FCI should procure rice, not paddy

Tejinder Narang | Updated on August 27, 2014


Official agencies will be insulated from paddy operations and market diversion

The Food Corporation of India (FCI) and State Government Agencies under current dispensation first procure paddy and then get it custom-milled from rice millers by paying fixed tolling charges. This system is exposed to massive abuse that needs correction by the new Government without affecting farmers’ interests.

Total paddy (un-milled rice) production in the country is about 160 million tonnes, including 16 million tonnes of basmati paddy.

Currently, all official agencies procure about 49-53 million tonnes of non-basmati paddy, equal to 32-35 million tonnes of milled rice every year. More than 107 million tonnes of paddy of non-basmati and basmati rice is annually traded between farmers/millers/traders privately. Farmers are thus fully familiar with open market operations.

India’s output of grains, oilseeds, sugarcane,fruits, vegetables, spices and cotton output is about 800 million tonnes. Ninety per cent of the produce is transacted by farmers privately. Thus, it is factually incorrect to argue that farmers will be hurt if state sponsorship of paddy procurement is dismantled.

Gross misappropriation

Currently, FCI official agencies make payment to farmers for the procurement of paddy at minimum support price (MSP), while stocks are stored with rice millers under Custom Milling of Rice (CMR) agreement. As of April 1, , millers held about 15 million tonnes of paddy alone, costing ₹20,000 crore at a MSP of ₹13,450 a tonne.

Millers act as bailees of state agencies – having possession but not ownership of paddy. Since long-term stocking of paddy is challenging they generally sell paddy or milled rice in the market and replenish the FCI when demanded, by purchasing it back from the market.

Commercially, the transaction may be squared up on tonne-to-tonne basis and not on grain-to-grain basis – that means paddy supplied by FCI may not milled for FCI, but rice bought from the market is finally lodged with FCI.

This amounts to unchecked misuse of official funding and leakages.

Between 1995 and 2005, Punjab, Haryana and Andhra Pradesh were prime producers of surplus rice. FCI agencies procured paddy and then despatched milled rice to deficient regions. Since 2005, there is a remarkable turnaround. Paddy is harvested by more than 10 States with West Bengal, Uttar Pradesh and Andhra Pradesh being the leading provinces.

Rice production has scaled up from 85 million tonnes to 103 million tonnes during the period. In the last 25 years, India has not imported any rice on Government account. For the last three years we are the world’s largest exporter of rice. Sufficiency of paddy/rice is thus affirmed.

Paddy is a water guzzler and results into depletion of water table. Its state-sponsored over-production is unreasonable specially when need and necessity of procuring and storing large volumes in north and then moving it elsewhere, is diminished.


FCI should limit itself to procurement of “milled rice” and dispense dealing with paddy purchases, which should be left to millers. Procedurally, FCI may need to work out a fresh/revised Custom Milling of Rice agreement (CMR-REV) in which responsibility of paddy procurement at MSP will be of millers. Obligation of FCI will be to source predetermined tonnage of milled rice at a price notified and based upon MSP of paddy. Banks can finance “approved” milers based upon letter of comfort from FCI\state agencies. Present procedure of distribution and subsidisation to targeted beneficiaries will continue as per PDS entitlements.

Selective intervention

Vested groups will cry wolf – saying that farmers will realise below-MSP from millers under the proposed arrangement. To offset such a fear, Government can vest itself with power of price intervention to raise price to MSP, as in the case of maize.

This may be necessary for two-three years to keep millers in check and for farmers to plan alternatives. If farmers can trade 720 million tonnes of agri items privately, paddy cannot be an exception. China, Indonesia, Philippines – dealing with subsidised distribution of grains – source rice and not paddy.


This systemic change means that official agencies will remain insulated from the paddy operations, bungling and diversion in market; double handling will cease. Transportation cost will be economised. Greed for growing water-guzzler paddy will decline. Instead, alternate cropping pattern will be incentivised. Rice reform will mean 50 per cent restructuring of FCI operations.

The writer is a trade analyst

Published on June 05, 2014

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor