Once again the situation in India’s food economy reflects a periodic challenge. On the one hand the government is saddled with large stocks of foodgrains and the country seems to be extremely well placed to meet its food needs. On the other, a large share of the population is still faced with hunger and suffers from malnutrition. This had resulted in even the Supreme Court advising the government to use its stock to address the problem rather than let the food rot.

Good rainfall in 2010-11 had resulted in a recovery in production from its lower level in the relatively poor 2009-10 agricultural year, when rice production fell quite significantly and wheat production stagnated. This was followed by a further rise in production in 2011-12. This has taken both rice and wheat production to levels that are about 4 per cent higher than their previous peaks.

While comforting, this is by no means a major step up in production. However, even that rise in production has resulted in excess stockholding in the system. In April 2012, rice and wheat stocks at 333.5 lakh tonnes and 199.5 lakh tonnes respectively were much higher than the prescribed minimum buffer limits of 142 and 70 lakh tonnes for that time of the year. A consequence has been that the Food Corporation of India has run out of appropriate storage for the stocks it has been able to procure and needs to hold. In the event there have been recommendations from various quarters that the government must not only release stocks to the “open” market but should resort to exports, either directly or through market agents, of the stocks it holds.

It is not only the availability of stocks in excess of the buffer required that favours such an initiative. More importantly, prices of food grains in the international market are ruling relatively high, leading to the suggestion that exports would not only help the government recoup the expenditure it has incurred on procuring and storing the foodgrains concerned, but would endow domestic prices with the buoyancy that would help farmers reap the benefits being obtained by their counterparts elsewhere in the world.

These arguments are indeed surprising for three reasons. To start with, as noted earlier, while good monsoons have helped raise production, that rise has not by any means been such as to warrant an embarrassing sense of plenty. Second, when seen in terms of per capita availability, the volume of food in the Indian economy is by no means excessively large and lower than peaks attained earlier. And, finally, till recently the argument had been that the government would not be able to implement the original version of the Food Security Bill because it would not be able to access the food reserves needed for the purpose.

What then accounts for the “excess” stocks with the government? There seem to be three factors playing a role here. The first is the fact that while costs have been going up because of increases in the prices of inputs accessed from the market, partly because of the increases in administered prices and the removal of subsidies, open market prices have been less responsive to these cost increases. On the other hand the minimum support price offered by the government based on the calculations of the Commission for Agricultural Costs and Prices have risen in in tandem with costs. As a result, in years of reasonable harvest when market prices are less buoyant, farmers with access to the procurement system tend to divert their crop to the Food Corporation of India and other procurement agencies. Thus in the case of wheat, during the part of the procurement season of 2012-13 ending on 13 June, the government had already managed to procure 363.4 lakh tonnes of the grain, as compared with just 283.4 lakh tonnes over the whole of the procurement season in 2011-12. Moreover, rice procurement has been close to or higher than its 2008-09 peak in both 2010-11 and 2011-12.

What is remarkable is that the level of procurement has not made much of a difference to the offtake of grain either for the targeted public distribution scheme (TPDS) or that used under various welfare schemes. Offtake under the TPDS is estimated at 437.2 lakh in 2010-11 and 431 lakh tonnes in 2011-12. The corresponding figures for special welfare schemes were 39.2 and 39.1 tonnes respectively in those two years. With procurement high and rising and offtake stagnant, stocks were bound to accumulate.

The reasons why there is a stagnant trend in offtake are well known. The separation between the below poverty line (BPL) population and the above poverty line (APL) population under the TPDS scheme has resulted in an increase in the share of those who do not have access to adequately subsidised grain. APL prices are linked to the economic cost incurred by the FCI, and have risen because costs have risen significantly. Since a significant share of the APL population needs access to the subsidy for food to be affordable for them, and since there are far too many wrongly excluded from the BPL category, offtake does tend to stagnate over time.

But even this need not result in the accumulation of excess stocks, a part of which is lost as waste for want of good storage. A simple solution to the problem has been recommended by many. The surplus foodgrain stocks can be used to implement food-for-work schemes in rural areas and even in urban pockets, as part of the larger employment guarantee scheme. And such work could create much needed physical infrastructure a well as repair and maintain existing infrastructural assets, which are currently inadequate and poorly maintained. This would transform surplus food into productive assets. But this the government refuses to do.

Rather than explore such options with significant welfare gains and potentially productive consequences, the government seems to be veering around to the view that it needs to release the “excess” food grains for sale in the open market (as it has already done) and resort to exports. However, two factors are holding it back from opting for even that policy. The first is the fear generated by the hitherto poor southwest monsoon, that foodgrain production in the 2012-13 agricultural year would significantly fall short of its previous peak. This makes it necessary to save grain today to meet requirements tomorrow. The second is the evidence that the production shortfall is not restricted to India, but has occurred in a number of other surplus grain producing countries. In the event not only are foodgrain prices ruling firm but the prices of food futures are rising, This signals that prices could rise in the near future, necessitating the need for a substantial volume of stocks to hold the price level. The government would do well to heed this warning, rather than fritter away its surpluses in the belief that the market would work to generate an equilibrium that is appropriate for all. But that would still leave the basic food conundrum unresolved.


Food stocks sufficient, says ThomasJuly 27, 2012

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