The Competition CREW is coming !

Uday India, June 01, 2014

What do India, Philippines, Ghana and Zambia have in common – especially in the domain of staple food and public transport? Well, in the first cursory look – nothing much at all. This could just be a random juxtapose because the countries and domains are as apart as cheese and chalk! The one strand that links them together is the absence of any meaningful competition with adverse impacts on both primary producers and the consumers.

The assumption is that consumers in developing countries are often victims of exploitative behavior by business entities, including state enterprises, which affect their ability to access goods and services in key markets. Such anti competitive business behavior is either inherent in the way these entities conduct themselves in the markets, or are stimulated by policies, rules or actors. In many cases, the absence of an independent and effective market regulator and stakeholders’ ignorance (or total dependence) further encourages such practices. However, the counterfactual is that when these services are in the domain of the public sector, the basic minimum needs are being met. Balancing the political economy with efficient supply chains and welfare of both producers and consumers is therefore a tough challenge.

And this is what your columnist was asked to do last week by CUTS international as the chair of the session on procurement, storage and distribution of staple foods (rice and wheat) in India as part of their mute-country, multi-sector research project under the acronym CREW (competition reforms in key markets for enhancing social and economic welfare in developing countries). In the first (diagnostic phase) of the project, country papers on both the sectors would be prepared to understand the ground level situation. But even before this, it is important to understand what ‘competition reforms’ stand for.

Competition Reforms have been defined as an aggregate of enabling government policy, well defined regulatory framework, regulatory institutions, competition legislation and effective enforcement mechanism. Thus in the first instance, government must have a policy to ensure a level playing field to different players. In the case of wheat and rice in India, there is no playing field at all because of the MSP and PSS regimes backed by state support to FCI. However the challenge for the study is to understand how the policy impacts on the farmer and the consumer, especially the marginal and small farmer.

One has to understand that while MSP and PSS have been effective in states like Punjab and Haryana, it has not been effective in states like UP, Bihar, west Bengal and Assam for a variety of reasons. One must also take a nuanced approach to MSP and PSS, Governments are well within their right to announce a MSP – but then asking just one agency, the FCI to implement the scheme is where the problem gets confounded. One can also argue that after announcing the MSP, the government can float a tender for agribusiness /marketing/procurement agencies/exchanges to pick up the stock from the farmers field /Mandi whenever the prices fall below MSP. There can be built in ‘checks and balances’, and the government may even insist on grading and sorting machines to be established by the agency which is asked to procure. At present, government is paying 3.5 % to the FCI to meet these costs. Let other corporations make their bids as well. This will also enable newer technologies and processes. For example, one of the reasons for the very high cost of storage is conventional godowns. These can be replacing by air –supported warehouses which can be established and dismantled as per requirements, thereby freeing valuable land for other productive purposes. As things stand, neither FCI, nor CWC will be interested in bringing down these costs because these are built-in. We need the shake the system, and perhaps when we open up procurement and storage, many innovations will follow.

The next is the regulatory framework. While India has framed the Warehousing Development and Regulatory Act, the coverage of warehouses and cold storages has yet to pick up. That is why, the working paper says that not only should regulatory frameworks be established, they should also be adequately resourced so as to make them effective. As far as India is concerned, we have the Chairman and the members, as also the paraphernalia of a secretariat, professionals with core competency in warehousing and cold chain infrastructure are missing – and they are being filled in by hiring our consultants/chief consultants at ‘sarkari’ rates. This ‘penny wise- pound foolish’ policy ensures that only retired government employees will actually serve on these institutions. True, over time a regulatory body must be able to generate its revenue expenditure, but unless we populate our regulatory agencies with thorough professionals, the very logic of having such institutions will be negated.

The third aspect is that of an enforcement mechanism – which again means that the sectoral laws and the regulatory regimes have to be in sync with each together. Thus, the warehousing and cold storage acts of states will have to be amended to incorporate provisions with regard to enforcement of directives by the regulator.

The India paper has tried to capture the entire gamut of the procurement operations – from nature of commodities to complexities in the supply chain, government interventions, Competition Act, trade distortions on account of MSP and its impact on different classes of farmers, production, procurement and off take positions of wheat and rice, reforms in warehousing, emerging market channels and the market reforms and initiatives in states. It will be interesting to compare notes from the other countries as well.

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