Great harvest, bad news

Record procurement of winter foodgrain - again

Strange are the ways of the Union government, especially when it comes to managing the food economy. The policy of minimum support price (MSP)-based open-ended procurement of foodgrain was evolved when India was perpetually food-deficit and cereal production needed a boost even at the cost of other equally essential farm commodities. The country turned food-surplus long ago, but, unsurprisingly, the same policy is still being pursued. Instead, the need now is to diversify agricultural production to produce enough non-cereals, notably pulses and oilseeds, whose production has gone up substantially in the last few decades, but their rapidly rising consumption has meant that import dependence continues to be as high as it was for staple foods in the 1960s. Thus, the decision to procure 44 million tonnes of wheat in the forthcoming rabi marketing season - a good six million tonnes more than last season's record procurement of over 38 million tonnes - seems illogical. By siphoning off close to half of the total anticipated wheat output of 92 million tonnes, the government will deprive the market of adequate wheat supplies, thereby needlessly exerting an upward pressure on grain prices.

This unrealistically high target has been fixed even though the government is already hoarding stocks of wheat and rice several times higher than warranted for the food security buffer or which can be safely managed in the available storage space. The total foodgrain stock in the official grain coffers at the beginning of the current month was 66 million tonnes, over three times the buffer-stocking norm of 21 million tonnes. The fear is that these inventories would mount to around 95 million tonnes by June, at the end of the wheat marketing season, against the available storage space of 71.5 million tonnes - including 18.6 million tonnes without any roof. It seems inevitable that much of this will rot in the coming monsoon.

An adverse fallout of the government's misguided food management policies is that private trade has been largely eased out of the grain market. The government has become virtually the largest hoarder of staple cereals. In its report on the rabi grain pricing policy for 2013-14, the Commission for Agricultural Costs and Prices has counselled review of the open-ended grain policy to cut down the total grain purchases. This will ease pressure on storage accommodation and bring down food subsidy, which is expected to be over Rs 1 lakh crore in 2012-13, against the Budget estimate of Rs 75,000 crore. The problem is that the distinction between the MSP and the procurement price has been done away with. While the MSP should logically be meant to avert distress sales by the farmer, the procurement price should be market-determined and apply to the stocks the government intends to buy for running the public distribution system and maintaining the food security buffer. Such an approach will leave enough foodgrain in market channels to allow them to work. Moreover, stockholding caps on private traders should be dispensed with to bring real trade back into the foodgrain market and allow it to play its legitimate role.