Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

How the Central and State governments procure Wheat?


From UPSC perspective, the following things are important :

Prelims level: MSP system

Mains level: Public procurement of wheat

Wheat procurement is now underway in various states of the country.

Wheat Procurement in India

  • The main purpose of procuring for the central pool is ensuring the MSP as well as the country’s food security by making food available to the weaker sections at affordable prices.
  • The Centre procures wheat by paying the minimum support price (MSP) announced for the crop.
  • The States do it under two systems:
  1. The centralised one, also called the non-decentralised procurement system (non-DCP) and
  2. The decentralised one, also called DCP

(1) Non-DCP

  • Under this system, the Food Corporation of India (FCI) directly or through state government agencies procure wheat from the purchase centres established across the states based on various parameters like moisture, lustre, broken/shrivelled etc.
  • In Punjab and Haryana, farmers sell their crop to the central agency or state agencies through Arhtiyas (commission agents).
  • The wheat procured by the state agencies is handed over to the FCI for storage or for transportation to the consuming states.
  • The FCI, which is the central nodal agency for wheat procurement, pays the cost of procured wheat to the state agencies.

(2) DCP

  • The decentralised system was brought in the late 1990s to promote local procurement and save the transportation cost and time.
  • The state government or its agencies procure, store and distribute wheat against the Centre’s allocation for targeted PDS and other weaker sections etc. with the state.
  • The excess stocks procured by the state and its agencies are handed over to the FCI for the central pool.
  • The expenditure incurred by the state government on the procurement, storage and distribution of stocks under the decentralised system are reimbursed by the Centre.

Role of Arhtiyas

  • Apart from paying the MSP, the Centre also reimburses the arhtiyas’ commission, administrative charges, mandi labour charges, transportation charges, custody and maintenance charges, interest charges, the gunny bag cost and statutory taxes.
  • The cost of excess stocks handed over to the FCI is reimbursed to the state government or agencies as per the Centre’s policies.
  • Procurement agencies ensure that the stocks brought to mandis are purchased as per the specifications fixed by the government and farmers are not compelled to sell their crop below the MSP.
  • But if a farmer gets a better price from private players, he can sell to them.

From how many states is wheat procured for the central pool?

  • There are 15 states on the procurement list for the central pool, but the contributions from seven of the states are negligible.
  • Only Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan are the main contributors to the central pool.
  • Bihar also contributed to some extent in the last season.

How much wheat is procured for the central pool by the FCI every year?

  • According to the records of the FCI, from 2011 to 2021, procurement for the central pool was between 25-40 per cent of the total wheat production.
  • The procurement has doubled in the past one decade as 22.5 million tonnes of wheat was procured in 2011 and 43.3 million in 2021.
  • The current season of procurement is going on.

What is the procurement scale against the total production of wheat in India?

  • In 2011 the total production of wheat was 88 million tonnes while it was around 109 million tonnes in 2021.
  • And the government’s procurement was 26 per cent and around 40 per cent in 2011 and 2021 respectively.
  • The procured grain is used for export purposes, the public distribution system and maintaining a particular stock for an emergency period.
  • The remaining 60 per cent of the production goes to the bakery industry and other wheat-related businesses.
  • Farmers also keep some of this wheat for their self-consumption.

What is the share of wheat contribution of various states to the central pool?

  • Barring 2020, Punjab has been the number one wheat contributor to the central pool.
  • The state has increased its contribution from 102.09 lakh tonnes in 2011 to 132. 22 lakh tonnes in 2021.
  • Haryana has also increased its contribution from 63.47 lakh tonnes to around 84.93 lakh tonnes in the same period.
  • Madhya Pradesh’s contribution was 35.38 lakh tonnes in 2011, which jumped to the highest among all states—129.42 lakh tonnes—in 2020 and was 128.16 lakh tonnes last year.
  • Uttar Pradesh’s contribution increased from 16.45 lakh tonnes to 56.41 lakh tonnes, and Rajasthan’s contribution rose from 4.76 lakh tonnes to 23.40 lakh tonnes in the same period.

Note: Punjab (despite its small size compared to MP, UP) is also the leading wheat producer state in India.

Back2Basics: Minimum Support Price (MSP)

  • MSP is a form of market intervention by the GoI to insure agricultural producers against any sharp fall in farm prices.
  • The MSP are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • MSP is price fixed to protect the producer – farmers – against excessive fall in price during bumper production years.
  • In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.
  • The minimum support prices are a guarantee price for their produce from the Government.
  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

Methods of calculation

  • In formulating the level of MSP and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
  • The CACP makes use of both micro-level data and aggregates at the level of district, state and the country.
  • Other factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.

Procurement agencies

  • Food Corporation of India (FCI) is the designated central nodal agency for price support operations for cereals, pulses and oilseeds.
  • Cotton Corporation of India (CCI) is the central nodal agency for undertaking price support operations for Cotton.


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