AR line because as the seller decides to sell one unit more, he
must lower the price for all units including the earlier units which gives MR lower than
AR.

Price

MC

A B
AC

A'
D C

MR AR

O q* q' quantity

Fig. 20.4

Price MC'
MC

A" AC'

A B
E'
AC

D C
E

MR AR

O q0 q* quantity
Fig. 20.5 23
Issues Before Agricultural Besides these two lines we have the familiar AC and MC curves. We are familiar
Development with the logic of equilibrium: the producer would produce an output at which MC and
MR intersect each other. That is at q* level of output. Reason is that at an output
level lower than q*, MR is greater than MC. So by producing one unit more the
producer raises his revenue more than his cost, therefore the profits will go up. This
continues till q* level of output is reached. And to the right of q* we find that MR
is lower than MC. Therefore, by producing one unit less it reduces his cost more
than its revenue. So he will move to the left by producing less. At q* the price he
will charge is given by the AR line, which is Bq*. Profits earned is total revenue
minus total cost, which equals the area ABCD.

If per unit tax, t is now imposed the cost curves change. The MC curve becomes
(1+t) MC = MC’ and the AC becomes (1+t)AC = AC’. In Fig. 20.5 both the curves
thus shift upward. As a result, the new point of intersection between the MC' and
MR is at E’ and output drops to Oq0 which is less than Oq*. Price rises to OA” from
OA. Thus such tax reduces output, raises price and decreases the profits earned by
the producer.

Check Your Progress 1

1) What is the rationale for imposition of taxes?
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................
2) What is the effect of taxes on the income of the producers under perfect
competition?
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................
3) Do taxes lead to rise in prices under perfect competition?
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

20.3 EXISTING INDIAN TAX POLICY FOR

AGRICULTURAL INCOME
In India about two-third of the population are dependent on agriculture for their
livelihood. Simultaneously we observe that per capita income in India is one of the
24
lowest in the world. About one-third of the world’s poor live here. One reason for Agricultural in the
this low income level is the fact that though so many people are engaged in agriculture, Context of Globalisation
of the Economy
productivity of labour in this sector is very low. Massive unemployment, under-
employment (which means that workers are allotted far less work than they are
capable of doing), unequal landholding structure, extremely low wages are the major
problems/features of Indian agriculture. Many measures including taxation of agriculture
have been suggested to solve these problems. But given the fact that the average
level of output is very low, the issue of taxation of agriculture has always been dealt
with carefully. High taxation as we have seen in the previous section may drive
people out of production. With virtually no alternative employment opportunities these
people may either starve or migrate to the urban areas, which are already faced with
so many problems of overcrowding.

Taking this into consideration, the government policy has been not to tax agriculture
income at all. Under the constitution of India, taxation of agricultural income is the
right of state governments. The Central Government cannot levy tax on such income.
Section 2(1A) gives a detailed definition of agricultural income. Income from agriculture
up to and exclusive of the processing stage will be agricultural income. Income from
processing stage and onwards will be non-agricultural income. Income from a farmhouse
used for agricultural purposes will be treated as agricultural income.

Thus income from basic operations on land like cultivation, growing crops and secondary
operations like land removal, digging, etc. can be classified as agricultural income and
is exempt from tax. However, income from sale of trees, breeding of livestock, fishing
activities, poultry farming cannot be classified as agricultural income and is not exempt
from income-tax.

This blanket policy has created many problems:

a) People engaged in non-agricultural sector have a tendency to evade taxes by
somehow showing that their income is derived from agriculture. The big rich
farmers are not taxed at all which cannot be rationalized. Land tax has been
constant in money terms and occupies a very low share of total agricultural
income. This has benefited the big farmers as they are not required to pay income
tax and land revenue is quite low.

b) Another debated clause of the agricultural income tax policy is not to tax the rent
income in agriculture. Given that tenancy of land is widely practiced in India and
the landlords who lease out lands in most cases are quite rich, the policy of
exempting the rent income lacks a basis. Supreme Court in a case had ruled that
the shareholders of a company, which is engaged in agricultural operations, could
be taxed since they are not directly involved in the actual productive activities.
The same logic also applies to the landlords who, like the shareholders, are not
engaged in the direct agricultural activities and earn their income through merely
possessing a piece of land.

In view of the above mentioned problems many proposals have been suggested from
time to time to bring agriculture into the fold of direct taxes.

a) One proposal has been to impose land taxes on the basis of ownership. Marginal
and small farmers may be exempted from this tax. The emphasis on ownership
in this tax is also important. Many large farmers do not cultivate the land they
own; they lease them out to smaller farmers. Therefore, the tax will catch the big
farmers, who own land and but do not cultivate it.

b) To tackle the problem of non-agricultural income shown as agricultural income

(for example, the farm houses in sub-urban areas, which are used for housing
lavish parties, running pubs or restaurants or gardening, but completely exempted
from paying any tax) the policy of imposing tax on land would come handy. There 25
Issues Before Agricultural are however debates regarding the fixation of suitable tax rates. Some contend
Development that it should be based on productivity and potential fertility of soil. More fertile
land should be taxed more.
c) Some argue that this is not the correct policy since the quality of land can be
changed by application of fertilizers, etc. Hence it should be taxed according to
the nature of the crop grown on it. More valuable crops should invite a higher tax
rate to the corresponding land.

While all this debate regarding determining the basis of taxation have been going on
for last few decades, no effort has yet actually been made to tax the agricultural
income. The agricultural rich still do not pay any tax on the large sums of money they
make. The non-agricultural rich own large farmhouses, use them for hotelling, tourism
and other industrial purposes and are still exempted from paying tax. In other words,
the poverty of the majority of the small and marginal farmers are used by the rich
people to gain tax exemption. They always harp on the fact that the Indian farmers
are very poor and therefore no direct tax should be imposed on them. By giving this
excuse they have ensured that they themselves do not have to pay any taxes.

What explains this state of affairs is that the policy making of our governments are
too much influenced by the rich farmers and non-farmers who reap the benefits of
such tax exemptions. It is a fact that an average Indian farmer is really poor and has
to be provided with tax benefits. But this should not deter the authorities to tax the
rich who are getting benefited by the provisions meant for the poor. However, the
compulsions to stay in power make the government do things which are contrary to
this logic. The farmer lobby has influenced the policy making since Independence in
various ways:
a) by turning the terms of trade in their favour against the industries
b) securing subsidized seeds, fertilizers and power
c) securing complete tax relief for their income.
At times the government talked of imposing a more rational tax system based on
income and wealth through expert committee reports, but none of them could be
implemented.

20.4 SUBSIDIES

Subsidies are just the opposite of taxes. Through taxes the government takes away
money from people, subsidies transfer money from the government to the people.

20.4.1 Rationale for Subsidies

For a poor agriculture-dependent country like India, the reasons for agricultural subsidies
are easily understood. Since many farmers are close to the subsistence level of living,
the subsidies seek to help them carry out their production and consumption activities
in a better way. Besides this fundamental objective there are several other reasons
for providing subsides:

a) In order to increase productivity, subsidies may be given on inputs, such as seeds,

fertilizers and irrigation, as a result of which they become cheap for the farmer.

b) For introduction of improved farming inputs and technology the government may
provide subsidized farming machinery (like harvester, tractor, irrigation devices)
and HYV seeds.

c) In order to promote the production of certain crops, price and input subsidies may
be granted. Subsidies can be in the form of: i) cheaper inputs, ii) cheaper
26
 transportation facilities for marketing of the harvest, iii) storage facilities, and iv) Agricultural in the
higher procurement prices offered by the authorities than the current market Context of Globalisation
of the Economy
price.

d) Subsidies can be granted to the farmers to produce for exports. This type of
subsidies helps the farmers in becoming more competitive in the global market
and in gaining a larger share of the global demand.
Price MC MC'

AC

AC'
P E E'

O q* q' quantity
Fig. 20.6
MC

Price MC'

P*

P' AC

AC'

MR AR

O q* q' quantity

Fig. 20.7

The manner in which subsidies improve the conditions of the farmers can be seen
from the tax models that we have developed in Section 20.3 of this unit. Remember
that subsidies are the negative of taxes, hence for the per unit subsidy, for example, 27
Issues Before Agricultural the marginal and average cost curves in Fig. 20.1 will shift downwards. This is shown
Development in Fig. 20.6 where the new MC and AC are denoted as MC’ and AC’. Thus the
point of intersection between of MC’ and the p line is at E’, which is to the right
of E, the previous point of intersection. Thus the output and profits would increase.
For an imperfectly competitive market we can similarly show the effects in Fig. 20.7.
Here, as before, MC and AC shift downwards to MC’ and AC’. The point of
intersection with the marginal revenue curve shifts to the right. Thus the output rises
and price falls; the profits can be shown to have risen.
The discussion has been entirely with respect to per unit subsidies. But since subsidies
are negative of taxes the effects of lump sum subsidies, ad valorem subsidies or profit
subsidies will be opposite of lump sum taxes, ad valorem taxes and profit taxes.
Output will rise, profits will rise and in imperfect competition prices may fall. The
effect of per unit subsidies is that they are just like input subsidies. In input subsidies
the per unit cost of production decreases by cheapening seeds, fertilizers, electricity
etc. So the result of such subsidies will be that the marginal and average cost will
come down and as we have seen before output will rise, profits will rise and under
imperfect competitions the prices will fall. Subsidies, when they lead to fall in prices,
help the consumers to buy agricultural goods at affordable rates, apart from helping
the producers to earn higher profits.

20.4.2 Types of Subsidies

There can be several forms of subsidies, each of which can be used for a definite
purpose. We discuss them below in brief.

a) Input Subsidies: Subsidies can be granted through distribution of inputs at prices

that are less than the standard market price for these inputs. The magnitude of
subsidies will therefore be equal to the difference between the two prices for per
unit of input distributed. Naturally several varieties of subsidies can be named in
this category.

i) Fertilizer Subsidy: Distribution of cheap chemical or non-chemical fertilizers

among the farmers. It amounts to the difference between price paid to
manufacturer of fertilizer (domestic or foreign) and price received from
farmers. This subsidy ensures: i) cheap inputs to farmers, ii) reasonable
returns to manufacturer, iii) stability in fertilizer prices, and iv) availability of
fertilizers to farmers. In some cases this kind of subsidies are granted
through lifting the tariff on the import of fertilizers, which otherwise would
have been imposed.

ii) Irrigation Subsidy: Subsidies to the farmers which the government bears
on account of providing proper irrigation facilities. Irrigation subsidy is the
difference between operating and maintenance cost of irrigation infrastructure
in the state and irrigation charges recovered from farmers. This may work
through provision of public goods such as canals, dams which the government
constructs and charges low prices or no prices at all for their use from the
farmers. It may be through cheap private irrigation equipment such as pump
sets.

iii) Power Subsidy: The electricity subsidies which implies that the government
charges low rates for the electricity supplied to the farmers. Power is
primarily used by the farmers for irrigation purposes. It is the difference
between the cost of generating and distributing electricity to farmers and
price received from farmers. The State Electricity Boards (SEBs) either
generate power themselves or purchase it from other producers such as
NTPC and other SEBs. Power subsidy acts as an incentive to farmers to
invest in pump sets, bore-wells, etc.
28
 iv) Seed Subsidies: High yielding seeds can be provided by the government at Agricultural in the
low prices. The research and development activities needed to produce such Context of Globalisation
of the Economy
productive seeds are also undertaken by the government, the expenditure on
these is a sort of subsidy granted to the farmers.

v) Credit Subsidy: It is the difference between interest charged from farmers,

and actual cost of providing credit, plus other costs such as write-offs on bad
loans. Availability of credit is a major problem for poor farmers. They are
cash strapped and cannot approach the credit market because they do not
have the collateral needed for loans. To carry out production activities they
approach the local money lenders. Taking advantage of the helplessness of
the poor farmers the lenders charge exorbitantly high rates of interest. Many
times even the farmers who have some collateral cannot avail loans because
banking institutions are largely urban based and many a time they do not
indulge in agricultural credit operations, which is considered to be risky. To
tackle these problems the government can provide (1) more banking operations
in rural areas which will advance agricultural loans, and (2) the interest rates
can be maintained low through subsidization schemes, and (3) the terms of
credit (such as collateral requirements) can be relaxed for the poor.

b) Price Subsidy: It is the difference between the price of foodgrains at which FCI
procures foodgrains from farmers, and the price at which FCI sells either to
traders or to the PDS. The market price may be so low that the farmers will
have to bear losses instead of making profits. In such a case the government may
promise to buy the crop from the farmers at a price which is higher than the
market price. The difference between the two prices is the per unit subsidy
granted to the farmers by the government. The effect will be just the opposite
of what we have shown in Fig. 20.3 for the case of ad valorem taxes. The output
and profits would rise. The price at which the government buys crops from the
farmers is called the procurement price. Such procurement by the government
also has a long run impact. It encourages the farmers to grow crops which are
regularly procured. As discussed earlier, continuous procurements of foodgrains
by the government has benefited the farmer.

c) Infrastructural Subsidy: Private efforts in many areas do not prove to be

sufficient to improve agricultural production. Good roads, storage facilities, power,
information about the market, transportation to the ports, etc., are vital for
carrying out production and sale operations. These facilities are in the domain
of public goods, the costs of which are huge and whose benefits accrue to all the
cultivators in an area. No individual farmer will come forward to provide these
facilities because of their bulkiness and inherent problems related to revenue
collections (no one can be excluded from its benefit on the ground of non-
payment). Therefore the government takes the responsibility of providing these
and given the condition of Indian farmers a lower price can be charged from the
poorer farmers.

d) Export Subsidies: This type of subsidy is not different from others. But its
purpose is special. When a farmer or exporter sells agricultural products in
foreign market he earns money for himself, as well as foreign exchange for the
country. Therefore, agricultural exports are generally encouraged as long as these
do not harm the domestic economy. Subsides provided to encourage exports are
referred as export subsides.

Check Your Progress 2

1) What is the rationale of providing subsidies to the farmers?

........................................................................................................................
29
........................................................................................................................
Issues Before Agricultural ........................................................................................................................
Development
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

2) What are the different forms in which subsidies can be given to farmers?
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

20.5 SUBSIDIES: EFFECTIVENESS, EXTENT AND

FUTURE PROBLEMS
One notable point about subsidies is that it raises the profit level of the farmers. And
this is true for all farmers who own land, bear cost of production to produce for the
market or for self-consumption. But what about the agricultural labourers? You may
be aware that about 40 per cent of people who are associated with agriculture are
landless labourers. They are not benefited anyway by all these subsidies. So if the
purpose of the government is to improve the living conditions of the poorest sections,
it should go beyond the subsidies. It should effectively implement measures like fixing
of minimum wage and regular, proper amendments of its levels with changing prices.

For the owner cultivators also, how far the subsidies have been helpful is not above
doubt. As we have said earlier, procurement prices, HYV seeds, irrigation subsidies
granted to the farmers have helped India fight food crisis and achieve self sufficiency
in foodgrains. We are also aware that to avail the benefits of cheaper pumpsets,
fertilizers, and electricity a farmer has to have a minimum amount of land and capital
at his disposal. Some of the new technologies are not scale-neutral with respect to
resources; productivity improves if someone has a sizeable volume of resources. So
increase in production was achieved by subsidizing the rich farmers and making them
richer. The poor farmer today is where he was before. In fact in many cases he
became poorer because of the increase in procurement prices. The farmers with very
small land-holdings, being net buyers of foodgrains, were left with lower real income
level.

Subsidies have remained a major problem in the expenditure structure of the government.
In the year 1990-91 major subsidies amounted to 1.7 per cent of the GDP. Over the
years however, this has declined and remained at 1.3 per cent of GDP in 2000-01.
Food subsidy (due to public distribution system operations) and input subsidy (particularly
fertilizer) constitute the major components of total subsidity in India. Low user
charges in sectors such as power, road transport, and irrigation have also impaired the
state budgets, as these are provided by the state governments.
30
Table 20.1 gives a comparison of the subsidies granted by India with other developed Agricultural in the
countries in the field of agriculture. Context of Globalisation
of the Economy
Table 20.1 : Agricultural Subsidies in Selected OECD Countries and India (in US $)

Base Year
Country (1986-88) 1997 1998 1999
Per Per Per Per Per Per Per Per
Farmer Hectare Farmer Hectare Farmer Hectare Farmer Hectare
1 2 3 4 5 6 7 8 9

Canada 12000 75 7000 42 8000 48 9000 52

EU 11000 707 16000 815 18000 890 17000 831

Japan 15000 10048 21000 10211 22000 10005 26000 11792

USA 17000 98 12000 73 19000 116 21000 129

OECD 11000 187 10000 189 11000 209 11000 218

India 11 8 55 43 61 46 66 53

We observe from Table 20.1 that agricultural subsidies per farmer and per hectare
of land are quite low in India compared to OECD countries. However, OECD
comprises developed economies. In these economies subsidies account for a very
low share of their per capita income.

The question of subsides is hotly debated in our country. Many people recommend
abolition of subsidies. Advocates of the policy of scraping subsidies say that subsidies
distort prices; they do not let the market allocate resources efficiently. Another
justification given for scrapping subsidies is that it leads to higher fiscal deficit which
causes problems like higher inflation, higher balance of payment difficulties and falling
exchange rate.

It is often said that subsidies results in ‘crowding out’ of public investments in

agricultural capital formation. The resources available to the government are limited.
If it is spent on subsidies, it cannot be utilized on irrigation, roads, health, etc. However,
as we have seen earlier, subsidies serve many useful purposes. Decisions regarding
changing the nature and extent of subsidies should, therefore, be made only after
properly evaluating their consequences.

Check Your Progress 3

1) Does India provide a higher agricultural subsidy than the developed countries?
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................
........................................................................................................................

........................................................................................................................
31
Issues Before Agricultural 2) What is the nationale for abolishing subsidies?
Development
........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................

........................................................................................................................
........................................................................................................................

........................................................................................................................
........................................................................................................................

20.6 LET US SUM UP

Agricultural income on an average in India is very low. Kepping this is view the
government has chosen the policy of not taxing it at all. However, it is the rich
farmers who are taking the maximum benefits of such exemptions. Same is true for
the non-agricultural rich who show their income to be agricultural and reap the
benefits. Government provides agricultural subsidies for various reasons. Subsidies in
general raise output and profits, and in certain cases reduce price. However, it should
be given to poor farmers and for crops which the country needs for development.

In India subsidies has served its purpose at many crucial junctures. It has helped in
raising the living standards of poor peasants, mitigated the food crisis. However, in
many cases it is cornered by the rich farmers. They use their power and influence
to take benefits of the subsidies. In fact in many cases such uneven distribution of
subsidies have led to greater inequality in agriculture. The remedy is not to do away
with subsidies altogether. The high level of impoverishment of the majority of Indian
farmers and the need for food security of the poor justifies that subsidies should be
continued. But it must be ensured that it is targeted to the poor farmers and consumers.

20.7 KEY WORDS

Imperfectly competitive market : is the market form where there are only a
few producers and where goods are
differentiable (i.e., each producer produces
goods which are somewhat different from
others). Therefore, each producer has some
limited power to influence the market price.
However, if price is raised output sold falls
due to a downward sloping demand curve.
Perfectly competitive market : is the market form where the goods produced
by all the producers are identical and each
producer produces a very small amount of
the aggregate output produced in the market.
As a result no producer can influence the
price.
Procurement Prices : are the prices at which the government
purchases crops from the farmers.
Procurement is undertaken to run the public
distribution system and to ensure that the poor
farmers get remunerative prices for their
32 produce.
Public distribution system
Public goods
: This mechanism helps the Indian government Agricultural in the
to make basic consumption articles available Context of Globalisation
of the Economy
to the poor sections of the country at low
prices.
: are those goods whose utility cannot be limited
to one or two individuals. Take the case of
a street light, it benefits all of those who pass
by the street - not any particular individual on
the street. Also, consumption of such a good
by one person does not exclude anyone else
from consuming it.

20.8 SOME USEFUL BOOKS

Datt, R. and K. P. M. Sundaram, 2001, Indian Economy, S. Chand and Co., New
Delhi.
Kapila, U. (ed.), 1990, Indian Economy since Independence: Different Aspects of
Agricultural Development, vol II, Academic Foundation, Delhi.

Misra, S. K. and V. K. Puri, 2001, Indian Economy, Himalaya Publishing House,

New Delhi.

Parikh, K. S., 1997, India Development Report 1997, Oxford University Press.

Patnaik, U., 1999, The Long Transition, Tulika Publications, New Delhi.

Raj, K. N., 1990, Organizational Issues in Indian Agriculture, Oxford University

Press, New Delhi.

20.9 ANSWERS/HINTS TO CHECK YOUR PROGRESS

EXERCISES

Check Your Progress 1

1) See Section 20.1 and answer.
2) See Sub-section 20.2.4 and answer.
3) No.

Check Your Progress 2

1) Go through Section 20.1 and Sub-section 20.4.1
2) See Sub-section 20.4.2 and answer.

Check Your Progress 3

1) No. See Section 20.5 and answer.
2) See Section 20.5 and answer.

33
Print Release http://www.pib.nic.in/newsite/PrintRelease.aspx

Press Information Bureau

Government of India
Ministry of Agriculture
11-July-2013 17:34 IST

SMS Portal For Farmers to be Launched Next Week

AIMED at Reaching Information, Advisories, Services to 12 Crore Farmers

An SMS portal for farmers, the Kisaan SMS Portal, will be launched by the President Shri Pranab
Mukherjee on 16th July, 2013.

The Kisaan Portal aims at reaching information, advisories and services through SMS to more than
12 crore farmers across the country.

Being an instant and non-intrusive medium of communication, the SMS advisories and alerts will
enable farmers to take informed decisions relating to different aspects of farming including crop
production and marketing, animal husbandry, dairying and fisheries. They can also opt to receive
SMS messages customized to their specific requirements.

Weather forecast and alerts will enable farmers in planning, farming operations effectively and taking
the best suited action to deal with adverse weather conditions.

Advisories on disease/pest outbreak will help the farmers to take immediate actions to secure their
crops and animals. Advisories on best practices, such as selection of better suited crop variety/
animal breed, will lead to better farm productivity and higher income to the farmers.

Timely market information provided through SMS will give the farmer better bargaining power and
he will be in a position to take better decisions about sale of his produce.

SMS advisories will also include soil test results, selection of fertilizer and its dosage, and also
information on various programmes so that farmers can make the best use of assistance and
know-how being made available by the Government.

Farmers will need to register for this service by calling Kisaan Call Centre on the toll free number
1800-180-1551 or through the web portal.

Officers of various departments, experts and scientists in research institution and in the field will use
this portal for disseminating information, giving topical and seasonal advisories and providing
services through SMSs to farmers in their local languages. Officers can send SMS to farmers
belonging to the entire area of their jurisdiction or a part of it. Grouping of farmers based on their
location and their preferred crop/activity will help sending relevant messages to the farmers.

MP:SS:BK:CP: sms portal (11.7.2013)

1 of 1 7/13/2013 10:22 PM

4.1.21 The state of PEM has shown little no or signs
of improvement over several decades. It is in this
context that the Minimum Support Price (MSP)
and the Public Distribution System (PDS) become
significant.
MINIMUM SUPPORT PRICE, FOOD PROCUREMENT
POLICY, AND THE PUBLIC DISTRIBUTION SYSTEM
4.1.22 Food security is the outcome of both produc-
tion and distribution decisions. Agricultural produc-
tion issues are discussed in the ‘Agriculture’ chapter
of the Eleventh Plan (Volume III). In fact, the GoI
has in 2007 taken the decision to introduce a Food
Security Mission, which will focus on increasing
production of cereals and pulses. This chapter focuses
on the distribution, affordability, and availability
issues in respect of calories. This section discusses
what changes need to happen in the PDS in order to
both improve food security as well as reduce fiscal
subsidies.
Minimum Support Price (MSP)
4.1.23 Foodgrains are procured at the MSP fixed
by the government mostly in a small number of
grain-surplus States in the north of India, which
are then transported across the country to deficit
States (the latter mostly in the south and west of
the country). MSPs are fixed on rates recommended
by Commission for Agricultural Costs and Prices
(CACP), which are set using mainly cost of cultiva-
tion. These grain stocks essentially supply the PDS
of the country. Through the PDS, cereals are made
available to BPL households, as well as to Above
Poverty Line (APL) households—at differential
prices. There is a third category of beneficiaries—
Antyodaya card holders. Under the Antyodaya Anna
Yojana (AAY), 35 kg of foodgrains are being provided
to the poorest of the poor families at the highly subsi-
dized rate of Rs 2 per kg for wheat and Rs 3 per kg
for rice.
4.1.24 During the years of accumulation of stocks
in the Central Pool until 2001–02, it was believed
that excess procurement was on account of the
government’s decision to fix the MSP for paddy and
wheat in excess of the levels prescribed by the CACP.
Grain stocks have declined since then.
Nutrition and Social Safety Net 133
Stabilization
4.1.25 Given the limited purchasing power of the poor,
there is a need to contain cereal price rises. For this
purpose government maintains foodgrains buffer
stocks through the Food Corporation of India (FCI).
Stocks had reached to 256.17 lakh tonnes (rice) and
324.15 lakh tonnes (wheat) for the year 2001–02. But
in 2007, the stocks of these two foodgrains fell to 131.71
lakh tonnes (rice) and 45.63 lakh tonnes (wheat),
respectively.
4.1.26 To achieve the cereal price stabilization objec-
tive of PDS, food stocks with FCI should be at a
reasonable level. In recent years, both procurement
and stocks with FCI have tended to fall. If the needs of
procurement to maintain adequate stocks requires pro-
curement prices to be higher than MSP, a transparent
mechanism is needed that enables government to
undertake commercial purchases at prices comparable
to those paid by private traders. This could be done
if the procurement price (i.e. MSP plus bonus) was
announced at the beginning of the purchase season,
along with a procurement target in terms of quantity.
After the procurement target was met, the bonus would
be suspended. However, if procurement quantities,
even with bonus are not met, FCI should be able to
tender from both domestic as well as international
markets, after standard procurement operations, to
make up the deficit to maintain stocks with the FCI.
Decentralized Procurement
4.1.27 Unlike the mid-1990s, cereal procurement was
earlier concentrated in a few northern States. However,
under the decentralized procurement scheme intro-
duced in 1997–98, the State Governments themselves
undertake direct purchase of paddy and wheat and
procurement of levy rice on behalf of the GoI. Purchase
centres are opened by the State Governments and
their agencies as per their requirements. The State
Governments procure, store, and distribute foodgrains
under Targeted Public Distribution System (TDPS)
and other welfare schemes. In the event of the total
quantity of wheat and rice thus procured falling
short of the total allocation made by the Central
Government, FCI meets the deficit out of the Central
Pool stocks. Under this scheme, State-specific economic
cost is determined by the GoI and the difference
134 Eleventh Five Year Plan

between the economic cost so fixed and the central
issue prices (CIP) is passed on to the State as food
subsidy.
4.1.28 The Decentralized Procurement Scheme, which
is presently in operation in 11 States, has been very
successful in increasing procurement of rice in
many non-traditional States, as can be seen below in
Table 4.1.6.
4.1.29 There is a need for States to increase procure-
ment to reduce their requirement of foodgrains from
the Central Pool. There is also a need for more States
with large production, such as Bihar for wheat and rice
and Assam for rice, to adopt the Decentralized Procure-
ment scheme. If this were to happen, there could be a
considerable saving in terms of transportation costs.
with higher MSPs declared more recently, there is a
danger that the subsidy is likely to rise (see Table 4.1.7)
due to increase in MSP, announcement of bonus, and
carrying cost of FCI. The Table 4.1.7 gives the figures
of food subsidy of the GoI.
Public Distribution System
4.1.32 The PDS is a major State intervention in the
country aimed at ensuring food security to all the
people, especially the poor. The PDS operates through
a large distribution network of around 4.89 lakh
fair price shops (FPS), and is supplemental in nature.
Under the PDS, the Central Government is respon-
sible for the procurement and transportation of
foodgrains up to the principal distribution centres
of the FCI while the State Governments are respon-
sible for the identification of families living below the

TABLE 4.1.6
Procurement of Rice in DCP States during Kharif Marketing Season
(Figures in lakh tonnes)
S. No. State 2002–03 2003–04 2004–05 2005–06 2006–07*
1 WB 1.26 9.25 9.44 12.75 5.19
2 UP 13.60 25.54 29.71 31.51 21.01
3 Chhattisgarh 12.91 23.74 28.37 32.65 25.20
4 Uttaranchal 2.32 3.23 3.61 3.36 1.74
5 A&N Islands - Neg. 0.01 - -
6 Orissa 8.90 13.73 15.90 17.85 14.18
7 Tamil Nadu 1.07 2.07 6.52 9.26 10.38
7 Kerala - - 0.33 0.94 1.05
8 Karnataka - - 0.21 0.48 0.12
Total (a) 40.06 77.56 94.10 108.80 78.86
Note: *Position as on 19.04.07.

Food Subsidy TABLE 4.1.7

4.1.30 Food subsidy is provided in the Budget of the Food Subsidy
Department of Food and Public Distribution to meet Year Food Subsidy (Rs in crore)
the difference between the economic cost of foodgrains 1996–97 5166
procured by FCI and their sales realization at CIP for 1997–98 7500
TPDS and other welfare schemes. In addition, the 1998–99 8700
Central Government also procures foodgrains for 1999–2000 9200
meeting the requirements of buffer stock. Hence, part 2000–01 12010
2001–02 17494
of the food subsidy also goes towards meeting the
2002–03 24176
carrying cost of buffer stock. 2003–04 25160
2004–05 25746
4.1.31 The food subsidy bill of the GoI peaked in 2005–06 23071
2004–05 and declined as stocks declined. However, 2006–07 23827
Rationale for Subsidies
Compared to other sectors in the Indian economy, the agricultural sector remains a poor
performer. The agricultural sector is still the largest source of employment in the country (about
50% workforce is engaged in agriculture). At the same time, food security remains a key
agricultural objective and a main cause for the heavy involvement of the government in this
sector.
The policy is intended to ensure adequate supplies of food staples at remunerative prices for
farmers and to provide food at stable and affordable prices to consumers.
Besides this fundamental objective there are several other reasons for providing subsides:
a) In order to increase productivity, subsidies may be given on inputs, such as seeds,
fertilizers and irrigation, as a result of which they become cheap for the farmer.
b) For introduction of improved farming inputs and technology the government may provide
subsidized farming machinery (like harvester, tractor, irrigation devices) and HYV
seeds.
c) In order to promote the production of certain crops, price and input subsidies may be
granted. Subsidies can be in the form of:
i) cheaper inputs,
ii) cheaper transportation facilities for marketing of the harvest,
iii) storage facilities, and
iv) higher procurement prices offered by the authorities than the current market
price.
d) Subsidies can be granted to the farmers to produce for exports. This type of subsidies
helps the farmers in becoming more competitive in the global market and in gaining a
larger share of the global demand.

Types of Subsidies
Input Subsidies: Subsidies can be granted through distribution of inputs at prices that are less
than the standard market price for these inputs. The magnitude of subsidies will therefore be
equal to the difference between the two prices for per unit of input distributed.
i) Fertilizer Subsidy: Distribution of cheap chemical or non-chemical fertilizers
among the farmers at a govt-controlled price. The manufacturer is suitably
compensated by the government. In some cases this kind of subsidies are
granted through lifting the tariff on the import of fertilizers, which otherwise
would have been imposed.
ii) Irrigation Subsidy: Subsidies to the farmers which the government bears on
account of providing proper irrigation facilities in excess of irrigation charges
recovered from farmers. The government may provide public goods as canals,
dams or cheap irrigation equipment as pumpsets.
iii) Power Subsidy: The electricity subsidies are the costs incurred by the govt in
providing electricity to farmers in excess of the fixed charges generally paid
by the farmers. This subsidized power is generally used by the farmers for
irrigation purposes.
iv) Seed Subsidies: High yielding seeds can be provided by the government at
low prices. The research and development activities needed to produce such
productive seeds are also undertaken by the government, the expenditure on
these is a sort of subsidy granted to the farmers.
v) Credit Subsidy: It is the difference between interest charged from farmers,
and actual cost of providing credit, plus other costs such as write-offs on bad
loans. Availability of credit is a major problem for poor farmers. They are
cash strapped and cannot approach the credit market because they do not have
the collateral needed for loans.
In order to prevent exploitative moneylenders from taking the advantage of
 v) Credit Subsidy: It is the difference between interest charged from farmers,
and actual cost of providing credit, plus other costs such as write-offs on bad
loans. Availability of credit is a major problem for poor farmers. They are
cash strapped and cannot approach the credit market because they do not have
the collateral needed for loans.
In order to prevent exploitative moneylenders from taking the advantage of
the farmers, the govt may provide interest free loans, loans with low interest
rates and may relax the terms of credit.
Kisan Credit Card scheme has been continuing. Loan waiver scheme was
announced in 2008.
a) Price Subsidy: It is the difference between the price of foodgrains at which FCI procures
foodgrains from farmers, and the price at which FCI sells either to traders or to the PDS.
The market price may be so low that the farmers will have to bear losses instead of
making profits. In such a case the government may promise to buy the crop from the
farmers at a price which is higher than the market price. The difference between the two
prices is the per unit subsidy granted to the farmers by the government.
The price at which the government buys crops from the farmers is called the
procurement price. It encourages the farmers to grow crops which are regularly
procured. The price at which FCI issues foodgrains to the states(PDS) is called the
Central Issue Prices.
Another method to support consumers is the low rate of VAT charges on agricultural
products (4% compared to 13.5%).
b) Infrastructural Subsidy: Private efforts in many areas do not prove to be sufficient to
improve agricultural production. Good roads, storage facilities, power, information about
the market, transportation to the ports, etc., are vital for carrying out production and sale
operations. Therefore the government takes the responsibility of providing these and
given the condition of Indian farmers a lower price can be charged from the poorer
farmers.
The most important aspect of Rural infrastructure in Bharat Nirman :
• Increasing irrigation capacity
• Connecting habitations with all-weather roads
• Constructing houses for the rural poor
• Provision of safe drinking water to the rural
• Electrification of villages
• Connecting remaining villages with public telephones
c) Export Subsidies: India’s food export policy aims to balance the interests of farmers,
especially in horticulture products and the food security of the large population in
general, thus imposing restrictions on essential commodities.
Input subsidies are the most expensive aspect of India’s food and agriculture policy regime,
requiring a steadily larger budget share.
India subsidizes agricultural inputs in an attempt to keep farm costs low and production high.
GOI’s intended result is for farmers to benefit from lower costs, but also for them to pass some of
the savings on to the consumers in the form of lower food prices. GOI pays fertilizer producers
directly in exchange for the companies selling fertilizer at lower than market prices. Irrigation
and electricity, on the other hand, are supplied directly to farmers by GOI at prices that are below
the cost of production. These policies result in effective subsidies to the farmer of 40 to 75
percent for fertilizer and 70 to 90 percent for irrigation and electricity.
Input subsidies can also produce unintended effects. According to GOI reports, input subsidies
have resulted in overutilization of inputs. This overutilization has in turn led to soil degradation,
soil nutrient imbalance, environmental harm, and groundwater depletion, all of which have
caused decreased effectiveness of inputs. Additionally, input subsidies distort trade by
increasing net exports of input intensive commodities while decreasing net exports of
commodities which require relatively fewer inputs.
India’s agricultural sector is more dependent on input subsidies than that of the other large
emerging economies.
In calendar year 2007, India’s input subsidies were equal to 9.6 percent of the value of its total
agricultural output compared to less than 5 percent for Brazil, Russia, and China.
After a stagnation for five years the per ha fertilizer consumption in the country showed a
consistent increase during the last four years (from 130 kg/ha during 2004–05 to around 175 kg
in 2008–09). However, there are large inter-region, inter-state, and inter-crop variations on
fertilizer consumption in India.
In some areas excessive use of chemical fertilizers has led to degradation of natural resources,
agricultural output compared to less than 5 percent for Brazil, Russia, and China.
After a stagnation for five years the per ha fertilizer consumption in the country showed a
consistent increase during the last four years (from 130 kg/ha during 2004–05 to around 175 kg
in 2008–09). However, there are large inter-region, inter-state, and inter-crop variations on
fertilizer consumption in India.
In some areas excessive use of chemical fertilizers has led to degradation of natural resources,
such as land and water, which needs urgent attention. On the other hand one-fourth of the
districts still use less than 50 kg/ha of fertilizers, which is much lower than the recommended
level. Therefore, there is a need to have a two-pronged strategy, one to monitor districts with
high intensity of consumption and take corrective actions to reduce environmental degradation
and the other to promote fertilizer consumption in low-use districts to improve crop productivity.
Input subsidies have also been accused of causing harm in terms of reduced public investment
in agriculture and wasteful use of resources like water and power. Apart from causing
unsustainable fiscal deficits, theses have also resulted in decreasing fertility and yields due to
unscientific application of agricultural inputs.

Issues related to Fertilizers Subsidy

In April 2010, the Government introduced the nutrient-based subsidy (NBS) regime to release
the industry from stifling controls, but implemented the scheme selectively only on non-urea
fertilisers. Under this policy, the market price is determined based on supply and demand factors
and the Government pays a fixed subsidy. This has made P&K (phosphatic and potassic)
fertilisers commercially viable, resulting in increased production and availability.
Among these, the production of urea has been under the retention price scheme (RPS). The
RPS was meant to ensure that subject to some capacity utilisation norms, the production units are
assured a return of 12 percent on capital employed.
Production Capacity
The fertilizer subsidy for the year 2012-13 topped 70,000 crores. Such a huge subsidy is in part
linked to huge imports of raw materials as well as fertilizers.
Product Demand (mT) Production(mT)
Urea 32 23
DAP 12.5 5.4
NPK 11.3 8.1
MOP 4.9 -

The Government has notified the New Investment Policy 2012 on 2nd January 2013 to facilitate
fresh investment in urea sector in future and to reduce India’s import dependency in urea
production.
Fiscal Deficit
Fertiliser subsidy is the most debated issue in the country today, as the government is looking to
contain the fiscal deficit alongside rolling out a Food Security Bill. Fertilisers, after oil and food,
account for the third-biggest share of India’s total subsidy bill, which is estimated at Rs
2,20,971.50 crore for the current fiscal.
Illegal Trade
The Government is worried about the mis-utilisation of subsidised urea. In its view, subsidised
urea is getting diverted for non-agricultural use (cosmetics, chemical industries etc). Since retail
price of urea in India ($98 per tonne) is way below that in neighbouring countries such as China
($348), Pakistan ($344) and Bangladesh ($250), it is also worried about the cross-border illegal
trade of urea.
Imbalanced Fertilization
Since urea has been kept out of NBS and its price has relatively been kept constant over the
years, it has become more attractive to use larger quantities of urea compared to other fertilizers.
• The cumulative effect of this has been a depletion in the NPK use ratio (normally
accepted ratio being 4:2:1) to 6.7:3.1:1 in 2011-12, resulting in imbalanced fertilisation.
• More than 50 percent of subsidy is going to top 5 states, Uttar Pradesh, Andhra
Pradesh, Maharashtra, Madhya Pradesh and Punjab.
• There is also concentration of crops which use subsidies and that is rice, wheat, cotton
and sugarcane.
• About 40% of the subsidy is going to large farmers
Environment Degradation
Overproduction and over use of fertilisers lead to environmental degradation. In the state of
 Pradesh, Maharashtra, Madhya Pradesh and Punjab.
• There is also concentration of crops which use subsidies and that is rice, wheat, cotton
and sugarcane.
• About 40% of the subsidy is going to large farmers
Environment Degradation
Overproduction and over use of fertilisers lead to environmental degradation. In the state of
Haryana, farmers used 32 times more nitrogen than potassium in the fiscal year ended March
2009, much more than the recommended 4-to-1 ratio, according to the Indian Journal of
Fertilizers, a trade publication. In Punjab state, they used 24 times more nitrogen than potassium,
the figures show.
• The overuse of one type—urea—is so degrading the soil that yields on some crops are
falling and import levels are raising. The country now produces less rice per hectare than
its far poorer neighbours: Pakistan, Sri Lanka and Bangladesh. China has 6.5 tonnes per
hectare, Pakistan 3.5, India 3.4.
• The excess fertilizers make their way into the food chain, causing harm to human beings,
animals, birds, and insects and disturb the soil's ecological balance.
• Excess use of fertilizers can also pollute ground water and other water sources. All of this
can cause a health hazard to impacted populations of plant, animal and human beings.
Human beings who consume food that has been grown through use of excess fertilizers
carry the risk of contracting various diseases.
The balanced solution
NBS is a step in the right direction. It will not only help in achieving a balanced nutrient
consumption but also improve the Government’s finances. The policy is also expected to bring in
more transparency and investments into the sector, which relies on imports heavily and suffers
from lack of production capacity. There had been no fresh investments in the sector for more
than a decade due to uncertainty in the pricing structure.
The present subsidy regime is skewed heavily in favour of urea, leading to its imprudent and
unabated use. Therefore, there is a need to increase urea prices and bring parity with P&K
fertiliser prices to maintain NPK balance. This will help by restoring the nutrient consumption
balance towards ideal NPK ratio of 4:2:1, resulting in increase in crop yields and improvement in
soil health.
The need of the hour is to move towards an environment for holistic development of the sector
with the goal of achieving efficiency and self-sufficiency.
Electricity subsidies
Such subsidies have been provided in the form of fixed charges depending upon declared power
use or free electricity to farmers. There are also two-part tariffs, which is a combination of fixed
and metered rates. In some states, like Punjab and Tamil Nadu, free or near free electricity is
provided to the farmers.
This non-merit subsidy has resulted in misuse of electricity in the following ways:
• State Electricity boards are not compensated in a proper manner, resulting in cross-
subsidization across sectors, resulting in high costs for industry and paying users
• Non-appreciation of the costs of electricity results in gross abuse and wastage
• Overexploitation of groundwater has also resulted due to free power
Such provision of free power by some states, and promises made in manifestos has also given
rise to populist statements to win the votes of the strong farmer lobby. Such subsidies have cost
more than 30,000 crore (2010).
Institutional Credit system
This includes an extensive network of co-operative, public sector and commercial banks, but still
a large percentage of farmers, most often small landholders, remain dependent on traditional
moneylenders or other non-institutional sources of credit. According to government data, 49% of
farm households are indebted, with 58% of outstanding loans sourced from institutional channels
(including government) and 42% from private informal moneylenders. While there is a wide
range of reasons for so called agrarian distress, high debts are among most important factors
leading to large numbers of farmers’ suicides in recent years.
Various policy measures initiated by the government are:
• Kisan (Farmer) Credit Card (KCC) Scheme launched in 1998/99
• In 2006, the Government announced a package for the revival of the Short-Term Rural
Cooperative Credit Structure. NABARD has been designated as the implementing
agency for the purpose. Loan was provided at a preferential interest of 7%.
• The Debt waiver scheme launched by the Govt in 2008 cost the exchequer 10,000 crores
However, the agricultural credit system is fraught with following problems:
• Domestic banks were originally obligated to meet the agriculture PSL target in 1990.
As a group, they have never done so. In 2010-11, only 30% of public sector banks and a
 In 2006, the Government announced a package for the revival of the Short-Term Rural
Cooperative Credit Structure. NABARD has been designated as the implementing
agency for the purpose. Loan was provided at a preferential interest of 7%.
• The Debt waiver scheme launched by the Govt in 2008 cost the exchequer 10,000 crores
However, the agricultural credit system is fraught with following problems:
• Domestic banks were originally obligated to meet the agriculture PSL target in 1990.
As a group, they have never done so. In 2010-11, only 30% of public sector banks and a
bit over 50% of private sector banks met the target.
• Bank credit in developing countries typically expands faster than gross domestic product
(GDP) as financial deepening occurs, which is true in India. And India’s overall GDP has
grown faster than the agriculture segment over the past ten years. This drives bank
agriculture lending to grow much faster than underlying agriculture GDP, making targets
harder to meet.
• The loan waiver scheme launched a debate in India with many observers concluding that
it may end up crippling the agricultural credit system, as happened with a similar loan
waiver of 1990. The co-operative credit sector has still not fully recovered from that
move and even the commercial banking sector became wary of disbursing crop loans for
a long time after the previous waiver.
• As far back as 1998, the M. Narasimham Committee (II) noted that 44% of non-
performing loans (NPLs) originated from PSL. In 2010-11 that figure was a staggering
73%. Now agriculture alone generates 44% of NPLs. This has raised the issue of
sustainability.
• Appropriation of a large section of such credit by large and rich farmers
• Little coordination between different agencies involved in disbursing credit, resulting in
under-financing and over-financing. Lead Bank scheme and Service Area Approach do
not overcome the issue of multiple agencies. Complex procedures and requirements has
resulted in high presence of moneylenders (36%)
• Cooperative societies often suffer from the problem of overdues
Minimum Support Prices
The key instruments applied by the FCI for food management are the Minimum Support Prices
(MSPs) for procurement and the Central Issue Prices (CIPs), the rates at which the FCI
disperses food grains to states and union territories for distribution under TPDC.
The administered price regime currently in vogue includes:
• minimum support prices (MSP) for 28 commodities (9 cereals, 5 pulses, 8 oilseeds, copra
-2 varieties, raw cotton-2 varieties, raw TD5 jute)
• Fair and Remunerative Price (FRP) for sugarcane (earlier called statutory minimum
price)
• levy prices for rice; and
• central issue prices for rice, wheat and coarse cereals for sale under public distribution
system
As the MSPs have kept increasing (see above) and the issue prices have been kept unchanged
since 2002, food subsidies increased from INR 240 billion in 2006/07 to about INR 800 billion
in 20012/13.
The main issues related to MSP is :
• West, especially USA says that the govt procurement at higher prices and distribution at
lower prices distorts markets. This has been a major bone of contention between the
trade lobbies of both countries as well as an important issue in Doha round of WTO.
• In the early days this worked well for farmers but in the last few years, procurement has
become an exercise to torment farmers rather than support them. First, the Minimum
Support Price (MSP) that is announced, is never paid in full, always less. Often there
exists an unholy nexus between the FCI agents and private companies.
• Another criticism of the procurement policy is the excess procurement and lack of
adequate warehouse to store the foodgrains
• High MSP can cause glut in a particular crop in that year, at the cost of other crops,
leading to shortages in the latter.
Trade Subsidies
Import Measures
While India’s simple average applied MFN tariff halved in recent years, falling from 32.3% in
2001/02 to 15.8% in 2006/07, the simple applied tariff on agricultural products remained
unchanged and was 40.8% in 2006/07.
Applied tariff rates range from 0% to 182%, with above average rates for beverages, spirits and
vinegar, miscellaneous edible preparations, coffee and tea, animal or vegetable fats and cereals.
Apart from tariff, other measures impacting agricultural trade are:
While India’s simple average applied MFN tariff halved in recent years, falling from 32.3% in
2001/02 to 15.8% in 2006/07, the simple applied tariff on agricultural products remained
unchanged and was 40.8% in 2006/07.
Applied tariff rates range from 0% to 182%, with above average rates for beverages, spirits and
vinegar, miscellaneous edible preparations, coffee and tea, animal or vegetable fats and cereals.
Apart from tariff, other measures impacting agricultural trade are:
• Prohibitions: imports of beef and its products, poultry from countries reporting
outbreaks of avian influenza
• Tariff rate quotas: bound tariff rate quotas are maintained on milk powder, maize,
sunflower seed and safflower oil, and rape, colza or mustard oil
• State trading: continues to be used for imports of cereals
• Monitoring: imports of a number of agricultural products considered to be sensitive,
including edible oils, cotton, silk, milk and milk products, cereals, fruit and vegetables,
spices, tea, coffee and alcoholic beverages.
Even with the countries and regions with which India has a FTA, the import tariffs for
agricultural items are often exempted from duty concessions.
Export Measures
With the primary objective of boosting agricultural exports, the Government of India announced
in 2001 a policy of setting up of Agri- Export Zones (AEZs) across the country. The objective
was to utilise various support schemes in a co-ordinated manner, selecting particular products for
the purpose of developing and sourcing the raw materials in a specified area and then linking this
with their processing and packaging for export.
The zones receive support from the central and state governments as well as from various
governmental agencies in particular for development of infrastructure like storage, transport,
processing and value addition facilities, but also in the form of research and development,
extension services and inputs. So far, 60 such zones have been established across 20 states. They
are monitored by the Agricultural and Processed Food Products Exports Development Authority
(APEDA).
The Vishesh Krishi Upaj Yojana (special agricultural products scheme) introduced in 2004
promotes exports of fruits, vegetables, flowers, minor forest produce, dairy, poultry and related
value-added products produced domestically.
In addition to temporary restrictions, India prohibits exports of certain agricultural products for
health, environmental, and religious reasons. For example, for social and religious reasons such a
prohibition is applied for exports of beef and offal of cows, oxen and calves. In turn, export
licensing is applied for live animals and some animal products, seeds, seaweed and other algae,
residues and waste from food industries, as well as pure races of silk worm and silkworm seeds.
State trading is applied for onions and gum karaya. India’s export of sugar is subject to tariff rate
quotas applied by the United States and the EU, which are implemented through a sugar
producer’s co-operative called the Indian Sugar Exim Corporation Limited. Export taxes on
coffee, spices, tobacco and some other agricultural commodities were removed in 2006
Non-taxation of Agricultural income

High taxation may drive people out of production. With virtually no alternative employment
opportunities these people may either starve or migrate to the urban areas, which are already
faced with so many problems of overcrowding.
Taking this into consideration, the government policy has been not to tax agriculture income at
all. Under the constitution of India, taxation of agricultural income is the right of state
governments. The Central Government cannot levy tax on such income. Income from agriculture
up to and exclusive of the processing stage will be agricultural income. Income from processing
stage and onwards will be non-agricultural income. Income from a farmhouse used for
agricultural purposes will be treated as agricultural income.
However, income from sale of trees, breeding of livestock, fishing activities, poultry farming
cannot be classified as agricultural income and is not exempt from income-tax.
However such a blanket exemption from paying income tax has resulted in the following issues:
• Non-agricultural land is somehow shown as agricultural land in order to evade taxes. The
land may be used for throwing lavish parties, hotels and pubs
• Policy of not taxing rent from agricultural lands is also not justified, as such renting out is
taken by big and rich landlords
• Policy of no taxation has disproportionately benefitted the large and rich farmers as
compared to the poor and marginal ones
• Land revenue has been kept as the same nominal rates in most of the states, again
benefitting the larger farmers
While not taxing the poor farmer is a right policy for a country where a large section of the
 • Policy of not taxing rent from agricultural lands is also not justified, as such renting out is
taken by big and rich landlords
• Policy of no taxation has disproportionately benefitted the large and rich farmers as
compared to the poor and marginal ones
• Land revenue has been kept as the same nominal rates in most of the states, again
benefitting the larger farmers
While not taxing the poor farmer is a right policy for a country where a large section of the
farmers are small and marginal, proper safeguards must be taken to ensure that such benefits are
not misused by powerful, rich and undeserving farmers.
It has been seen that the policy making of our government is much influenced by the
powerful lobby of rich farmers and non-farmers who benefit from such policies. To correct this,
rational taxation of land must be carried out, and small and marginal farmers be exempted from
the taxation. At the same time, there must be not be blanket exemption from income tax. Land
taxation could be done on the basis of land size and fertility.

Misc
Subsidies can be direct – cash grants, interest-free loans – or indirect – tax breaks, insurance,
low-interest loans, depreciation write-offs, rent rebates
Indirect Subsidy: MSP, Tax break, governmental provision of goods or services at prices below
the normal market price (low interest loan, Power subsidy)
Direct Subsidy: Transfer in cash or kind (Questions may be asked on challenges in DBT/DCT)
• 18-25% of horticultural produce is lost, as estimated by the Central Institute of Post-
Harvest Engineering and Technology study.
• Certified Warehouses and Warehouse Receipts: Poor credit flows have had an adverse
effect on the agriculture produce economies of the States. Certified warehouses and a
system of warehouse receipts could lead to better credit delivery, better loan recovery and
convenience in asset management. The banking sector might be more willing to extend
post-harvest credit facility to the agriculture sector for wholesale trade and a system of
warehouse receipts. The presence of certified warehouses would enable the development
of market instruments that may reduce the pressure on State Governments to carry large
inventories of agriculture produce.
• 3.24 Warehouse receipt when backed by a suitable legal frame work, is an instrument
that shows proof of ownership of agricultural commodities. It states the quality and
quantity that is owned by the receipt holder and the warehouse in which the commodity is
stored. It is issued by warehouses approved by an independent body. The warehouse
receipt is issued after the produce is certified for quality and quantity. The process
involves rigorous but rapid testing and grading often based on official standards. It can be
successfully negotiated by endorsement without returning it to the warehouse operator.
These receipt may be used in commodity linked loans. Warehouse receipts are being
operated in three commodity exchnages – Coffe Futures Exchange Indian Ltd. (COFEI),
SOPA Board of Trade (SBOT) and BOOE. These boards have setup institutional
framework for warehouse receipts. There is tremendous scope for massive expansion of
use of warehouse receipts.
• 3.25 Warehouse receipts can play an important part in making indian agriculture more
responsive to market opportunities and more competitive in relation to world markets.
They can also be made an important instrument to make it more attractive for banks to
lend to the agricultural sector, to reduce the cost of public support for agricultural
marketing, to reduce transaction costs and to improve price risk management. They
enable to ensure increased liquidity in rural areas, lower cost of financing, shorter and
more efficient supply chain, enhanced rewards for grading and quality, development of
other productivity enhancing agricultural services and better price risk management.
• 3.26 The Expert Committee proposes following strategy for the
Government of India:
• a. To promote development of a national warehousing receipt system for
agricultural commodities, as apart of its policy of ensuring that indian agriculture is
globally competitive while enhancing rural welfare and food security;
• b. To declare CWC and SWC as Acredition Agencies for certified warehouses for
warehouse receipt.
• c. Laydown various standards, specification for certified warehouses, so also rules
and regulation for managing them including fidality aspects.
• d. All licensed warehouse to confirm to the minimum professional standards in
order to provide confidance to lenders and the public in general. They will be encouraged
to develop their own code of coduct for self regulation.
• e. Existing warehousing laws may be suitably amended. A formal regulatory
authority may be consittuted to enforce standards and protect the interest of those holding
warehouse receipt against negligence malpractices or fraud. The regulatory authority has
to be strctured to ensure its complete autonomy and freedom from political interfrence.
• f. To promote latest information system for warehouse receipt to help in
identifying ownership of produce, transferors of lien, holder of lien, hypothycation of
receipt for loan and trading of the produce in the context of spot delivery.
• g. On the negotiability of the instrument i.e. warehouse receipt there may be
incidence of various taxes and levies which should be exempted for five years to begin
with, to make these receipts popular.
 with, to make these receipts popular.
• h. The negotiabity of warehouse receipt require amendments to various Acts of
Central ad State Government which may have to be looked into.
• 3.27 Warehouse receipts and a warehouse system where the objects of
legislative efforts nearly three decades ago. A warehouse receipt Bill was drafted in 1978
with the principle, if not sole, objective of endowing upon warehouse receipts the status
of negotiability under the negotiable instrument Act 1881. The warehouse receipt Bill
was initiated by the Banking Laws Committee and did not proceed beyond the stage of
discussion of the draft. The constitution of a Task Force comprising representative of the
Commodity Exchanges, The FMC, The Ministry of Consumer Affairs and Public
Distribution, the Ministry of Agriculture, The Ministry of Information Technology,
NABARD and the RBI is recommended.
• 3.28 Warehousing Corporations: Outside of the ports, the Central and the State
Governments dominate the warehousing industry, both as client and as service
provider. Warehousing facilities owned by the central and the state Governments account
for 65.9 million tons of warehousing capacity. About 46 million tons of capacity is
owned or leased by the Food Corporation of India and the State Food and Civil Supplies
Corporations. The storage capacity that can be made available by state-owned
warehousing corporations is 19.7 million tons. Notably, banks and insurance companies
are the “implicit stakeholders” of more than 36 percent of this capacity.
• 3.29 While Government warehouses have hitherto mainly served the public sector,
they constitute a major asset that can be used to further the employment of warehouse
receipts. Government warehouses are present across the country. They have developed
homogeneous storage and quality practices, and their warehouse receipts are accepted by
most banks. Their main weaknesses in the context of liberalization and globalisation are
that they are not well integrated with private supply chains; they do not inspire
confidence among some lenders, particularly, international banks and they lack certain
form of autonomy they need to improve services. They are also not well managed.
• 3.30 The existing Government warehousing corporations should play a leading role
in the development of warehousing. However, they can only cover a part of the field,
which should be opened up to private operators, particularly those who already provide
storage services including loan facilities. Moreover, divestment should be pursued with a
view to increasing their private sector orientation and autonomy. The existing usage of
warehouse receipts by commodity exchanges are extremely limited. However, the
institutionalization of the warehouse receipt system through the commodity exchanges is
most likely to yield the best results in the context of promoting and propagating
warehouse receipts, in particular electronic warehouse receipts, and a national system of
warehouse receipts.
• The crop comes once in a year, but it is consumed throughout the year. So, unless there is
an adequate storage and release mechanism, prices would not be optimal for either the
farmer or the consumer.
• The development of ample storage facilities, cold storage and the use of technology to
enhance the shelf life of perishable foodgrains and vegetables is the only option.
Subsidies
According to one OECD definition, “A subsidy is a measure that keeps prices for consumers
below market levels, or keeps prices for producers above market levels or that reduces costs for
both producers and consumers by giving direct or indirect support." The most common definition
of a subsidy refers to a payment made by the government to a producer. Subsidies are used to
modify market outcomes, especially to take account of positive externalities, and, sometimes, to
subserve certain well-defined redistributive objectives.
Subsidies can be direct – cash grants, interest-free loans – or indirect – tax breaks, insurance,
low-interest loans, depreciation write-offs, rent rebates.

For the motion

• Subsidies aren't the GDP-consuming black holes they are made out to be
• In 2012-13, Sweden spent 51.3 per cent of its GDP on expenditures, of which 38.2 per
cent went entirely on welfare benefits. In return, it charged its citizens almost half (46 per
cent) their salaries in tax — one amongst many examples of a high-welfare, high-tax
regime. France, with a tax burden of 42.9 per cent and expenditure of 56 per cent (of
which 34.9 per cent was on welfare) and a slightly more liberal UK, with a government
expenditure of 49 per cent (25.9 per cent going to welfare), are non-Scandinavian
examples.
• In contrast, in 2012, India spent only 27 per cent of its GDP on government expenditure,
while taxing its people at a moderate 18 per cent (hence ,not very effective
redistribution).
• Our policies are betting on growth, rather than on high tax rates, to support welfare
policies.
• Contrasted with smaller nations like Japan, with its high 19.2 per cent of GDP going into
social protection, Thailand (3.6 per cent), Singapore (3.5 per cent), Malaysia (3.7 per
cent) or even Sri Lanka (3.2 per cent), India spent only 1.7 per cent. China, with 5.4 per
cent of its GDP going into social protection, is spending over three times what we are.
Clearly, to be just to those countrymen who live at the bottom of the prosperity pyramid,
we need to be doing more, not less.
• In 2013-14, food, fertilisers and petroleum subsidies made about 96 per cent of the total
subsidies given by the government. Between 2003-04 and 2013-14, the total subsidy bill
increased by 421 per cent but an approximately tenfold (923 per cent) increase in the
petroleum subsidy was mainly responsible. In contrast, the food subsidy went up only by
257 per cent. The share of food subsidy has decreased from 57 per cent in 2003-04 to 39
per cent in 2013-14, whereas the petroleum subsidy share is up to 28.1 per cent for the
same period. Given that our overall subsidy levels are lower compared to even our Asian
neighbours, and that we should be looking to restore the balance of subsidy benefits in
favour of those who relatively deserve more, we have to take the option of increasing the
food subsidy.
CACP

THE ORGANISATION
Even prior to mid sixties, it was recognized that for the acceleration of agricultural growth,
farmers need to be motivated to adopt better technology and to invest more in their farm
enterprises. This evidently was difficult without assuring reasonable prices to the farmers. The
Government constituted a committee to suggest price policy for food grains for the 1964-65 and
to suggest the terms of references for an organization which would be set up to advice the
government on price policy on a long term basis. The recommendations of the committee led to
the establishment of the Agricultural Price Commission in 1965 which was later renamed as
Commission for Agricultural Costs and Prices (CACP) in March 1985.
The Commission is composed of a Chairman, a Member Secretary, two official members and
three non-official members. The non-official members are representatives of the farming
community. They are usually persons with long field experience and active association with the
farming community.
Minimum support prices (MSP) for major agricultural products are fixed by the government,
each year, after taking into account the recommendations of the Commission for Agricultural
Costs and Prices (CACP).
While formulating these recommendations, the Commission analyses a wide spectrum of data,
covering the costs of cultivation/production, trends and spread of input use, production and
productivity of the crop concerned, market prices, both domestic and global inter-crop price
parity, emerging supply-demand situation, procurement and distribution, terms of trade between
agriculture and non-agriculture sectors, and so on. Since the price policy involves certain
considerations of long-run consequences, the Commission also looks at the yield-raising research
being conducted by institutions like ICAR. The basic data are generally collected from the
Directorate of Economics and Statistics, State Governments, Central Ministries and the nodal
agencies concerned with the implementation of agricultural price policy. Besides, the
Commission undertakes field visits for close interaction with farmers in different parts of the
country and also have wider consultation with senior officers, researchers and managers of
relevant organizations.

TERMS OF REFERENCE

The terms of reference of the Commission, were framed as under:-

1. To advise on the price policy of paddy, rice, wheat, jowar, bajra, maize, ragi, barley, gram,
tur, moong, urad, sugarcane, groundnut, soyabean, sunflowerseed, rapeseed and mustard, cotton,
jute, tobacco and such other commodities as the Government may indicate from time to time
with a view to evolving a balanced and integrated price structure in the perspective of the overall
needs of the economy and with due regard to the interests of the producer and the consumer.

2. While recommending the price policy and the relative price structure, the Commission may
keep in view the following:

i) The need to provide incentive to the producer for adopting improved technology and for
developing a production pattern broadly in the light of national requirements:
ii) The need to ensure rational utilization of land, water and other production resources:
iii) The likely effect of the price policy on the rest of the economy, particularly on the cost of
living, level of wages, industrial cost structure, etc.
3. The Commission may also suggest such non-price measures as would facilitate the
3. The Commission may also suggest such non-price measures as would facilitate the
achievement of the objectives set out in 1 above.
4. To recommend from time to time, in respect of different agricultural commodities,
measures necessary to make the price policy effective.
5. To take into account the changes in terms of trade between agricultural and non agricultural
sectors.
6. To examine, where necessary, the prevailing methods and cost of marketing of agricultural
commodities in different regions, suggest measures to reduce costs of marketing and recommend
fair price margins for different stages of marketing.
7. To keep under review the developing price situation and to make appropriate
recommendations, as and when necessary, within the framework of the overall price policy.
8. To undertake studies in respect of different crops as may be prescribed by Government
from time to time.
9. To keep under review studies relating to the price policy and arrangements for collection of
information regarding agricultural prices and other related data and suggest improvements in the
same, and to organize research studies in the field of price policy.
10. To advise on any problems relating to agricultural prices and production that may be referred
to it by Government from time to time.

From time to time, the terms of reference of the Commission have been modified and expanded
to keep in step with the changes in agricultural scenario of the country. From the year 1994-95
onwards, Niger-seed and Sesamum were included under the Minimum Support Price (MSP)
Scheme of CACP, in addition to the edible oilseeds already covered by the Commission.
Similarly, during 2001-2002, the government enhanced the terms of reference of the Commission
by including one additional commodity, namely, lentil (masur). The number of crops covered by
the MSP scheme have thus increased to 25.

FUNCTIONS
Determination of Minimum Support Prices
In formulating the recommendations in respect of the level of minimum support prices and other
non-price measures, the Commission takes into account, apart from a comprehensive view of the
entire structure of the economy of a particular commodity or group of commodities, the
following factors:

i) Cost of production*
ii) Changes in input prices
iii) Input-output price parity
iv) Trends in market prices
v) Demand and supply
vi) Inter-crop price parity
vii) Effect on industrial cost structure
viii) Effect on cost of living
ix) Effect on general price level
x) International price situation
xi) Parity between prices paid and prices received by the farmers.
xii) Effect on issue prices and implications for subsidy

* The estimates of cost of cultivation/Cost of production which is an important input for forming
the recommendation of MSP, are made available to the Commission through the Comprehensive
Scheme for Studying the Cost of Cultivation of Principal Crops, operated by Directorate of
Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture,
Govt. of India. These estimates take into account real factors of production and include all
actual expenses in cash and kind incurred in production by the farmer, rent paid for leased in
land, imputed value of family labour, interest value of owned capital assets (excluding land),
rental value of owned land (net of land revenue), depreciation on farm implements and buildings
and other miscellaneous expenses.
The Commission makes use of both micro-level data and aggregates at the level of district, state
The Commission makes use of both micro-level data and aggregates at the level of district, state
and the country. The information/data used by the Commission, inter-alia include the following:

(i) Cost of cultivation per hectare and structure of costs in various regions of the country
and changes there in;
(ii) Cost of production per quintal in various regions of the country and changes therein;
(iii) Prices of various inputs and changes therein;
(iv) Market prices of products and changes therein;
(v) Prices of commodities sold by the farmers and of those purchased by them and changes
therein;
(vi) Supply related information - area, yield and production, imports, exports and domestic
availability and stocks with the Government/public agencies or industry;
(vii) Demand related information - total and per capita consumption, trends and capacity
of the processing industry;
(viii) Prices in the international market and changes therein, demand and supply situation in
the world market;
(ix) Prices of the derivatives of the farm products such as sugar, jaggery, jute goods,
edible/non-edible oils and cotton yarn and changes therein;
(x) Cost of processing of agricultural products and changes therein;
(xi) Cost of marketing - storage, transportation, processing, marketing services, taxes/fees
and margins retained by market functionaries; and
(xii) Macro-economic variables such as general level of prices, consumer price indices and
those reflecting monetary and fiscal factors.
As already mentioned, 25 agricultural commodities are currently covered under the mandate
given to the CACP for advising the government in respect of the price policy. The Commission
is required to convey its recommendations to the Government well before the sowing season of
the crop. With a view to interacting with various interest groups, the Commission follows the
sequence of steps indicated below:

(i) The Commission identifies the main issues of relevance for the ensuing season (short,
medium or long turn).

(ii) The Commission sends a questionnaire to Central Ministries, State Governments and
other organisations related to trade, industry, processors, and farmers both in the cooperative and
the private sector and seeks their views on certain issues and factual information on related
variables.

(iii) Subsequent to step (ii), the Commission holds separate discussions with the State
Governments, Central Ministries/Departments and other organisations. The Commission also
interacts with research and academic institutions and keeps track of relevant studies and their
findings.

(iv) The Commission visits certain areas for on-the-spot observations and feed back from
local level organisations and farmers.

Non price measures

While recommending the price policy, the Commission also suggests such non-price measures as
would facilitate achievement of the objectives of the policy. In this regard, the Commission has
been emphasizing, inter-alia, the following :

(i) Establishment/Strengthening of agencies for implementation of declared price

support policy;
(ii) Extension of proven technology to areas where it still needs to be adopted;
(iii) Evolution of suitable technology for augmenting yield and production of crops;
(iv) Reform of market regulations and setting up new markets in areas where agricultural
production has made sizeable improvement;
(v) Improvement in grading of agricultural produce and expansion of proper storage
facilities;
facilities;
(vi) Arrangement for timely and speedy transportation of agricultural commodities from
surplus areas;
(vii) Buffer-stock operations to impart stability to domestic price stabilization;
(viii) Utilizing the medium of external trade for domestic price stabilization;
(ix) Fiscal measures including adjustments in duties/taxes/levies;
(x) Development of appropriate technology for processing of agricultural produce;
(xi) Improving the data base for formulation of price policy.

Price Support Policy

Most agricultural commodity markets generally operate under the normal forces of demand and
supply. However, with a view to protecting farmers’ interest and to encourage them to increase
production, the Government also fixes minimum support/statutory prices for some crops and
makes arrangements for their purchase on state account whenever their price falls below the
support level. The role of Government normally is limited to protecting the interests of
producers and consumers, only in respect of wage goods, mass consumption goods and essential
goods.
Minimum support price is aimed at:
• Assure remunerative and relatively stable price environment for the farmers by inducing
them to increase production and thereby augment the availability of food grains.
• Improve economic access of food to people.
• Evolve a production pattern which is in line with overall needs of the economy.
• Price stability in the market
One of the important instruments used by the Government to intervene in produce markets
consists of fixation and announcement of administered prices and arrangements for their
implementation. The administered price regime currently in vogue includes:
• minimum support prices (MSP) for 24 major crops [28 commodities (9 cereals, 5
pulses, 8 oilseeds, copra -2 varieties, raw cotton-2 varieties, raw TD5 jute) ]
• Fair and Remunerative Price (FRP) for sugarcane (earlier called statutory minimum
price)
• levy prices for rice (rice millers have to sell a certain percentage to govt.); and
• central issue prices for rice, wheat and coarse cereals for sale under public distribution
system (price at which FCI gives it to States for distribution in PDS)
CACP recommends prices for MSP and FRP only. Direct entry of public agencies in the
marketing has influence on its structure, conduct and performance. Maintenance of stock of rice
and wheat; distribution of cereals and sugar at prices lower than market prices; and open market
operations by public agencies cast their influences on market.
Price Support Scheme for oilseeds and pulses are implemented through NAFED (in case market
price falls below MSP)
While wheat is directly procured by FCI and other state agencies, part of rice is procured through
the system of levy, under which rice millers are required to provide a certain percent of rice from
the paddy purchased by them to the government agencies at a levy price derived from MSP.
Sometimes good harvest causes scenario of plenty’s, while the poor harvest creates scarcity or
short supplies. Both these situations adversely affect the farmers. Government’s minimum price
support scheme in this context has remained very useful to the farmers. Under this scheme
government agencies are asked to start purchase of the commodities when market prices fall
below the minimum support price so as to save farmers from the distress sales.

Issues
• There are certain factors decreasing the effectiveness of MSP e.g. the manner of
implementation of the policy, undue dependence on the state for intervention, lack of
required information at appropriate time etc.
• The agencies involved in such purchases do not start operations in time. While in most of
the surplus producing regions, the state governments and their agencies remain active for
effective implementation of the policy of assuring minimum support prices, in those areas
 effective implementation of the policy of assuring minimum support prices, in those areas
where the need for price support arises only once in two or three years, the public
agencies have not been able to provide effective support to the farmers as they could not
tie up with central nodal agency for making necessary purchase arrangements in time
• They do not make payments in time.
• They do not have sufficient arrangement for weighing, bagging, storage, documentation
and payment of purchases.
• Sales of purchased commodities are normally not done in time and with marketing
efficiencies. Therefore heavy losses do occur.
• MSP for wheat and rice, which have been maintained reasonably high (esp. during
Green revolution phase), has helped the farmers to increase their production. With the
price support policy favoring food grains (guess not enough remunerative for pulses and
oilseeds), there is very little incentive for the farmer to move away from the food grains
to the production of other crop. Also, implementation of MSP has been more effective for
wheat and rice (with FCI and state agencies at the forefront). The price support policy has
been a major deterrent to crop diversification.
• It also resulted in substantial decrease in area and production of some coarse cereal,
which were preferred by poor across the region.
• There are a number of institutions (FCI/State agencies) involved in procurement
process and there is inadequate coordination between them.
• Hike in MSP (a tendency among governments to fix MSP for paddy and wheat in excess
of the levels prescribed by CACP) ignored the demand-side factors that caused adverse
impacts on food security for poor (years seeing substantial hike also are the years in
which consumption of wheat and rice fall). The increase in output (due to higher MSP)
along with a decline in consumption resulted in a built up of stock of these two
commodities.
• The difference between the economic cost of FCI (due to it’s inefficiency) and the market
price also contributes to the higher price.
• Surpluses of several agricultural commodities and excessive built up of stocks with FCI.
• FCI’s procurement, distribution and buffer stocking program Government of India
repressed private food grain marketing, hindering their potential contribution to long
term food security , especially wheat and rice that account for over 70 percent of total
food grain production in the country. In recent years, the government has procured
more than one-thirds of the total production and more than half of the marketed surplus
of rice & wheat. The figure is as high as 80-90% in Punjab and Haryana (and now in MP
and CG)
• FCI operates however, in only selected states and selected districts which had surplus of
food grains initially. Even deficit states like Bihar, Assam, Eastern U.P., Orissa have
started generating surpluses of certain cereals but procurement has remained
concentrated in few states only. Also, a/c to Planning Commission, there are pockets of
surplus emerging in states which otherwise have an overall deficit.
Major states Procuring Rice and Wheat
Rice Wheat
West Bengal Punjab
Tamil Nadu Haryana
Orissa Uttar Pradesh
Madhya Pradesh Rajasthan
Karnataka Madhya Pradesh
The Minimum Price Support Policy (MSP) linked to procurement has served the country well in
the past three decades. The minimum support price policy played a crucial role in bringing India
out from deficit to surplus position in food grains. Under the MSP scheme prices of major
agricultural commodities are not only exogenously determined but these prices are defended
through nodal procurement agencies like FCI. However, in recent years it has started
encountering problems mainly because of:
In the changing environment it is essential to think of an alternative policy, particularly if the
private trade is to be restored its rightful role in the market place. By the alternate policy is
worked, following issue can be addressed to strengthen MSP system

Recommendations
• States need to be encouraged to undertake decentralised procurement. Also, number of
states must be increased
• The number and location of purchase centers should be decided sufficiently in advance
and given wide publicity through media, radio, television, leaflets, etc. The nodal
agencies should decide, in consultation with the State Governments, the location and
number of purchase centers to be set up much in advance of the marketing season.
• The existing nodal agencies need to be strengthened. The agencies involved in this
management should be encouraged for optimum efficiency and diligence. They must be
given full support so as to enable them to operate efficiently. Necessary budgetary
provisions need to be made by the Government in this regard so that their operations
could be carried out smoothly. Likewise, the role of banks in financing the public and
cooperative procuring agencies, need to be made more active and participative
• Most of the upcoming regions like Eastern Uttar Pradesh, Madhya Pradesh, West
Bengal , Orissa, Bihar and parts of other states are likely to experience surplus situations
more frequently. And these are the areas where there is considerable scope to increase the
yield levels. It is in this context that for accelerating the production of food grains and
other agricultural commodities, not only the market infrastructure needs to be
strengthened but the price support policy also needs to be effectively implemented in all
the regions of the country.
• The minimum price support policy is currently applicable to 24 agricultural commodities
which should be continued. However, there are several other commodities which are of
considerable economic significance in various agro-climatic regions of the country. The
fluctuations in their prices are considerably more. For protecting both the producers and
consumers against wide fluctuations in the prices, there is a need for initiating a
comprehensive price stabilization scheme applicable to selected important crops of each
agro-climatic region.
• To undo the damage of green revolution (favoured towards wheat and rice) and wean
farmers away from traditional food grains, it is necessary that MSP for pulses, oilseeds
are very attractive. We spend lot of forex in meeting shortfall for these crops
• The timely announcement of MSP (which has not been the case) is very critical as it
helps in deciding the sowing patterns (mix) of different crops
• A gradual move towards Cash Transfer can save a lot in terms of cost incurred in
procurement, storage, transportation and distribution
• Eliminating the gap between the MSP as recommended by the CACP and the MSP
announced by the government
• Also, the concept used by CACP may itself need to be modified. An economically
 • Also, the concept used by CACP may itself need to be modified. An economically
sustainable MSP requires that we revisit the original intent of MSP. The key word in the
expression is “Minimum.”Minimum Support Prices when they are fixed should cover
only the variable costs of the farmers and should not be meant to cover their entire
production costs. Such variable costs could cover all input costs including payment for
labour comprising family labour also. It should not cover fixed cost such as cost of land
owned by the farmers.
• It should also be considered whether the period during which food procurement is
conducted should be limited to a specified number of weeks after the harvest when
there is highest probability of prices falling below this economically defined MSP.

Decentralized PDS/Procurement policies

The existing “centralised” system of MSP-procurement is essentially functional in the States of
Punjab, Haryana, Uttar Pradesh and Andhra Pradesh (now more states have been included but
procurement remains very low and concentrated). Even here only a small segment of farmers is
covered.
In decentralized PDS/Procurement policies State agencies will carry out procurement at the
going market price which is assumed to be higher than MSP price policies. In centralized
PDS/Procurement policies only FCI procures on behalf of central government at MSP announced
by government.

Table1. 2: State Governments undertaking decentralized procurement scheme.

No Name of the State Procurement of items
1 West Bengal Rice
2 Uttar Pradesh Rice/Wheat
3 Madhya Pradesh Wheat
4 Chhattisgarh Rice/Wheat
5 Uttaranchal Rice/Wheat
6 Andaman & Nicobar Islands Rice
7 Orissa Rice

8 Tamil Nadu Rice

9 Gujarat Wheat
10 Karnataka Rice
11 Kerala Rice

The emergence of these new surplus states and the issue of growing fiscal outlay necessitated the
introduction of extended procurement scheme of the Government of India. The extension of
procurement scheme of the Government of India was introduced in 1997.The proposal of
extended procurement is mainly aimed at providing a greater role for state governments and
private traders enhancing efficiency gains. This scheme proposed that local procurement, storage
and distribution will result in reduction of transport and handling costs (and subsequent reduction
in food subsidies) and a more decentralized and distributed support for MSP can be provided to
farmers in all states. Further, it helps in minimizing the dependence of State Governments on the
FCI for PDS requirements and reducing the complaints about quality, as consuming States
themselves are the custodians of the procured food grains. However, the scheme has evoked
limited response from the State Governments with less than expected (although share of FCI in
procurement has declined over the years) amount being contributed by the States with
decentralized procurement. The concerns of the State Governments broadly relate to financing of
operations (RBI valuation norms for stocks of food grains) and reimbursement of expenses and
release of subsidy by the Central Government.
The average procurement in FCI’s centers is not only markedly low compared to the state
agencies but also the unit cost in former is relatively high. State governments are much better
acquainted with the location and needs of farmers than the FCI. This indicates the benefit of
divesting FCI of the task of opening uneconomic procurement centers and for entrusting
divesting FCI of the task of opening uneconomic procurement centers and for entrusting
procurement to State government agencies. Several other inefficiencies like storage, quality
control, transit losses market intelligence and bank credit etc on the part of FCI were highlighted
in a study which advocates the extended procurement system.
It can, however, create a number of problems. Firstly, it may be difficult to verify what the
states actually do. Secondly, it may lead to much higher procurement in the aggregate imposing a
larger fiscal outlay and larger political pressure to increase MSPs even more. Thirdly, once a
state starts procuring at MSP in all its Mandies, we can expect that the prices of cereals may
increase for many rural and urban consumers’ having a profound impact on consumer
expenditure on food grains and its distribution. Thus it appears that if not handled adequately, the
policy may not only lead to a staggering rise in subsidy burden but may even lead to increase in
prices that can hurt poor people in rural and urban area . This study will highlight the problems
by case studies of two states.

Fair Average Quality

Issues
• At present, there is no reliable and transparent system existing at the field level and the
grading is done more or less on discretionary basis.
• FAQ norms are relaxed frequently. Such relaxation breeds inefficiency and discourages
quality.
• Due to ignorance of FAQ norms of the farmers, unscrupulous elements enter the market
and purchase agricultural commodities at much lower price than the MSPs fixed by the
Government. In this way, the farmers are exploited.
• Cases of farmers being turned back on the ground of non-conformity with the FAQ norms
are also frequent, leading to hardship and resentment amongst the farmers.
Recommendations
• This system of subjective assessment needs to be replaced by a system of objective
criteria by providing moisture measuring equipments and other equipments, which can
help in measuring.
• FAQ norms have to be strictly enforced (without resorting to frequent changes) and the
quality upgraded by educating the farmers.
• There is a need to give wide publicity among the farmers to the FAQ norms fixed by
the Government through different means of media.

Market Intervention Scheme (MIS)

Government implements on the request of a State/UT Government for procurement of
agricultural and horticultural commodities not covered under the Price Support Scheme. The
MIS is implemented in order to protect the growers of these commodities from making distress
sale in the event of bumper crop when the prices tend to fall below the economic level/cost of
production. Losses, if any, incurred by the procuring agencies are shared by the Central
Government and the concerned State Government on 50:50 basis (75:25 in case of North-Eastern
States). However, the amount of loss to be shared between Central Government and the
concerned State Government is restricted to 25% of value of procurement. Profit, if any, earned
by the procuring agencies is retained by them. This policy of Market Intervention has proved a
boon to the farmers in distress.

• Suffers from limited operations, since it is implemented on the request of the State
Government(s) willing to bear 50% of the losses, incurred if any, in its implementation
• The implementation of the scheme needs to be made more flexible and easy. The
provision of sharing of losses by the State Government(s) needs re-examination.
• Government of India may encourage the state government to initiated market intervention
operations well in advance for saving the farmers in distress
• The operational efficiency of purchasing agencies need to be toned up in the context of
cost efficient purchases vis –a –vis competitive sales so as to avoid or reduce losses
Guess the author means to say that in case State is not willing to bear 50% losses, it won’t
request for MIS, putting farmers at disadvantage. Reducing the burden of sharing losses might
increase the possibility of more states requesting MIS
Alternate to MSP
There are two ways in which support can be extended to farmers for protection of their
incomes.
• Direct Payment Scheme (DPS): One way could be to de-link MSP from procurement.
Under this model, while MSP could continue to be fixed as at present, prices may be
determined by market forces. The farmers could be reimbursed the difference between
the market prices and MSP on the marketed produce.
• Income Insurance Scheme (IIS): The other method could be to guarantee the income
level of farmers through an insurance programme where guaranteed income will be
determined on the basis of MSP and historical yield of the farmer and the difference
between guaranteed income and actual income (actual production and market price) will
be made good under the insurance programme.
Positive implications of IIS are as follows:
• Private trade will play a major role in the market and the pricing mechanism would
reflect the market fundamentals of demand and supply. Any excess production or
supply will cause the prices to decline. The decline in prices will help in creating
increased demand, particularly from the poorer sections or BPL segment of
population. Besides, if prices fall below international levels, the commodity can also be
exported competitively. There would thus be a possibility of sustained exports of
foodgrains from the country. On the other hand, in case of decline in production, the
prices will increase, either obviating the need for income support payments to farmers
and thus reduce the liability under the Insurance program. The requirements of the
weaker sections of the society, however, would continue to be met through PDS from
buffer stocks maintained by public sector organisations like FCI and SFCs and through
States.
• The benefit of the present policy, which is being implemented at such a huge cost is
available only to a very small number of farmers in a few States in the country. The
alternative Scheme will have a much wider reach and potentially a larger number of
farmers who opt for the insurance cover in all the States will be benefited.
• The Scheme offers comprehensive coverage of income rather than yield risks
alone. Farmers will be benefited from such comprehensive risk coverage consistent with
the objective of the National Agricultural Policy – 2000.
• Provides incentive to the farmers for improving quality. In the MSP regime, quality is
confined to FAQ, which also is subject to flexibility. The farmers’ real income in market
will be rewarded for quality grade while his income protection is covered by the
Insurance. This will also help the country to compete in the world market.
Misc
• The high level of market prices of wheat (relative to global) now (2001) prevailing in
India are due primarily to the rise in the procurement prices over the past three years or
so and taxes and charges on cereals imposed by state governments
• India’s commitment to the WTO prevents it from raising its Minimum Support Price to
farmers by a high margin (MSPs were fixed in 1988 and dues adjustment were allowed
for inflation-contention is the definition of “due adjustment”). West claims it as “market
distortion” policy. Though they themselves heavily subsidises agriculture.
• In the early days this worked well for farmers but in the last few years, procurement has
become an exercise to torment farmers rather than support them. First, the Minimum
Support Price (MSP) that is announced, is never paid in full, always less. “Corruption
locks the farmers in a vice like grip because they lack storage facilities and must sell their
produce immediately after harvest. Other strategies that are used to pull prices down is to
tell the farmer that his grain has not been dried sufficiently and cannot be bought or tell
him that it’s light weight. Often there exists an unholy nexus between the FCI agents and
private companies. The deal is that the procurement agency will reject much of the grain
on one pre-text or another. If they do not own their own bullock carts, they hire or rent
trucks or tractors to bring their grain to the centre. Every day, causes delay and bleeds the
farmer. When the farmer’s grain is held up and he is desperate to sell, the private
companies step in and buy the grain at low prices.
 companies step in and buy the grain at low prices.
• The main objective of our food procurement policy should be stabilization of food
prices rather than provision of subsidies to producers. Even today when food subsidies
are provided to the BPL population only a limited proportion of the food requirements of
the BPL population is met by the PDS. For the rest of their requirements even the BPL
families have to depend on the private traders. Thus the objective of stabilization of food
grain prices becomes important. This objective has to be achieved by appropriate buffer
stocking operations and market interventions by the FCI.
Transportation
• Small and marginal farmers are sometimes not able to bring their produce to the nearby
warehouses due to lack of transportation facilities. In such cases, the services of
aggregators (cooperative farmers group, self help group, farmers/producers companies)
may be used. Aggregators at the village level may collect foodgrains from the farm-gate
or from the houses of farmers and may transport the same to nearby warehouses. These
aggregators may be considered for some transport subsidy for bringing the collected
foodgrains.
• Special bulk wagons for transfer- high capacity , high speed wagons
• Decentralised procurement scheme (introduced in 1997-98) has resulted in saving in
transportation cost. A/c to 11th FYP report, there is also a need for more States with large
production, such as Bihar for wheat and rice and Assam for rice, to adopt the
Decentralized Procurement scheme.
• The country would also require reefer container/vans for transport of perishable items
for domestic and export marketing. At present their availability in the country is
negligible in comparison to the present production of perishable commodities. There is a
need to encourage the investors in this area by providing incentives.
• There is an urgent need for investment in providing road connectivity to remaining
unconnected villages.
• More decentralized mandis and strengthening of periodical rural markets would save cost
on transportation

Buffer Stock
The buffer stocks are required to
• feed TPDS and other welfare schemes to ensure food and nutrition security
• ensure food security during the periods when production is short of normal demand
during bad agricultural years
• stabilize prices during period of production shortfall through open market sales
• provide space for effective implementation of minimum support price for rice and wheat
through procurement mechanism
In addition to buffer norms, Government has prescribed Strategic Reserve of 30 lakh tonnes of
Wheat w.e.f. 1.7.2008 and 20 lakh tonnes of Rice w.e.f. 1.1.2009.
A Technical Group on Buffer Stocking Policy, created in 1995, periodically reviews buffer
stocking policy and suggests minimum and maximum levels to be maintained and the grain mix
for consideration of the Government. The Technical Group is chaired by the Secretary of the
Ministry of Food, and members include representatives from Ministry of Agriculture, FCI, and
the Planning Commission.
Conceptually, grain stocks consist of three components
• Operational stocks: to be used to feed various safety net and welfare schemes such as
the PDS and OWS (other welfare schemes) delineated in NFSB. The quantum of this
stock depends on the obligation of the government is making to people under these
schemes. These are from current year production meant for the consumption in the year
following harvest.
• Strategic (buffer) reserves for stabilization: to be used mainly as a buffer against any
drought or any other unforeseen shocks, when production drops or normal
movement of grains is obstructed. Under such circumstances, open market prices
generally shoot up and these strategic reserves can be utilized to stabilize the cereal
prices.
• Base level stocks or “dead stocks”: a certain minimum stock which is generally not
 • Base level stocks or “dead stocks”: a certain minimum stock which is generally not
available at a short notice of 2-3 months. This concept is akin to “dead storage” in any
reservoir
Although conceptually these are different stocks, in practical terms, these stocks are fungible and
can be used for alternative purposes delineated above. The minimum buffer-stock levels to be
maintained during different periods of the year are fixed by the Government.

The total annual stock of food grains in the Central Pool is distributed over different quarters of
the year depending upon offtake and procurement patterns. The seasonality of production and
procurement is thus a decisive factor in determining the minimum norm of food grains stocks
required in a particular quarter of the year. For working out buffer stocking norms and making
recommendations for policy decisions, the Government has been setting up from time to time
Technical Groups under the Chairmanship of Union Food Secretary.

Consistently higher than the specified norms

 • Buffer stock can be used to ensure stability in price of foodgrains
• The FCI can maintain a minimum level of buffer stock and then undertake open market
operations within a prescribed price band, e.g. when prices increase or decrease more
than 15% as compared to a prescribed average. It can conduct open market operations by
releasing stocks in the open market when shortages are prevalent and prices are high. The
FCI can also purchase food grains from the open market when there is excess supply and
prices are depressed. However its objective should not be to procure all that is offered by
the farmers but only to maintain an optimum level of buffer stock (currently there is no
target for procurement).
• The pattern of off-take decides stock level to be kept in different months, quarters to
meet requirement of PDS and other welfare schemes. To optimize the level of stocks at
the beginning of each quarter, the inflow (procurement) during that quarter needs
to be synchronized with the outflow (off-take) during the same quarter. The
procurement of rice is less concentrated than wheat. The off take is evenly distributed.

Has it outlived it’s utility?

Against the motion
• We have enough forex to import the foodgrains in case the need arise
• Huge cost in terms of storage, interest on value of produce, and wastage. According to
FCI officials, the expenditure incurred by the government on holding one lakh tonne
wheat per annum was 25 crore and 32 crore for rice.
• price stabilization can be better achieved through trade rather than stocks and the former
is found to be much cheaper than latter
• Gone are the days when India was vulnerable to drought, famines and scarcity. India has
consistently achieved accelerated growth in production.
• unreasonable accumulation of stocks can even affect food security adversely-
contributing to inflation and higher food prices
• The present levels of buffer stocks in the country are far in excess of requirements and
create more economic instability than stability.
For the motion
• There is very serious concern about price volatility at global level. This has been felt
strongly during the food price crisis of year 2007-08. Countries like India and China
which have strong public sector presence and storage capacity did not face any serious
price rise whereas a large number of countries suffered seriously from food price spike
and its effect on food and nutrition security particularly of low income groups.
• Due to various reasons international trade is turning out to be a costly and unreliable
proposition for meeting domestic shortages and for stabilization of market and prices.
• In a country like India where private sector hardly operates beyond intra year
transactions or to carry inventory beyond a year or so it becomes state responsibility to
assume role of price stabilization through stocks
• Rising frequency and severity of supply shocks due to various factors like climate
change
• Various international organizations are suggesting global and regional foodgrain
stocks to deal with excessive price volatility which is expected to continue.
• The best way to address domestic price volatility in the wake of global volatility is to
 • The best way to address domestic price volatility in the wake of global volatility is to
develop domestic capacity for price stabilization by maintaining domestic stocks.
• To fulfill the obligations that will follow from the right to food (National Food Security
Bill) contemplated by the Government of India. A/c to NACP, under the most likely
scenario of autarky (i.e., not even limited reliance on imports), the desirable buffer stock
norm, as on 1st of July, is estimated at 46.7 mt of rice and wheat. This would cover the
operational needs under NFSB as well as insure against 95 percent risk regarding drop in
production of wheat and rice, based on past 20 years of production pattern. If one allows
for at least 5 mt of possible imports whenever need arises, then the level of desirable
stocks would be 41.7 mt as on July 1st. This means that current buffer stocking norm of
31.9 mt (refer the norm) as on July 1st, needs a major revision in the wake of NFSB.
Hence, it is totally wrong to construe from this that public sector grain stocks are a waste or
unnecessary. The problem is not with the buffer stock per se but with our excessive storage,
storage capacity and imprudent management of grains.

Excess buffer stock

Reasons
• The changing demand pattern for cereals, by reducing the demand for cereals from
consumers from PDS, is one of the factors responsible for the accumulation of surplus
food grains stocks
• The main factor that has contributed to excess stocks is high procurement price. There
has been a tendency among successive governments to fix Minimum Support Prices
(MSP) for paddy and wheat in excess of the levels prescribed by the Commission for
Agricultural Costs and Prices (CACP). High MSP results in more production
• Also, high MSP raises the market prices and has reduced the demand for cereals.
The value locked in these “excess stocks”, evaluated at their economic cost, ranges from Rs
70,000 crore to Rs 92,000 crore. This infusion of “excess” money into the economy (money to
farmers) without corresponding flow of goods is evident in the paradox of rising prices of rice &
wheat amidst overflowing stocks in government godowns. This raises inflationary concerns.
It is creditable that India is currently in a state of ‘plenty’ but holding excessive stocks in
godowns, which serve no worthwhile purpose, begs the question of economic efficiency
in public expenditure. It will be much rational policy choice to liquidate these “excessive”
stocks. The money would certainly come in handy in the current times of high fiscal deficit and
the increased availability of wheat and rice in the markets would rein in high food inflation,
especially cereal inflation.
• One way to reduce these bulging “excessive stocks” is to give the option to states and its
beneficiaries under PDS, where PDS systems have been integrated with ‘Aadhaar’ and
the probability of leakages is reduced significantly, to lift 3-6 months of their off-take
requirements at a discounted price, where the discount would be equal to the cost of
carrying by the FCI.
• Another option could be open market sale at the last year’s MSP plus a maximum of 5
percent towards taxes/cesses etc. The losses incurred would be administrative expenses in
procurement and statutory levies (which are in the nature of centre-state fund transfers),
but this would still save the large costs of carrying excess stocks as well as the capital
that is locked in these stocks.
• Yet another option would be to let the PSUs and private sector export another 10-12 mt
of wheat and rice from government stocks at the same price. This would help tide over
the current account deficit and earn valuable foreign exchange.
• The availability of these surplus stocks also opens up an opportunity for India to
contribute 2-3 mt for a South Asian foodgrain reserve and extend humanitarian aid to
Afghanistan and some other African countries through the World Food Programme
(WFP) or through bilateral cooperation.
• To prevent excessive procurement, better forecast of off-take (refer the graph earlier) and
shortage is essential.
• Strategic reserves may be held in physical form or a part of it may be held in foreign
exchange reserves. Concern regarding global price volatility may be taken into account
to decide the right mix of physical and forex reserves.
•
•