Foodgrain prices are likely to remain range-bound this year due to higher production forecast and abundant stock in the central pool.
India’s rice output may rise nine per cent during the current season to 96-97 million tonnes (mt) from 89 mt last year. During the kharif season, which accounts for nearly 90 per cent of the country’s annual output, rice output is estimated to surge to 80.41 mt, higher than 75.91 mt in the corresponding season of the previous year. Even distribution of monsoon, leaving adequate sub-soil moisture content, has brightened prospects for the rabi season also.
The government forecasts higher wheat output for the current rabi season at 82 mt as compared to 80.71 mt in the previous year.
But, higher output is unlikely to create a downward pressure on prices due to low availability of grain for open trade, said, Sanjay Kaul, managing director of National Collateral Management Services (NCMSL), a warehousing arm of NCDEX.
Farmers keep nearly half of India’s 234 mt foodgrain production for their own consumption. The remaining is procured by the government’s procurement agency, the Food Corporation of India (FCI), procures an enormous quantity of nearly 65 mt annually. Thus, a small quantity of 35-40 mt is left for open trade.
“Traders are often blamed for their biased decisions, in case prices rise or fall. But, FCI in real sense is the agency which should be allowed to intervene in the commodity market like the Life Insurance Corporation (LIC) does for equity market. This not only will stabilise markets but also create a real time price discovery for farmers betterment,” Kaul said at the launch of Commodity Yearbook 2011.
With the Food Security Bill (FSB) all set to rope in into the system anytime, the dependence on FCI will further increase. Last year, FCI procured around 55 mt of foodgrain including the major cereals like rice and wheat. But, under FSB, the country’s requirement will increase to nearly 65 mt which means even lesser quantity will be available for open trade.
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Meanwhile, 46.2 mt is stored in central pool as on September 30 as against the buffer norm of 16.20 mt.
Kaul admitted that the government’s mandatory release of 35 kg of rice and wheat at Rs 3 and Rs 2 respectively for below poverty line people has further increased availability of foodgrain into the system. The government has also ensured additional foodgrain availability at Rs 10 a kg. But, states are reluctant not to lift the quantity as expected by the government.
Kaul emphasised the need to leverage the private sector efficiencies in improving foodgrain management operations in order to reduce dependence on the government agency.