S.Mahendra Dev

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PROCUREMENT, DISTRIBUTION AND PUBLIC WORKS PDS,
FFW, EGS

• S.Mahendra Dev
• Director, CESS, Hyderabad

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Objective of the paper

• To examine the market reforms needed for
  achieving efficient, cost effective and,
  Sustainable food management system
  
• Issues in this context
• Procurement, Distribution, Public works
• Methodologies for the proposed study

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PROCUREMENT

• Problem of Accumulation of foodgrains
• Food Management not satisfactory (60 to 70 mt of
  foodgrains with 260 million poor)
  
• Increasing Procurement Prices
• - Discouraged Private Trade
• - Exports Uncompetitive
• - Reduced Consumption due to lower
• Purchasing Power
• - Decline in Off-take

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PROCUREMENT(Contd.)

• Long Term Factors Changing Consumption Patterns
• Food Subsidy has Increased Significantly
• Producer Subsidy Increased While Consumer Subsidy
  Declined

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What are the needed reforms?

• The policies have adversely affected private
  trade
  
• It has become expensive and unsustainable
• How to make the existing system economically
  efficient, more targeted and financially
  sustainable?
  
• Reduce the role of FCI and increase private trade

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Procurement Policy Suggestions

• Freeze MSP for a few years
• Farmers income yieldPrices
• Decentralise Procurement (centralised Vs
  Decentralised)
  
• MSP scheme to modify to change cropping pattern
• Income Policy is suggested. But not viable
• Restrict role of FCI to price stabilisation and
  buffer stock maintainance, leaving PDS to States

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Procurement Policy Suggestions

• Cost of Procurement Vis-à-vis Private Sector
• The questioning of scale economies in
  procurement
  
• The question of direct purchase from the farmers

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Storage and Marketing Reforms

• 17 million tons of average stocks (for PDS and
  buffer) ERC suggestion
  
• Involving private sector in storage and handling
  the grain
  
• Formulation and adoption of price band rules
  that allow efficient private sector participation
  supported by strengthened market information
  system

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Storage and Marketing Reforms (Contd.)

• Phasing out rice levy over the medium term
• Development of Negotiable warehouse receipt
  systems
  
• Formulating a competition policy to ensure fair
  trading practices by private traders
  
• Improving the efficiency anf effectiveness of FCI

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Methodologies

• Theoretical
• Impact of procurement on average price received
  by farmers is sought to be analysed in a partial
  equillibrium framework(Schiff, 1993)
  
• Impact of food procurement and rationing schemes
  on the welfare of different individuals is
  analysed in a simple analytical model (Raj Sah
  and Srinivasan)

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Methodologies (Contd.)

• Many empirical srudies Relationship between
  procurement and wholesale prices (Raj Krishna and
  Roychoudhuri, Gulati, Sharma etc.)

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In the Proposed Study

• Simulations The impact of prices on demand for
  foodgrains
  
• What happened to private stocks during the
  accumalation period? Estimate the private stocks
  through some indirect methods
  
• Public Vs. Private costs. How costly are FCI
  operations?

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In the Proposed Study

• Income Policy Is it feasible in a country with
  100 million holdings?
  
• How viable is decentralised procurement? Impact
  on food subsidy
  
• Policy induced Inefficiencies in the private
  sector Storage, milling, transport, external
  trade, market support services
  
• Basically to suggest a sustainable cost effective
  procurement and policy

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Public Distribution System-Issues

• Inspite of high food subsidy (Rs. 21000 Crores)
  it is not reaching the poor
  
• The overall impact of PDS on the poor seems to be
  less
  
• There has been significant diversion of PDS
  commodities
  
• Poor states have not benefited. Relationship
  between poverty and PDS off-take is weak
  
• TPDS has problems

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Options

• Method to reduce costs of distribution
• Geographical Targetting
• Food Cupons
• Food-for-work programmes, Nutrition Programmes

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Questions to be addressed

• How to improve targeting of the PDS through
  innovative methods?
  
• What are the measures needed to reduce the
  diversion of commodities from TDPS?
  
• How to improve the delivery system under PDS?
• Should states take over the responsibility of
  PDS?
  
• Does Involvement of Panchayats improve the
  performance?

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Questions to be addressed (Contd.)

• How to improve the quality of the foodgrains? Or
  should one give low quality or inferior goods
  under PDS?
  
• Should we introduce food coupon/food credit card
  system to improve the performance of PDS?
  
• What are the international best practices in
  targeting food subsidies to the poor?

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Methodologies

• There are a number of studies on the
  effectiveness of PDS in India (Kirit Parikh,
  Radhakrishna et al, Shikha and many others)
  
• A number of committees or working of groups also
  examined the issue of PDS ( Expenditure Reforms
  Commission, Working group on 10th Plan, High
  powered committee on grain policy etc.)
• Some studies have examined the welfare gains to
  the poor due to operation of the PDS

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Methodologies (Contd.)

• Parikh(1994) estimated the income accruing to the
  bottom 20 of the households
  
• Radhakrishna et al estimated the gains and costs
  of PDS and compared it with other similar
  programmes

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Source Radhakrishna et al
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Source Radhakrishna et al
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(No Transcript)
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Methodology on subsidy Transfer

• Difference between the exp. that the hh would
  have incurred in the absence of PDS and the
  actual expenditure under PDS
  
• Income gain to the household Y is defined as Y
  qR( pM- pR), where pM and pR open market and
  subsidised prices and qR is quantity purchased
  from PDS. The open and subsidised prices are
  estimated form the PDS survey data as pm eM/qm
  and pr er/qr

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Methodologies (Contd.)

• Three types of analysis a) Extent of income
  transfers through PDS and consequent reduction in
  poverty b) the nutritional impact of PDS on the
  poor c) Cost per rupee income transferred to the
  poor

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Methodologies- Targeting errors

• Inclusion (Type I) and Exclusion (Type II)
• Inclusion error PDS Non-poor/ total
  beneficiaries
  
• Exclusion error PDS poor/total poor
• There were a number of studies using this
  methodologies (Cornia and Stewart used for a
  number of countries)

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Methodologies

• In the proposed study, some of the above
  methodologies will be used
  
• In addition, mechanisms will be ecplored to link
  PDS with EGS/food-for-work and ICDS programmes
  
• Also, field study will be conducted on food
  coupoun system in AP depending on the time

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Food for work Programme/CFW and ICDS

• Public works important instruments for
  alleviating poverty and hunger in Southe Asia
  (EGS, JRY, EAS, SGRY, Bangladesh FFW)
  

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Issues

• Merit is self targeting
• Direct benefits (employment and income)
• Indirect benefits (stabilisation, insurance,
  asset creation, upward pressure on agril. Wages)
  
• Work fare schemes vs. untargeted transfers
• Wage rate and targetting
• Cash vs Kind
• Social opportunity cost of funds
• Opportunity cost for the individuals
• Conflicts between the relief and asset creation

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Evaluation (Cost Effectiveness) of Public Works
Programmes

• Net income gain to poor workers
• Decomposition into the following five variables
• I. The budget leverage (G C)/G, G is
  Government spending and C is private
  Co-financing
  
• II. The labour intensity (WL)/(GC), W is the
  wage rate paid to poor and L is leakage to the
  non-poor

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Evaluation (Cost Effectiveness) of Public Works
Programmes

• III. The targeting performance W/(WL_
• IV. The net Wage gain NW/W is the gross share
  of wage received by participants
  
• V. Indirect Benefit IB/NW where IB are
  indirect benefits to the poor
  
• The net gain to poor
• B/G (G C)/G (WL)/(GC) W /(WL)
  NW/W(1IB/NW)

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• It is useful also to decompose the last ratio as
  
  
• IB/NW IB/SB(SB/(GC))/(NW/(GC))
• Which gives IB/NW as the product of further
  three ratios
  
• VI. Poors share of social benefits (IB/SB)
• VII. The inverse of the share of net wage gains
  to total cost.

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Cost effectiveness of Workfare Programs
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India EGS Vs. PDS
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• One issue is how to link PDS with food for work
  programme. With accumulation of foodgrains it
  makes sense
  
• ICDS Recent evaluations by NIN show that
• Most of the ICDS beneficiaries come from very
  deprived socio-economic groups
  
• Coverage of immunisation is also better in ICDS
  areas

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Issues

• Shortcommings Irregular food supply coverage of
  below 3 years under SNP has been relatively low.
  There is little community participation in
  running ICDS the Aws do not have adequate
  buildings interdepartmental coordination is poor
  
• NCAER also did evaluation of ICDS in India

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To Sum Up

• The study examines the market reforms needed for
  efficient, cost effective sustainable food
  management system in order to have food security
  for the poor. The issues and methodologies
  mentioned will be used in the proposed study