The Hindu Business Line : The perils of private food export

IT appears that the liberalisation and globalisation process is reaching a stage where it can do the most damage to the disadvantaged and under privileged in so vital a sector as food. What else can explain the decision of New Delhi to let private traders foray into the food export sector?

New Delhi is seriously thinking of making export of foodgrains "a completely market-driven activity" by facilitating export by the private sector. It would be educative to critically examine what the food sector looks like now. Buoyed by a good monsoon, the Finance Ministry's Mid-Term Review of the Economy is a voice of moderation, while many have predicted double-digit growth. The Government's optimistic forecast is of a GDP growth that will be less than in 1967-68, 1975-76, 1980-81 and 1988-89 when the economy grew well above 7 per cent as agriculture benefited from the return of a normal monsoon. This cannot be an accurate comparison, because the contribution of agriculture to GDP is far less now than what it was a decade ago. The services sector has usurped the lion's share of the GDP growth pushing agriculture to the periphery — a very unhealthy development. The Mid-Term Review sees foodgrains production this year registering a new peak of 212 million tonnes, though the first estimates of the kharif (just over) crop are 108 million tonnes, which is less by more than 3 per cent of the record production of 111.5 million tonnes in 2000-01.

The logic that follows is that if the country has to reach the target, the rabi (primarily the wheat crop) will have to be the highest ever to compensate for the modest drop in kharif production. This is far-fetched optimism.

It is against this optimism that New Delhi is setting an unprecedented new agenda on the food export sector. Now let us examine how the food export sector has so far fared and what its current status is like in order to examine the crucial question whether New Delhi's new directive holds any merit?

Between November 2000 and September 2003, India exported a total 22.5 million tonnes of foodgrains which is about 15 per cent of all the staples, such as rice and wheat, excluding pulses, produced. Though the Food Corporation of India (FCI) officials claim that the backlog for rice export has been fully cleared and that wheat will be cleared by the year end, facts prove otherwise.

On October 1, the FCI had 23.7 million tonnes of foodgrains as buffer, which is over 70 per cent less than an unprecedented 64.8 million tonnes in June 2002. At 5.2 million tonnes, rice stock has plummeted to a low of 5.1 million tonnes as on October 1, 1992, a decade earlier, while the minimum buffer stock must be 6.5 million tonnes.

The wheat situation is better. The stock held now is a clear 6.8 million tonnes more than the stipulated minimum buffer stock. Given the rather precarious position on the food production front, the most crucial question that must engage all right-thinking people is what will happen in a "free for all," and export houses with both political and financial clout decide to swoop on the grain market and corner the bulk of the production?

What would happen to the Public Distribution System (PDS)? Can New Delhi put an arbitrary cap on the quantum of grain that a private export house, equipped with the requisite infrastructure, wants to mop up from the open market? International grain prices are already heading north. Look at the own internal wheat market. Wheat Dara is quoted at nearly Rs 760 a quintal in Delhi market compared to about Rs 650 a year ago — a full 12 per cent increase in one year. What will be the fallout of this move on the price of food in the country as a whole?

Ostensibly, the new move is to trim the sails of the FCI and align domestic grain prices with global prices. Also, there is a political angle to it. The new initiative will be buttressed by another project — a National Export Insurance Account (NEIA) with a corpus of Rs 2,000 crore — to ensure the availability of credit risk cover for projects and other high value exports and provide insurance cover for undertaking project exports for which Export Credit Guarantee Corporation (ECGC) is not able to get reinsurance.

The NEIA project is expected to provide cover for exports to countries which are not likely to be covered by purely commercial considerations or are beyond country exposure limits prescribed by the ECGC or are "countries currently facing economic or political difficulties, but where Indian presence is required to be maintained as a part of the long-term economic strategy." It is in this context that the question of food management in India should be examined. In principle, a country should export only the surplus that remains after meeting the domestic requirement fully and equitably. Has India been able to do just that on the food front after Independence? The answer is an emphatic "no."

India is home to the largest number of ill- or under-fed men, women and children. Close to a third of the estimated 860 million people who sleep on an empty stomach in the world are Indians. And the number is growing. Currently the per capita food availability in the country hovers around 350 grams per day, which is only 70 per cent of the minimum requirement of 500 grams stipulated by the National Institute of Nutrition, Hyderabad.

In fact, between 1992-93 and 1999-2000 (the "first generation reform period") food production rose 13.41 per cent, which is roughly 1.68 per cent per annum, while population grew around 2 per cent per annum, clearly setting in motion the Malthusian theory of population growth out-stripping food production. What do these stark facts indicate? The so-called "Green Revolution" has fallen on its face and despite the crores of rupees pumped into agricultural "research," India is unable to produce cheap food to meet the requirement of its population.

It is against such a stark background that the country is being nudged on a dangerous and uncharted course where the reins of the food economy are being handed over to private sector, which has always been known for its predatory propensities.

One of the reasons bandied about for dispensing with the FCI for procurement and storage of foodgrains is that when private capital does the job, the FCI would be rid of the prime task of procurement and storage. The country spent close to Rs 28,000 crore on the food subsidy bill in 2003-04, a whopping 10-fold increase from Rs 2,800 crore in 1992-93. The FCI spends close to 25 per cent of the food subsidy bill just for storage alone.

If the prime argument for shifting the onus of exports to the private sector is based on this cost factor on storage and handling, one must more critically examine what the 75 per cent of the other cost constitutes. It would then be seen that the prime drain is on account of the unbridled escalation of the minimum support price (MSP) both for wheat and rice. But, more important, this largesse of New Delhi is cornered by the rich farmers of Punjab, Haryana, western Uttar Pradesh for wheat and rice, and Andhra Pradesh inasmuch as rice is concerned.

The MSP syndrome is more of a political nature than one rooted in sensible economics. Even within the provisions of the new proposal, the private exporter is expected to procure the grain at the FCI-stipulated MSP.

What New Delhi must do is to unshackle the ever-escalating MSP, as China has done, so that open market grain prices are no more unrealistic relative to the purchasing power. When an ordinary household spends close to 40 per cent of its earnings on food alone, then, there is something basically wrong in the manner in which grain prices are structured.

India must also accept the ground reality that given the state of agricultural "research" in the country, nothing spectacular is going to happen on the production front in the near future. In fact, agriculture is still a gamble in monsoon as recent events have well demonstrated.

In view of all this it is suggested that New Delhi reconsider its perilous decision. It is common knowledge that the FCI is riddled with inefficiency.

Yet, it is an institutional arrangement which, for better or worse, has served the nation with some semblance of accountability. Many suggestions have been made in the past to the functioning of the FCI and there is no reason why it should saddle itself with enormous quantities of grain purchases, well above the normative buffer levels. The country must think twice before jumping from the frying pan to the fire!

(The author is a senior fellow of the Alexander von Humboldt Foundation.)

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