Grain Train

Ravish Tiwari Posted online: Tue Jun 28 2011, 01:17 hrs

In 2007-08, staring at a global food crisis, a nervous government banned export of wheat and non-basmati rice without bothering to create the space for the stocks the country would hold back.Today, with the granaries overflowing, the government is struggling rid itself of stocks that it just cannot manage.

Thanks to the export ban and a bumper wheat harvest, the government is staring at 65.5 million tonnes of foodgrain stocks, already more than the 63.36 million tonnes it can accommodate across the country, and twice as much as the buffer norm of 32 million tonnes for June.

Damage control

Last week, an empowered group of ministers (EGoM) headed by Pranab Mukherjee decided to release an additional 5 million tonnes of foodgrains into the public distribution system. The move, which came the day the government announced food inflation at a high at 9.13 per cent, had nothing to do with controlling this inflation, which is a result of the rising prices of dairy products and non-vegetarian items rather than cereal availability.

The excess wheat being released has been subsidised at Rs 6.10 a kg, the rice at Rs 8.45 a kg. This is because pricing closer to existing rates had not worked earlier. Since May 2010, of the 10.5 million tonnes the government tried to release, only 40 per has been cent picked up.

Yet the government may only be buying time with a fresh paddy crop due for procurement in three months’ time.

Ground zero

Outside the mandis sn Rohtak, Jind, Narwana, Kaithal and Kurukshetra in Haryana’s foodgrain belt, wheat lies stacked in the open on wooden plinths and beneath plastic covers. In Punjab, 1.9 million tonnes are being stored unscientifically, without even the necessary plastic cover, Food Ministry sources say.

Nationwide, the wheat lying in the open has doubled in three years. It is fresh in most places, with old stocks yet to be removed from inside. The Food Corporation of India (FCI) godown in Narwana, Haryana, has about 20,000 tonnes wheat outside, with 80,000 tonnes kharif rice yet to be transported out of the covered facility.

Some godowns have removed old stocks but the fresh wheat alone has caused them to overflow. At one place rented by the state, even last year’s wheat remains in the open. Wherever some has been disposed of, fresh wheat is being stacked. Both Haryana and Punjab had to pressure the Centre to evacuate last year’s stocks ahead of this year’s harvest.

“It is a grain emergency. While some people are happy that the country has got over 65 million tonnes, I am not sure whether it is a reason for celebration or serious concern,” says Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices (CACP).

“The government’s buffer norms require only about 32 million tonnes. This additional 33 million tonnes cost the government about Rs 50,000 crore,” says Gulati, stressing the need to export these grains.


The covered storage capacity at FCI-owned facilities has remained stagnant at 12.9 million tonnes for over five years. State agencies have separate facilities but have been reluctant to enhance their capacities. The FCI also rents space or has created covered-and-plinth facilities in open spaces of FCI complexes. The capacity of rented space has increased from 9.34 million tonnes in April 2007 to about 15.5 million tonnes in April 2011.

The government has struggled with efforts to attract private investment. A five-year-guarantee hiring scheme, in 2008, put off possible investors. The guarantee was extended to seven years and then 10, but this took three years and stocks by then had more than doubled, from under 20 million tonnes in April 2008 to over 44 million tonnes this April.

A five-year or seven-year guarantee would not have returned the investment, says Satnam Singh, a commission agent in Rohtak Mandi. Singh, who has bagged a contract to construct facilities for 10,000 tonnes, hopes the 10-year scheme will allow him to break even in six to seven years.

The government plans to create space for 15 million tonnes under the revised scheme. But these facilities will not be ready before 2013. Till June, tenders were still under process for projects covering over 8 million tonnes, and facilities for hardly a million tonnes were under construction.

The government has delayed a decision on modern silos/storage facilities, the issues being identification of locations and costs. The EGoM decided on a pilot project of modern silos for at least 2 million tonnes, but that has remained on paper, despite the success of previous FCI experiments: at Kaithal (Haryana) and Moga (Punjab), the Adani group has been managing modern silos of capacity two lakh tonnes each since 2007.

On the field

Trade groups have been calling for an end to the export ban, while farmers in some states are struggling with low prices. In parts of Bihar and UP, these have slipped below the minimum support price because of the absence of a public procurement network and the reluctance of traders to stock up grains, Krishi Bhavan officials say.

“I visited Bihar last month and found that farmers were selling their produce in the range of Rs 975-1,100 a quintal. The modal price in Bihar was about Rs 1,040 against the MSP of Rs 1,170 a quintal. This is in contrast to Punjab and Haryana where the procurement network is deep and the government even pays state tax to the tune of 14.5 per cent to buy grain for the central pool,” Gulati says.

Even in Haryana, the fear is that farmers may struggle to get good prices for rice after the kharif season, with many premium non-basmati varieties not procured by the government, and because traders may not enter the market as exports stay banned.

Food Minister K V Thomas, who so far had been rejecting the possibility of foodgrain exports, now appears to be open to the idea of allowing limited exports.

“In the last EGoM meeting there was a suggestion to export certain quantities of grain. We are assessing that. I will hold a meeting next week to assess the situation,” Thomas told The Indian Express.


Managing a Rich Harvest, Urgently

We need to both extend procurement, using private or cooperative agencies, and export surplus stocks There is a good news on the farm front. After the dip in 2009-10 due to severe drought, agri-production in 2010-11 has bounced back on its rising trend. The third Advance Estimates for 2010-11 indicate a rich harvest with foodgrains touching a new peak at 235.9 million tonnes. Of this, more heartening is the production of pulses which has registered a quantum jump of more than 18% to touch 17.3 million tonnes, an all-time high. Oilseeds production has jumped by 20% to cross 30 million tonnes, and cotton by a whopping 40% to touch 34 million bales. These are all laudable achievements by Indian farmers, duly supported by scientists, bureaucrats, agri-business, and, of course, the rain gods to give us a normal rainfall year. But now comes the challenge of managing efficiently this bountiful harvest. If this is not addressed seriously, and quickly, it can play spoilsport and turn this bounty into a crisis. First and foremost is the need to hold the price line for the farmers, who have toiled hard in the face of rising labour and energy costs, to ensure that they get at least the minimum support price (MSP) that the government has announced. Already there is a news that in Uttar Pradesh wheat is being sold at . 1,050/quintal as against an MSP of . 1,120 plus, the likely bonus of . 50 per quintal. Earlier, in the kharif season also, paddy prices were below the MSP in several mandis in UP and Orissa. With increasing arrivals of wheat in mandis, the situation is going to worsen. All government machinery related to procurement, be it FCI, Nafed, state agencies, etc., need to be put in high gear. And if these agencies still cannot hold the floor price, the government needs to do some ‘out-of the-box’ thinking and invite the non-governmental agencies to join them under the PPP mode for procurement. Cooperatives (like Iffco, etc), NGOs (like BAIF, etc) and the private sector companies (like ITC, HKBs, etc) could be partners in procurement with government agencies. They could buy at MSP and be given same terms and conditions as given to FCI and state agencies. In particular, this needs to be experimented in areas of eastern region where the government is trying to usher in second green revolution and government procurement machinery is somewhat weak. By bringing in these strong allies in procurement, the country can have a win-win situation. On one hand, farmers can be assured of MSP, incentivising them to adopt modern technologies and raise productivity. On the other, non-governmental agencies can hopefully do the procurement in a more cost-effective manner and make some savings, thereby incentivising them to build backend storage infrastructure that is so badly needed. And, if all this fails, the government should think of the ways and means to compensate the farmers for the loss accruing due to market prices going below MSP. It is going to be challenging, identifying farmers who have sold their produce at prices below MSP, and then transferring money directly to their accounts through an electronic platform using UID. But as they say, the promise of an MSP is a promise by the government, and needs to be honoured to give credibility to its price policy. The other challenge is efficiently managing the grain stocks. Saving an already produced grain from damage is much more cost-effective than producing additional grain with scare land and scarcer water. Currently, the country is saddled with large grain inventories of about 46 million tonnes, more than double the buffer stock norms. And in the next three months, with an expected wheat procurement of more than 26 million tonnes, this is feared to turn into a ‘crisis of plenty’ as the storage capacity with FCI and CWC is limited. Even when states like Andhra Pradesh and Tamil Nadu (and more states are treading that path) are selling foodgrains at token prices of . 1 and . 2/ kg, the country is not able to liquidate the stocks, notwithstanding the harsh fact that there are serious problems of delivery to the needy people which require improvisations. The extra inventory, over and above the buffer stock norms, is currently estimated at more than . 40,000 crore, which is not giving any meaningful return to the country. The immediate need, therefore, is to find its appropriate use. One such option is to unload a part of it in the domestic market at a price not below the MSP. The other option could be to distribute more through welfare programmes (subsidised ones), and yet another option is to export part of it to make some profits that can be ploughed back to build modern storage facilities. We feel that the international market for grains is reasonably good and India could export 3-5 million tonnes of wheat and rice each, in a gradual manner, to make some profits by the government agencies and/ or by the private sector. But in the business of trade, speedy decisions are needed. The procurement season has begun, the crop is good, and unless a clear policy direction is given, the country may miss this opportunity. It will not serve anyone’s purpose if excessive stocks kept in the open get damaged and spoiled in rains. Timely decision is the need of the hour, and time is already knocking at our doors! (Co-authored with Rugmini Parmar, Advisor, CACP) ASHOK GULATI CHAIRMAN, COMMISSION FOR AGRICULTURAL COSTS AND PRICES (CACP)