Column: Lowering levy helps rice exports

Aug 26 2014, 04:47 IST
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SummaryAbout 10 million tonnes extra could be made available to the open market, causing prices to soften

The food ministry has recently directed major paddy-growing states of non–basmati rice to limit “levy” to a maximum of 25%, down from the earlier notified 30-75%. In a nutshell, the quantum of rice procured on the government account should be restricted. This is indeed a very progressive step that makes rice surplus flow to the market and is consistent with the WTO obligations of lowering public stock-holding and reducing food subsidies. Though the Centre is taking a hard position at the WTO, it appears to be working towards WTO compliance.

This levy reduction order will make open-market rice cheaper; food inflation will be moderated; quality improvisation will take place; exports prices will be lower and non-basmati rice export will be incentivised. The pressure on the Food Corporation of India (FCI) and the state governments for creating storage space will lessen.

Click here for graph

In the kharif marketing season (KMS), commencing October 1, 2013, and on till July 21, 2014, FCI procured 31 million tonnes (mt) of rice in two different modes—11 mt was sourced from Punjab and Haryana as custom milled rice (CMR) while 20 mt was purchased as “levy rice” from other states. Under CMR, paddy is procured by FCI/state government agencies from farmers at MSP and thereafter processed into rice by FCI after tolling charges are paid to millers. Under the levy rice system, farmers sell paddy to millers at MSP, and then millers sell a fixed percentage (now fixed at 25%) as levy to states as per predetermined prices of rice.

This existing system (CMR plus

30-75% levy rice) has led to over procurement, overstocking, wastage/deterioration, excessive involvement of central funds and higher food subsidies. The reduction in levy, to 25%, will correct the systemic deficiencies. The accompanying chart indicates an “excess” availability of about 10 mt in the market if the 25%-levy order is enforced. One can surmise that the food ministry is now targeting a procurement of about 21-22 mt in 2014-15, down from 31 mt in 2013-14. At an acquisition cost of R24,000/metric ton (FCI website), the procurement of 31 mt amounts to a whopping R74,400 crore. The corresponding savings accruing from the fall in government procurement by 10million tons will be R24,000 crore.

Since Chhattisgarh, AP, Odisha and Telengana are the most affected regions, small rice millers in these states may protest against such directions because they are denied

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