Farmer losses in Madhya Pradesh's price deficit scheme could go up to Rs 200 crore

In an interview to Business Standard published on March 30, Madhya Pradesh Chief Minister Shivraj Singh Chouhan dismissed allegations that the state’s farm price deficit payment scheme had been manipulated by traders. But just over a month before he made this statement, the state agricultural marketing board had launched an investigation into one lakh transactions under the scheme that it termed “suspicious”.

On February 19, the board’s managing director Faiz Ahmed Kidwai had written to district collectors asking them to look into these transactions, in which 470 traders had bought farm produce at very low prices. Ajay Dubey, an activist in Bhopal, had accessed the letter under the Right to Information Act.

An analysis by Scroll.in of these one lakh transactions shows the losses to farmers could be as high as Rs 200 crore.

Bridging the gap

Last summer, low prices in agricultural markets had triggered widespread protests by farmers in Madhya Pradesh, with six of them dying in police firing in Mandsaur. The protesting farmers wanted the state government to step in and buy their crops at the minimum support prices fixed by the Centre, which ostensibly cover farm production costs. But the state government lacked the infrastructure to procure and store farm produce, and its efforts proved expensive and wasteful.

Experimenting with another model of price support, it launched the Bhavantar Bhugtan Yojana in October. Under this scheme, the government said it would not directly buy farm produce but it would offset farmers’ losses by paying them the difference between the market price and the minimum support price. For instance, if the minimum support price for soyabean was Rs 3,050 per quintal and the market price Rs 2,683 per quintal, the government would pay the farmer the difference of Rs 367.

Twenty-one lakh farmers signed up for the scheme, which covered five summer crops during the first sales window between October and December. The state government claims to have paid Rs 1,944 crore in compensation to farmers under the scheme.

But when farmers took their produce to the market, they discovered that the government was compensating them not on the basis of the actual price at which they sold their produce, but an average sales price fixed for the whole state.

If a farmer sold his produce at a price above the average sales price, the government paid him the difference between the actual sales price and the minimum support price. But if the produce was sold at a price below the average sales price, the government paid him only the difference between the average sales price and the minimum support price. In such cases, there was no provision for covering the losses from the gap between the actual sales price and the average sales price.

In many places, this gap was huge. Viewing such transactions with suspicion, the state agricultural marketing board started looking into them.

“On analysis of sales transactions of the produce selected in the Bhavantar Bhugtan Yojana for Kharif 2017, it has been found that in some mandis same traders have bought produce from same farmers through multiple transactions at a price below the prevailing market rates and much below the minimum support price,” Faiz Ahmed Kidwai wrote to the district collectors.

His letter listed over one lakh transactions by 470 traders who had bought crops from farmers at less than 60% of the minimum support prices. In more than 29,000 of these transactions, the crops were sold at less than 30% of the minimum support price.

The board asked the collectors to form district-level committees to investigate these transactions.

Four months later, the investigation has not made much progress. Kidwai said the board was waiting for the reports of the district collectors, and that it had sent them a reminder on April 5. “We have followed up with them but they must be busy with other things,” he said. “Unless we get reports from them, we cannot comment on the issue.”

However, an analysis by Scroll.in shows the difference between the actual sales price and the average sales price for these one lakh transactions ranges between Rs 28 crore and Rs 200 crore.

Calculating farmer losses

According to the letter, about 11.2 lakh quintals of urad, 44,100 quintals of soyabean, 44,300 quintals of maize, and a few quintals of moong and groundnuts were sold through these more than one lakh suspicious transactions. It listed the names and registration numbers of the traders and farmers, along with the quantity of crops traded between them at prices significantly lower than the minimum support price. The transactions were classified into various ranges on the basis of their sales price as a percentage of the minimum support price.

In about 71% of the total 108,000 transactions, the price at which the crops were sold ranged between 30% and 60% of the minimum support price while in about 26%, it ranged between 10% and 60%. In about 2% of the transactions, the sale price was more than 60% of the minimum support price (no upper limit was specified) and in less than 1%, it was less than 10% of the minimum support price.

Based on these price ranges, for every transaction, Scroll.in calculated the minimum and maximum values at which the crops might have actually been sold.

For transactions in which the crops were sold at less than 10% of the minimum support price, the minimum range was also taken as 10% of the minimum support price to keep the loss estimate conservative. For transactions in which crops were sold at more than 60% of the minimum support price, the upper limit was taken as the average sale price, assuming the traders listed in the letter were not likely to have bought the crops at a higher rate.

The value of crops was calculated by multiplying the quantity of each crop sold in these transactions with their average sales price and the minimum support price as determined by the government.

At the minimum support price, the value of these crops came to Rs 623 crore, while their average sales price amounted to Rs 365 crore. The difference between the two, which was Rs 258 crore, was compensated by the government.

But the actual price at which the crops were sold ranged between Rs 166 crore and Rs 337 crore. The difference between the actual sales price and the average sales price, which could be between Rs 28 crore and Rs 200 crore, was not compensated.

The maximum loss – in the range of Rs 27.3 crore and Rs 193.8 crore – was borne by urad farmers. The average sales price of the crop was just 58% of the minimum support price and in many instances, the actual sale price was as low as 10%. For soyabean, the average sales price was 88%, for maize 80.2% and for moong 76.3% of the minimum support price.

How traders benefitted

Even before the scheme was launched, there was apprehension that traders would collude to suppress market prices. To prevent this, the government decided to fix the average sales price based on the average of market prices in Madhya Pradesh and two neighbouring states.

But as the investigation by the marketing board shows, this did not stop traders from significantly lowering prices. The large number of transactions at very low prices partly explains why the average sales price of many crops itself fell below market prices prevailing in previous years.

In the case of soyabean, prices hovered at around Rs 2,800 per quintal and lower from October to December, but shot up to Rs 3,800 per quintal in January after the scheme’s sales window closed.

The suppression of market prices caused huge losses to farmers. Despite a lot of publicity, the scheme covered only a small number of farmers – for instance, just 32% of the urad harvested in the state was sold under the scheme. The rest was sold without any price support from the government. Researchers at the Indian Council for Research on International Economic Relations, Ashok Gulati and Siraj Hussein, estimated the losses to farmers on account of the suppression of market prices for the five crops at Rs 6,534 crore.