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India’s Amul milk model has a lot to teach its state cereals, pulses procurement schemes

Only when the procurement of an entire range of commodities – from Manipur oranges and Uttarkashi apples to Sunderban raw honey– is put on an even and transparent keel will India’s rural economy grow.

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All discussions on procurement in India inevitably lead to a comparison between the co-operative-run Amul Model and the procurement of cereals and pulses by agriculture marketing societies. Why is it that Amul scores exceptionally well in both stakeholder trust as well as public confidence, while procurement undertaken by FCI and NAFED is often mired in controversy?

Having worked as the CEO of a multi-district milk producers’ co-operative society as well as the managing director of an apex agriculture marketing co-operative, NAFED, let me share how the two systems differ, but more importantly, what can be done to make procurement of cereals and pulses as transparent as the milk procurement operations.

Got milk?

Let us first look at the similarities. The commonality between milk producers and farmers who grow cereals and pulses is that both are marginal and small producers. Few of them have physical assets, production surpluses and the infrastructure to market their produce independently and directly in the market. Their volumes also make it difficult for them to add value at the farm gate.  Both need the intervention of their co-operative or a State agency to get a fair and remunerative price. In fact, on the face of it, a milk producers’ co-operative has a greater challenge because the product is extremely perishable, whereas cereals and grains have a longer shelf life.

Perhaps, it is this aspect of perishability that makes the milk producers more disciplined—unless they pour the milk at the procurement centre within the designated time, they would miss the milk van. However, more than that it is the robust system set in place by Dr Verghese Kurien that ensures there is complete transparency and absolute ease of doing business, First, the member can pour any quantity–from less than a litre to multiples thereof. After that, it is measured and checked for quality. Although today, the fat and solid contents are measured on a machine, earlier a lactometer and centrifuge machine were installed in every primary procurement centre to record the quality. The price per litre of milk was contingent on the quality of milk and there was positive incentive for better quality.

However, when it comes to the procurement of cereals and pulses, let us understand the complexity. The first issue is their sheer volume on account of the seasonality of the production cycle. The second is the absence of grading /sorting machines at most procurement centres. So, the decision on whether the produce adheres to FAQ (fair average quality) norms is based on what the procurement officer on the spot decides. There is every (human) possibility of genuine mistake as well as perverse incentive and collusion. If the produce is below FAQ, then the stock value is significantly diminished, and if non-FAQ stock is procured, it will receive the Minimum Support Price (MSP) for which it is otherwise ineligible.

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Why cereals, pulses lose out

No wonder, then, that while the business of Amul, and milk producers’ societies is growing and becoming ever more salient, the procurement operations of FCI and NAFED are always mired in controversy. The significant point of departure is that while milk collection is undertaken every single day, 365 days a year, the procurement operations for cereals and pulses are carried out once a year and are episodic. Moreover, unlike Amul, which has devoted its time, energy, and domain expertise to ensure both forward and backward linkages, the same cannot be said for NAFED and State marketing agencies.

Another important factor is liquidity. Metaphorically speaking, as milk is a liquid product, the sector is not beset with liquidity issues, and the producers receive their payment on a daily or weekly basis. On the other hand, FCI and NAFED often face a cash crunch because they are dependent on a budget line, and even the bank guarantees have a certain limit. As such, even though the payment systems have become quite streamlined on account of IT interventions, the basic problem of lack of resources to make on-time payments remain, which affects the trust of the farmer in the system. It is perhaps because of this reason that the stranglehold of the intermediary middlemen (arthiya) over procurement of cereals and pulses remains as strong as ever.

There is one more lesson to be learnt from a milk producers’ society. Look at the well-established system of strengthening the equity base of the co-operative society at all levels. So, if the milk producer is receiving Rs 40/litre as the procurement price from the district milk union, the primary society of milk producers would retain a small amount, say 25 to 50 paise per litre, towards the equity of the society. Over weeks and months, this amount will total up to a few thousand rupees, if not a lakh or more, thereby enabling the primary society to build the basic infrastructure – a state-of-the-art office, a motorcycle for the veterinary field assistant, or a refrigerator for storing vaccines and medicines. Likewise, the district milk union also retains a small amount for its equity fund – thereby making the co-operative independent of government – both in terms of funds as well as their internal functioning.

Also read: NAFED, IFFCO, ICAR can fix India’s food security by going global

High payback in the future

Is there a way out? Certainly. It is high time that the newly created Ministry of Co-operation led by Amit Shah brought out a compendium of best practices in co-operation for their replication in sectors other than milk and in geographies beyond Gujarat and Maharashtra where the co-operative movement is quite salient and strong. Only when the procurement of an entire range of commodities – from oranges in Manipur’s Tamenglong and apples in Uttarkashi to raw honey in the Sundarbans – is put on an even and transparent keel will India’s rural economy receive the necessary impetus.

Successful co-operative professionals as well as elected officials may be appointed as professors of practice in the regional and district-level co-operative training institutions, and farmers should be encouraged to undertake study visits across the country. The reach of the co-operative sector is quite extensive, but many have become mere agencies implementing government programmes. One hopes that exposure to some of the successful societies will be inspirational and meaningful. Second, the Agri Infrastructure Fund announced by Prime Minister Narendra Modi and the RIDF (Rural Infrastructure Development Fund) of NABARD must be used to set up a network of grading and sorting machines in all the procurement centres so that the farmers can get their produce sorted and graded. It is true that the initial costs at Rs 20 lakh rupees per machine may be on the higher side, but it will have multiple positive fallouts, the most important being the ushering in of transparency and fair play in these operations.

In fine, we need interventions – both in terms of processes as well as technologies – to make the primary producers in sectors other than milk reap similar benefits and set in motion a virtuous cycle of economic transformation in India’s hinterland.

Sanjeev Chopra is a former IAS officer and Festival Director of Valley of Words. Till recently, he was the Director of the Lal Bahadur Shastri National Academy of Administration. He tweets @ChopraSanjeev. Views are personal.

This article is part of the ‘State of the State‘ series that analyses policy, civil services, and governance in India.

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