Presented by: Rajesh Chadha, Anjali Tandon, Sisira Jayasuriya and Scott Davenport

1. International WorkshopIndian Agriculture: Improving Competition, Markets and the Efficiency of Supply ChainsAssessing the Impacts of Regulatory Constraints to Food Chain Competition Presented by: Rajesh Chadha, Anjali Tandon, Sisira Jayasuriya and Scott Davenport February 16, 2011 The Claridges, New Delhi, India

2. Outline of Presentation • State Intervention: Current Issues • Yield and TFP • Horticulture: West Bengal • Wheat & Rice: Punjab • Moving Forward

3. Sustainability of Agricultural Yield and Productivity • Issues of MSP – Crops, States, Farmers • Input subsidies vs public investment • Diminishing returns to input use • Deceleration in TFP growth • Water table and soil salinity • Environmental Concerns

4. Policy Intervention • Steady procurement of foodgrains: Wheat and Rice • 2006-07 and 2007-08: years of low inflation in rice and wheat • No evidence of extra procurement in these years: wheat procurement actually declined • 2009-10 was inflationary year: MSP not reflected lower procurement • December 2009: wheat put on sale at MSP-plus – no takers

5. Myths of Indian economic policy “Higher minimum support prices for food grains are good for farmers. Not so. Yes, they are good for a powerful minority of farmers who have sizable marketable surpluses and ready access to government procurement programmes. But the majority of Indian farmers (especially poorer marginal farmers) are hurt by higher food prices for the simple reason that they are net buyers of food grains. And when you add in tens of millions of landless labour, it is quite clear that inexorably higher MSPs for wheat and rice are often quite damaging for rural households.” Source: Shankar Acharya, Financial Times, 1 February 2011

6. Myths of Indian economic policy “Subsidies on food, fuel and electricity help mainly the poor. Not so. The food subsidy mainly helps better off farmers and consumers in only four or five states where the public distribution system has effective coverage. The great majority of India’s poor do not have effective access to subsidized food grains.” Source: Shankar Acharya, Financial Times, 1 February 2011

7. From Food Security to Food Deprivation “Government intervention in foodgrains markets meant primarily for promoting food security has reached a stage where consumers are being deprived of basic food, when a large proportion of output is diverted from market to government warehouses.” Ramesh Chand, EPW, March 12, 2005 “Produce sold below MSP much larger than that sold at MSP” Source: Ramesh Chand, Presentation to Competition Commission of India, 2010

8. Month wise stock position (Jan-00 to April-03)

9. Month wise stock position (May-03 to April-08)

10. Month wise stock position (May-08 to July-10)

11. Outline of Presentation • State Intervention: Current Issues • Yield and TFP • Horticulture: West Bengal • Wheat & Rice: Punjab • Moving Forward

12. Rice Statistics, 5 Year Moving Average: Yield (Kg/Hectare)

13. Growth in Rice Statistics, 5 Year Moving Average: Yield (Kg/Hectare)

14. Wheat: Five Year Moving average: Yield (Kg/Hectare)

15. Wheat: Five Year Moving averageGrowth Rate: Yield (Kg/Hectare)

16. Total Factor ProductivityAverage Annual Growth % (1971-2000) * Includes Punjab, Haryana and UP ** Includes West Bengal Source: Kumar and Mittal (2006)

17. Outline of Presentation • State Intervention: Current Issues • Yield and TFP • Horticulture: West Bengal • Wheat & Rice: Punjab • Moving Forward

18. States / Markets Analysed

19. Retailer Margin Note: The months in bold indicate the peak season

20. Estimated Margins *assuming that farmer gets 30% of the retail price Issues of competition • Excess net margins • Excessive slicing of the chain due to its unorganised nature (organised retail is about 3-5%)

21. Farmer’s Remuneration: West Bengal One of the highest in the world! Source: S.K Mitra, Bidhan Chandra Krishi Viswavidyalaya

22. Constraints in implementing post -harvest practices • Numerous intermediaries • High level of wastage (30- 40%) • Lack of transparency – prices, availability, demand, customer preferences • Poor infrastructure – storage, packaging, transportation/ no cold chain • Poor linkage in the marketing channel

23. Outline of Presentation • State Intervention: Current Issues • Yield and TFP • Horticulture: West Bengal • Wheat & Rice: Punjab • Moving Forward

24. Field Visit

25. Field Visit

26. Field Visit

27. Field Visit

28. Objectives of the Food Corporation of India(Set up under Food Corporation Act 1964) • Main Functions of Paddy Branch • Formulation / Implementation of policy for custom milling of rice (CMR) • Paddy is issued to rice mills against cash guarantee • Paddy procured by FCI and state agencies stored with rice mills as per their milling capacity under joint supervision • The Branch also takes care of Levy Rice procurement as well

29. Marketed Surplus Ratio (MSR) of Wheat in Various States Note: All India figures are weighted average of states listed above. Source: Agriculture Statistics at a Glance, 2010, Table 8.4

30. Marketed Surplus Ratio (MSR) of Rice in Various States Note: All India figures are weighted average of states listed above. Source: Agriculture Statistics at a Glance, 2010, Table 8.4

31. Mandi Tax Structure (%) Note: These exclude market charges on account of weighing, unloading, cleaning, stitching, etc. Such charges are specified per unit.

32. Cost Estimates of Principal Crops: Rice (MSP, 2007-08: Rs. 750/qtl) Note: Cost C2 includes all actual expenses in cash and kind incurred in production by owner, interest on value of owned fixed capital assets (including land), rental value of owned land (net of land revenue), rent paid for leased in land and imputed value of fixed capital assets.  Source: Agriculture Statistics at a Glance, 2010, Table 8.3

33. Cost Estimates of Principal Crops Wheat (MSP, 2007-08: Rs.1000/qtl) Note: Cost C2 includes all actual expenses in cash and kind incurred in production by owner, interest on value of owned fixed capital assets (including land), rental value of owned land (net of land revenue), rent paid for leased in land and imputed value of fixed capital assets. Source: Agriculture Statistics at a Glance, 2010, Table 8.3

34. Public Procurement of Wheat: Punjab (% Share) Source: Punjab Mandi Board

35. Incidence of Marketing Charges and Taxation in PunjabWheat, Farm Harvest Price (Rs/ quintal) (2009-10): 1095.00 Based on Chand (2003)

36. Margins of the Wheat Retailer, Punjab

37. Margins of Wheat Miller, Punjab

38. Names of Punjab state foodgrain procurement agencies PUNGRAIN Punjab State Procurement Corporation PUNSUP Punjab State Civil Supplies Corporation Limited MARKFED Punjab Marketing Federation SWC State Warehousing Corporation PAIC Punjab Agro Industries Corporation Limited FCI Food Corporation of India

39. Public Procurement of Paddy: Punjab (% Share) Source: Punjab Mandi Board

40. Levy Percentage: 2003-04

41. Price/ Margin Issues, Punjab: WSP not comparable with MSP • Mostly ‘Grade A’ or ‘Fine quality’ grown in Punjab • WSP paddy is available from AGMARKNET, without quality specification, which rules out a fair comparison • WSP are higher than MSP indicating that this price refers to a superfine (Basmati) variety that is generally sold in open market • Fluctuations

42. Issues on Retail price of Fine Rice, Punjab • Source: Retail Price Information System (RPIS) at http://dacnet.nic.in/rpms/ • No single figure for the state is available, market-wise prices are available • Only three markets: Amritsar, Bhatinda, Ludhiana • Huge price variations • Data gaps

43. Paddy, Grade 'A' arrivals/ procurement in Punjab (million tonnes) Source: Punjab Mandi Board

44. Total Arrivals/ Purchases including ‘Other' than Fine Rice (million tonnes) • Increasing purchases by private millers of the ‘other’ varieties • Shift is attributed to introduction of the PUSA-1121 variety of Basmati which has a high yield • Indications for milling incentives for basmati • Much of Basmati is also be directly procured by millers

45. Punjab: Rice Millers’ Concerns Lack of competition in the market • During 80s till late 90s, private millers purchased as much as 63-75% • Private purchases have reduced to 18% in 2009-10 • Our field visits have confirmed that not many erstwhile millers have grown up/upgraded/expanded capacities • Assured and remunerative price for the FAQ quality prevents cropping of better qualities that would have higher returns • New mega milling projects have come up in the recent past due to fiscal incentives in the form of tax holidays and cheap credit, mostly into basmati milling • Exemption of basmati milling from levy further promotes basmati millers Competition is not playing its role

46. Millers’ dis-incentive under Levy system • Levy route and CMR are two alternate channels for private purchase of paddy • Levy system discourages millers • Low milling charges (revised from Rs.13 per qtl to Rs. 15 per qtl), against substantial revisions in the MSP • Shortage of storage capacity at public godowns (state/FCI) delays milling • High conversion rates of 67%, adds to moisture content, reduces the rice milling • Low returns on gunny bags • Labour cost • Stitching charges • Export restrictions limit the markets for open sales

47. Ratio of Economic Cost to MSP

48. Challenges for Punjab Agriculture • Stagnation in area under food grains and their productivity • Additional increments to production are being achieved at much higher costs • Fertility of soil has undergone major deterioration • Water table is going down at alarming rate • Large number of farmers are facing distress Source: Ghuman, Rangi and Sidhu (2010): National Food Security – Strategic Role of Punjab, Journal of Agricultural Development and Policy 20(2), 2010

49. Outline of Presentation • State Intervention: current Issues • Yield and TFP • Horticulture: West Bengal • Wheat & Rice: Punjab • Moving Forward

50. The Economics of Food management in India - 1 “In the name of helping the farmer and the consumer, and likely even with the earnest intention of doing so, we have ended up creating a foodgrains policy framework that has not got high marks on either account.” “Many of India's poor households do not get adequate, nutritious food and many of our farmers remain impoverished, especially the small ones with no marketable surplus.” Source: Basu, Kaushik: (2010)