The Bhavantar Bhugtan Yojana experiment

The Bhavantar Bhugtan Yojana experiment

Article

1. Harsh Kumar Bhanwala and Nirupam Mehrotra analyze Bhavantar Bhugtan Yojna (price differential scheme) and its impact in Madhya Pradesh

Important analysis

2. What is Bhavantar Bhugtan Yojna?

• The scheme is to compensate farmers in the event of a price crash and to that extent hedge the price risk, faced by them
• There is no physical procurement of commodities

3. How does the scheme work?

• Farmers who register under the scheme are compensated only if their selling price (SP) is lower than the government set minimum support price (MSP)
• The actual amount of compensation or deficiency payment made to a farmer is determined by a Modal Price (marker of average market price within the state and markets outside the state where the commodity is traded)
• When a farmer’s selling price is lower than MSP but higher than the modal price, then the difference between the MSP and actual price is paid to the farmer
• If Selling price (SP) is lower than both MSP and modal price; the payout is capped at the difference between MSP and modal price.

4. Where and in which commodities the scheme was first implemented

• Madhya Pradesh government was the first state to launch bhavantar bhugtan scheme (BBY) on pilot basis in 2017
• The scheme was launched for 8 commodities they are, soybean, groundnut, sesame, ramtil (all oilseeds), maize (cereal), moong, urad and tur (pulses)

5. Impact of BBY on soybean

• Madhya Pradesh ranks first both in terms of area and production of soybean in the country
• Soybean, which is the main kharif crop in Madhya Pradesh, close to 50% of the area under the crop was covered under the scheme
• In terms of coverage, the scheme was a success
• Price and arrival data shows that the modal price increase as the BBY scheme progressed, the maximum differential (MSP minus modal price) reduced by half between October 2017 and December 2017 in case of soybean.
• Despite the fact that there was almost 2.5 times additional arrival during November 2017 as compared to 2016, the price (of soybean) did not plummet southwards in November 2017.

6.Way forward

• The auction system needs to be improved so that collusion is not possible, and, for this, e-NAM (electronic national agriculture market) could be an appropriate intervention.
• The use of technology in agriculture mandis, whether it is for price discovery or assaying, will go a long way in bringing about much needed transparency.