A grainy vision for food surplus

Sep 25 2013, 02:50 IST
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SummaryA surplus of 31 mt, worth Rs 74,000 crore, needs to be ploughed back into the economy

Tejinder Narang

As on September 1, 2013, India’s total stock of foodgrains, stored and managed by FCI, was 65 million tonnes (mt). At an average economic cost (includes carrying cost of about $100/tonne per annum) of R24,000/tonne (R27,000 for rice and R20,000 for wheat—in a 55:45 ratio), the stock is worth R1,56,000 crore, or roughly $24 billion. The maximum buffer requirement, after considering the Food Security Act, is 34 mt (presumptive on October 1, 2013, according to the CACP discussion paper number 6 on buffer norms). Thus, a surplus of nearly 31 mt, or of R74,000 crore ($12 billion), is well established. The need, however, is to substantially plough back this excess into the national economy.

The question remains, why haven’t we been able to recoup even most of it? Speedy disposal of grains from the central pool has become crucial for the reduction of domestic inflation of cereals, which is averaging 17%, and reining in unsustainable fiscal deficit/CAD, given our potential for export. But the food ministry has repeatedly conceived non-viable proposals for reduction of ballooning inventories while the Cabinet Committee on Economic Affairs (CCEA) has endorsed them. The status quo remains.

Another dampener is that the policy initiative for export of 2 mt of wheat at $300/tonne freight-on-board is bound to fail with the price pegged at approximately 20%, or $60/tonne, above the tradeable value. Not a cent more is ever paid in the fiercely competitive international market. This is mirrored by the fact that attempts in July this year to dispose 8 mt of wheat, including three old stocks (2011-12) at R15,000/tonne in the domestic market (ex-Punjab, Haryana) came a cropper.

Hesitant food ministry?

On August 9, CCEA approved the disposal of 2 mt of wheat through exports at around $300/tonne fob.

Three PSUs under the commerce ministry issued tenders for only 1,60,000 tonnes on September 12, due on October 4, to be kept valid for acceptance till October 14. November 15 has been fixed as the deadline for shipment. Actual shipments could spillover to December—five months shall lapse between announcement of disposal and encashing of such a limited tonnage. Import tenders for 1 mt of urea are wrapped up in less than a week by these very PSUs in consultation with the fertiliser ministry where similar guidelines are applicable. This lethargy gives the impression that the food ministry is hesitant in destocking even though FCI has the capability to procure about 30

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