Nafed's credit limit at present is Rs 1,631 crore and a Rs 150-crore guarantee, which was initially given to the Central Warehousing Corporation (CWC) for procurement operations, has been transferred to the farm co-operative. Nafed purchases as many as 16 commodities at the state-fixed benchmark prices as part of the government's procurement operation to avoid any distress sale by farmers.
The agriculture ministry has written a letter to the finance ministry, recommending an increase in the credit limit, which is expected to be approved, Bahuguna said on the sidelines of an agri-marketing conference organised by the NCDEX. Any losses incurred due to the procurement operations are reimbursed by the government.
Bahuguna said the farm co-operative needs additional funds to conduct smooth procurement operation in mustard and chickpeas this year, apart from its groundnut purchases.
A bumper harvest of groundnut this crop year through June has driven down the commodity's rates below the minimum support price of Rs 4,000 a quintal in key producing states. Groundnut production in 2013-14 is estimated at 9.14 million tonnes, almost the double of last year's level of 4.69 million tonnes, according to the farm ministry projections.
Nafed has procured roughly 2.5 lakh tonnes of groundnut so far this year from states such as Gujarat and Rajasthan. Higher production of gram and mustard in 2013-14 has led to the intervention by procurement agencies. The output of gram and mustard is estimated at 9.79 million tonnes and 8.25 million tonnes, compared to 8.83 million tonnes and 8.03 million tonnes last year.
Although the government offers bank guarantee for getting loans to fund the MSP operations by different agencies, Nafed's own financial problems have also raised the co-operative's reliance on the government guarantee for procuring from farmers in a big way.
Nafed owes around Rs 2,000 crore to banks due to a failed tie-up business. The co-operative had a net loss of Rs 149 crore in the 2012-13 fiscal, thanks to huge interest liabilities that forced it to offer voluntary retirement scheme to its 500-odd employees last month for which it had sought Rs 25 crore from the agriculture ministry.