Chapter 5: Food Management

FOOD MANAGEMENT

The principal policy objective of food management is to ensure food security, particularly for the vulnerable, through timely and efficient procurement and distribution of foodgrains.

This involves procurement of foodgrains from farmers at remunerative prices, building up and maintenance of buffer stocks, storage, movement, and distribution of foodgrains to consumers at affordable prices and stability of foodgrain prices. The price instruments used are MSP and central issue price (CIP).

Price Policy for Agricultural Produce

The Commission for Agricultural Costs and Prices (CACP) recommends MSPs at national level for 23 crops, but effectively price support operates primarily in wheat and rice and that too in selected states.

While the country is dependent on imports for pulses and oilseeds (edible oils), their prices often fall below the MSP as there is no effective price support.

Procurement

To enhance efficiency of procurement and public distribution and to extend the benefits of MSP to local farmers, the Decentralized Procurement (DCP) scheme has been adopted by some state governments. The central government is urging all state governments to adopt the DCP scheme so that costs of distribution can be saved and outreach of price support mechanism to the farmers in hitherto weaker areas can be improved.

To overcome the problem of gaps in the flow of information about procurement operations on day-to-day basis, an Online Procurement Monitoring System (OPMS) has been evolved for reporting and monitoring on a daily basis, procurement operations for wheat, paddy, and coarse grains in the country.

Two decisions that will impact procurement and stocks of rice and wheat from kharif marketing season (KMS) 2014-15 and rabi marketing season (RMS) 2015-16 are:

1. To limit procurement from states that are declaring bonus over and above the MSP to the extent of targeted PDS (TPDS)/other welfare schemes (OWS) requirements (In the case of non-DCP states declaring bonus, the FCI will not take part in MSP operations in those states.) and
2. To cap the percentage of levy on rice at 25 per cent.

Buffer Stocks

The buffer norms for foodgrains in the central pool  been revised in the backdrop of increased off-take of foodgrains under the TPDS in the last few of the NFSA with effect from 5 July 2013.

As against the buffer stock norm of 21.41 million tonnes of rice and wheat (as on 1January of each year), total central pool stocks were 61.6 million tonnes as on 1 January 2015.

• Economic cost to the FCI for acquiring, storing, and distributing foodgrains is about 40- 50 per cent more than the procurement price, the locked in extra stocks, particularly for the last five years in a row, reflect flaws in the food policy.
• This has also resulted in high cereal inflation despite bumper produce and overflowing stocks.

Economic Cost of Foodgrains to the FCI

The economic cost of foodgrains consists of three components, namely the

1. MSP including central bonus, if applicable, as the price paid to farmers.
2. Procurement incidentals
3. The cost of distribution.

High economic cost necessitated a detailed review of the open-ended procurement policy, especially in states that offer high bonus on top of MSP and those that impose high taxes and statutory levies, as well as stocking and distribution policies.

In this regard, the government set up a High Level Committee (HLC) in August 2014 under the chairmanship of Shri Shanta Kumar to suggest inter-alia restructuring or unbundling of the FCI with a view to improving its operational efficiency and financial management. For gist of its main recommendations ,click here.

Open Market Sale Scheme (Domestic)

The FCI on behalf of the government has been undertaking sale of wheat at predetermined prices/reserve prices in the open market from time to time to enhance market supply of foodgrains; to exercise a moderating influence on open market prices and to offload surplus stocks.

Deviating from the earlier practice, this year the government has adopted a policy of differential prices to encourage sale of older stock first.

• The government is keeping the reserve price above MSP, but reasonably below the acquisition cost or economic cost of wheat, so that the buyers remain attracted to purchase of wheat from the mandis during the harvest season and the market remains competitive.
• At the same time the market price in the lean season does not increase much and inflation remains under check.

Higher procurements have lead to stocks exceeding the buffer norms, which FCI is forced to carry over to the next year.

Food Subsidy

Twin objectives of the food security system

1. Provision of minimum nutritional support to the poor through subsidized foodgrains.
2. Ensuring price stability in different states.

The programme covers over 65 million BPL households serviced through 4, 50,000 fair price shops.

The government continues to provide large and growing amounts of subsidy on foodgrains for distribution under the TPDS/NFSA and other nutrition-based welfare schemes and open market operations due to the fact that:

• the economic cost of wheat and rice has continuously gone up, but the issue price has been kept unchanged since 1 July 2002.
• On account of implementation of the NFSA, the CIP has further gone down for the APL and BPL categories.

The food subsidy bill has increased substantially and reached Rs 89740.02 crore in 2013-14.

Storage

The existing warehousing facility is limited not only in terms of capacity but also to certain crops. The stockholding capacity has not kept pace with the increase in production and demand for a long time.

• The total capacity available for storage of foodgrains as on 30 November 2014 was 727 lakh MT, comprising of
  • covered godowns = 567 lakh MT 
  • cover and plinth (CAP) = = 160 lakh MT
• Public agencies do not have warehouses for proper storage of even half of the wheat and rice procured by them.
• Cold storage facility is available for only 10 per cent of fruits and vegetables produced in India (Planning Commission 2011).Cold storage capacity for all type of food items is just 29 MT (Planning Commission 2012). The production of potato alone is about 35 MT.  
• The allocation of Rs 5000 crore for developing scientific warehousing in Budget 2014 can create additional storage capacity of 16 MT.

Policies to promote private investment in scientific storage are important to bridge the gap between the requirement and availability of scientific storage capacity.

AGRI-MARKETING REFORMS

Central government would work closely with state governments to reorient their respective APMC Acts to provide for establishment of private market yards/private markets. State governments would also be encouraged to develop farmers markets in town areas to enable them to sell their produce directly.

Recent Initiatives in Agricultural Marketing

1. The Department of Agriculture (DAC) has advised states to go beyond the provisions of the Model Act and declare the entire state a single market with one licence valid across the entire state and removing all restrictions on movement of agricultural produce within the state.
   
2. In order to promote development of a common national market for agricultural commodities through e-platforms, the department has approved Rs 200 crore for a central-sector scheme for Promotion of National Agricultural Market through Agri-Tech Infrastructure Fund (ATIF) to be implemented during 2014-15 to 2016-17.
   
3. A number of state governments have exempted the marketing of fruits and vegetables from the purview of the APMC Act. 
4. The Small Farmers Agribusiness Consortium (SFAC) has taken the initiative for developing a kisan mandi in Delhi with a view to providing a platform to FPOs for direct sale of their produce to prospective buyers totally obviating or reducing unnecessary layers of intermediation in the process.
   

  COMMODITY FUTURES MARKET

Currently 43 of the 113 commodities that are notified for futures trading are actively traded in 4 national exchanges and 6 commodity-specific exchanges.

1. Share of agricultural commodities in the total turnover was 18.37 % in 2014-15 with
   • food items (refined soya oil, soyabean, chana, coriander and rapeseed/ mustard seed) contributing 50.01 per cent of it.
2. The remaining (81.63 per cent) turnover was contributed by bullion, metals, and energy contracts.

TRADE POLICY

1. Demand for opening up of the export of pulses which would incentivize farmers to invest in pulse cultivation and for a reasonable duty structure to be devised to contain excessive import.
2. A pre-announced import duty structure will bring stability in domestic edible oil prices leading to increase in production of oil seed/palm. 
3. Reform is required in the import policy of agricultural products.
   • The applied tariffs for imports should be linked in a countercyclical manner with international prices so that the landed prices of imported commodities fall within a known range. This would protect farmers from adverse impact of steep fall in commodity prices and facilitate long-term investment in agriculture.
4. While the trade policy regime should be stable, it should also quickly respond to the changed export duty structure of the exporting countries aimed at pushing value-added products by neutralizing our duty differential between raw material and finished product.

AGRICULTURE TRADE

India has emerged as a significant agri- exporter in a few crops, viz. cotton, rice, meat, oil meals, pepper, and sugar.

As per the World Trade Organization’s Trade Statistics:-

1. The shares of India’s agricultural exports and imports in world trade in 2013-14 were
   • Export = 2.69 %
   • Import = 1.31 %
2. Agricultural exports as a percentage of agricultural GDP = 14.05 % in 2013-14.
3. Agricultural imports as a percentage of agricultural GDP = 5.50 % in 2013-14.

OUTLOOK AND CHALLENGES AHEAD

The inflation is not expected to rise significantly from the current levels, since:

1. The oil prices are expected to remain benign in the coming months on account of weak global demand and increased supplies.
   
2. Global commodity prices, both spot and futures have generally been declining. Global commodity prices are expected to remain weak in 2015 due to low international demand and comfortable supply.
   
3. Factors like high rural wages, higher level of MSP, and rise in input cost  have been slowed down considerably and this could result in keeping food inflation within limits.
   

Agriculture and Food sector needs huge investment in research, education, extension, irrigation, fertilizers, and laboratories to test soil, water and commodities, warehousing, cold- storage.

1. Rationalisation of subsidies and better targeting of beneficiaries would generate part of the resources for public investment.
2. There are wide differences in the yields within states. Even the best of the states have much lower yield in different crops when compared to the best in the world. This provides ample opportunity to increase production by bridging the yield-gap to the extent feasible within the climatic zone.
3. The focus of public expenditure for agriculture so far has been on provision of subsidies (public expenditure in agriculture is only one-fourth of expenditure towards food and fertilizer subsidies) and it is time it shifted towards investments to boost productivity.
4. Recommendations of Shanta Kumar Committee provide useful suggestions for the future road-map of food-policy.
5. Every effort should be made to bring states on board for creating national common market for agricultural commodities.