Agri Business

Cut in reserve price of rice, wheat will hit FCI

Rajalakshmi Nirmal BL Research Bureau | Updated on January 23, 2020 Published on January 23, 2020

Representative image

Govt move to clear grain stocks with FCI; Corpn holding 2.6 times the buffer norm

 

In an article dated January 6, 2020 (MSP hike leaves FCI with mountain of grains), BusinessLine had indicated that FCI may have to sell a significant amount of its rice stock in the open market if it has to make room for fresh procurement of paddy and wheat. The time for this has come.

The government has cut sharply the reserve price of rice and wheat to help FCI offload bulk of its stock.

In the Open Market Sale Scheme (OMSS), rice will now be sold at ₹2,250/quintal against ₹2,785/quintal earlier.

The reserve price of wheat has also been cut. It is now ₹2,135/quintal. Originally, price for the January-March period was fixed at ₹2,245/quintal.

Already, the reserve price, both of rice and wheat, was way lower to the economic cost of FCI. Now, with the price cut, the gap has increased further.

Economic cost – i.e., MSP plus cost of logistics, storage, handling and distribution for FCI, is estimated at ₹2,505/quintal for wheat and ₹3,601/quintal for rice.

Why?

The government has to cut the sale price on grains for OMSS due to the excess stock with FCI, as well as the Corporation running out of storage space. As of January 1, 2020, the stock of rice was 237.15 lakh tonnes and the stock of wheat was 327.96 lakh tonnes. As per the buffer stock norm, only 76 lakh tonnes of rice and 138 lakh tonnes of wheat are required.

FCI also has 278.7 lakh tonnes of unmilled paddy lying in its godown.

The demand for rice and wheat in the open market has been poor in recent months, which is also a reason why the government has cut prices.

While the Centre intended to sell about 10 million tonnes of wheat in OMSS during 2019-20, only 9.7 lakh tonnes were sold till November 2019, according to official data. Similarly, in case of paddy, while the government had set a target of selling five million tonnes of rice through OMSS in 2019-20, in the e-auctions conducted by the FCI since May, only around six lakh tonnes of rice has been sold.

Mounting losses

FCI is in dire straits now. Since the last two years, the Centre has not been paying the full subsidy to FCI and FCI has been borrowing at a high rate from NSSF to run the food subsidy scheme. Now, with the reserve price on rice and wheat cut, losses are going to mount for it in 2019-20.

While the outstanding borrowings from NSSF was ₹1.91-lakh crore as of November, it may increase by end of the current fiscal year.

Published on January 23, 2020
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