Buffer Stocks and Food Security

• The concept was introduced in the fourth five year plan (1969-74)
• The Cabinet Committee on Economic Affairs fixes the minimum buffer norms on quarterly basis: i.e. as on 1st April, 1st July, 1st October and 1st January of every financial year
• Presently, stocking norms fixed by Government of India on 22.01.2015 comprise of:
  • Operational stocks: for meeting monthly distributional requirement under TPDS and OWS
  • Food security stocks/reserves: for meeting shortfall in procurement
  • The General norm for operational stocks are:

• While four months requirement of food grains for issue under TPDS and OWS are earmarked as operational stocks, the surplus over that is treated as buffer stock and physically both buffer and operational stocks are merged into one and are not distinguishable
• According to the present practice, the Government of India treats the food stock over and above the minimum norms, as excess stock
  • Further, the Department of Food and Public Distribution will offload excess stock in the domestic market through open sale, through exports or additional allocation to states

• In addition to the buffer norms, a strategic reserve of 30 lakh tonnes of wheat and 20 lakh tonnes of rice is also maintained. This stock is termed as Food Grain Stocking Norms
• Also, from 2015, Government has decided to create a buffer stock of 1.5 lakh tonnes of pulses to control fluctuation in their prices. NAFED, SFAC and FCI will procure pulses for buffer stock.

Inefficient Inventory management

• • The government should procure grain in times of abundant supplies in the market, and release it in times of scarcity. But, in order to meet the needs of the TPDS and the other food- based welfare schemes, the government not only withholds stocks during a bad crop year (because it expects off-take to be higher than normal), it also steps up its procurement, pushing up prices in an already supply-constrained market
  • There is no pro-active, pre-defined, sustainable policy practiced for the residual grain – which remains after allocating to the mandated schemes

Rising cost of Operation

• • Higher acquisition cost: In the current situation, MSP and Bonuses are continuously increasing, along with Mandi charges, milling charges, administrative charges . Thus, the economic costs of FCI for acquiring, storing and distributing food grains is about 40% more than the procurement price
  • Higher storage costs and losses due to inadequate capacity: Data show that FCI’s storage and transit losses have increased by close to 147% in nominal terms between 2006-2007 and 2011-2012

De-facto nationalization of the grain market

• • With more than 75% of the marketable surplus procured by the government, little grain is available for the open market.
  • This lower market supply exerts an upward pressure on prices in the open market, neutralizing much of the consumer benefits that the subsidy provides
  • These interventions adversely affect the price competitiveness of Indian grain in the international market, as well

Increasing gap between per capita production and per capita availability

• • Despite rice and wheat production increasing by 29% between 2000 and 2012, per capita net availability of grains went down by close to 1%
• When rising stock levels with the government reduces grain availability for consumption, it counters the whole objective of buffer stocking

• The recommendations of the High Level Committee (HCL) under the chairmanship of Shanta Kumar in this perspective include:
  • On procurement related issues
    • HLC recommends that FCI hand over all procurement operations of wheat, paddy and rice to states that have gained sufficient experience in this regard and have created reasonable infrastructure for procurement
    • And FCI should move on to help those states where farmers suffer from distress sales at prices much below MSP, and which are dominated by small holdings, like Eastern Uttar Pradesh, Bihar, West Bengal, Assam etc
  • On PDS and NFSA related issues
    • Given that leakages in PDS range from 40 to 50 percent, and in some states go as high as 60 to 70 percent, GoI should defer implementation of NFSA in states that have not done end to end computerization; have not put the list of beneficiaries online for anyone to verify, and have not set up vigilance committees to check pilferage from PDS
  • On Buffer Stocking Operations and Liquidation Policy
    • One of the key challenges for FCI has been to carry buffer stocks way in excess of buffer stocking norms. On an average, buffer stocks with FCI have been more than double the buffer stocking norms costing the nation thousands of crores of rupees loss without any worthwhile purpose being served
    • The current system is extremely ad-hoc, slow and costs the nation heavily.
      • Thus, a transparent liquidation policy is the need of hour, which should automatically kick-in when FCI is faced with surplus stocks than buffer norms
    • On direct subsidy to farmers
      • Since the whole system of food management operates within the ambit of providing food security at a national as well as at household level, it must be realized that farmers need due incentives to raise productivity and overall food production in the country.
        • Most of the OECD countries as well as large emerging economies do support their farmers
      • HLC recommends that farmers be given direct cash subsidy (of about Rs 7000/ha) and fertilizer sector can then be deregulated.
      • This would help plug diversion of urea to non-agricultural uses as well as to neighbouring countries, and help raise the efficiency of fertilizer use.
        • It may be noted that this type of direct cash subsidy to farmers will go a long way to help those who take loans from money lenders at exorbitant interest rates to buy fertilizers or other inputs, thus relieving some distress in the agrarian sector.
      • On end to end computerization
        • HLC recommends total end to end computerization of the entire food management system, starting from procurement from farmers, to stocking, movement and finally distribution through TPDS

• On the new face of FCI
  • The new face of FCI will be akin to an agency for innovations in Food Management System with a primary focus to create competition in every segment of foograin supply chain, from procurement to stocking to movement and finally distribution in TPDS, so that overall costs of the system are substantially reduced, leakages plugged, and it serves larger number of farmers and consumer