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FOOD GRAIN MANAGEMENT IN INDIA (Issues with India’s food management system…
FOOD GRAIN MANAGEMENT IN INDIA
Background
Food Corporation of India (FCI) is the nodal agency under Ministry of Consumer Affairs, Food and Public Distribution responsible for the procurement, storage and movement of food grains, public distribution and maintenance of buffer stocks
FCI procures food grains at minimum support price (MSP) from farmers on an open-ended basis (i.e., accepting all the grains that are sold to it by farmers), provided the food grains meet Govt. of India's uniform quality specifications
food grains are also disposed by FCI and State Governments through sale under Open Market Sales Scheme (OMSS) i.e., selling food grains at predetermined prices in the open market from time to time to enhance the supply of grains especially during the lean season
economic cost to FCI includes acquisition cost of food grains at MSP, procurement incidentals (e.g.labour & transport charges, godown rentals) and distribution cost (freight, handling, storage & interest charges, losses during storage etc).
Difference between Economic Cost and Central Issue Price (CIP) of food grains under various schemes (including National Food Security Act, 2013) is the operational loss to FCI and is reimbursed by Government of India as food subsidy
Issues with India’s food management system
Excess of buffer stocks
Lack of storage
Food inflation
Poor quality of food grains & high wastage
insect infestation, microbiological contamination, physiological changes due to sprouting and ripening etc. the shelf life of food grains remain poor
Lack of irradiation facilities also impedes long term storage
High costs for government
Countercyclical procurement policy
In drought years, when the production is low, Government increases MSP and stock uptake from farmers. This reduces the supply of grains in open market and pushes theprices high
Marginalization of private trade
Existing system of food grain management in India is dominated by the Government, right from production (as cropping pattern is influenced by MSPs) to stocking (FCI) and marketing (APMCs).
Uncompetitive Exports
Additional state levies make Indian exports uncompetitive in global markets
reactionary policies like rising minimum export price (MEP) and putting ceiling limits on exports to check food inflation adversely affected India’s exports in food grains
Corruption
According to Shanta Kumar Committee, 40-60% PDS food grains are siphoned from FCI godowns to black markets
Economic Burden on FCI
Way Forward
need to reorient crop production in favour of high value & export worthy products
Procurement as a means of price support can be replaced with price deficiency payment and direct income support to the farmers, as envisaged in PM-AASHA and PM-KISAN schemes
Excess buffer stocks can be allocated to poor over and above their monthly quota of 5 kg under National Food Security Act (NFSA)
decentralization in procurement should be encouraged
Restructuring FCI
High Level Committee was setup under Shanta Kumar in 2014. Its important recommendations include
Procurement
Grain procurement, especially in production surplus states like Punjab, Haryana etc, should be delegated to State governments.
FCI should focus more on its price support operations in Eastern states like UP, Bihar, West Bengal, Assam etc. where majority of the farmers are small and marginal
FCI should not procure more grains (beyond the quantity needed for PDS) from states offering additional bonuses
On FCI procurements, State government levy commisfixed for entire Indiasion between 2% to 15%. Uniform rate (~3-4%) should be fixed for entire India
Procurement Payment Systems
Popularize Negotiable Warehouse Receipts (NWRs) system. Under this system, farmers can deposit theirproduce to the FCI authorized warehouses, and can get advance from banks against their produce valued at MSP.
No need of physical procurement if market prices are less than the MSP. Farmers should be given the difference the two, through DBT directly into their bank accounts
Buffer stocks
Only a stripped-down buffer stock of 10 million tonnes should be maintained and grains should be imported in case of dire need. The government can also buy options/futures in commodity markets to hedge future price risks
Storage Reforms
Outsource grain-storage function to central warehousing corporation (CWC), state warehousing corporation (SWC), and private sector players
Transport Reforms
Transport grains in containers rather than gunny bags to reduce losses and faster-turn-around time
End to End computerization and online tracking from procurement to retail distribution
MSP Policy
Revisit highly skewed incentive structure in favour of wheat and rice and provide better price support operations for pulses and oilseeds
Pro Active Liquidation Policy for Excess Buffer Stocks
sell excess stock in open market (domestic or exports).