FCI’s filled granaries pose a storage problem

The godowns of the Food Corporation of India (FCI) and affiliated State agencies are now packed to capacity. Years of ‘open-ended’ procurement of rice and wheat from farmers in the key growing States of Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Odisha, Andhra Pradesh and Telangana has ensured that the FCI, the central agency to handle the Central pool stock, has huge grain stocks which far exceed buffer-stock norms. A significant gap between the quantum of procurement of grains and the volume of allocation to States under the National Food Security Act (NFSA) has resulted in the FCI holding on to more grain stocks than needed. This has resulted in rising food subsidy expenses, as buffer carrying costs have been rising steadily. Over the years, the FCI’s economic cost (through procurement, distribution and storage of holding foodgrains) has been increasing sharply. At present, the economic cost of wheat and rice is ₹2505.67 and ₹3601.91 per quintal respectively, while the FCI supplies rice and wheat to States under the NFSA at ₹3 and ₹2 per kg respectively.

The situation is grim, especially in Punjab, the biggest contributor to the Central pool stocks, where around 8.79 million tonne (MT) of wheat is currently kept in a temporary storage facility like the Cover and Plinth (CAP). According to official sources, around 14 MT of wheat is stored in the CAP in Punjab, Haryana and few other States. Officials said that atleast 5 MT of wheat in the CAP has to be liquidated soon, amid reports of floods in many parts of Punjab. These stocks are especially kept in low-lying areas, and are thus vulnerable to water-logging.

The official manual says that foodgrains in CAP storage are stored on elevated plinths and wooden crates are used as dunnage material. The stacks are to be properly covered with specially fabricated low density black polythene water-proof covers and tied with nylon ropes/nets. Experts only wheat to be stored in the CAP, and also only for a maximum of six months. There are also wheat and rice stocks held with private purchasers in Punjab and Haryana.

“The foodgrains procured for the Central pool and available with the Food Corporation of India (FCI) are generally stored in a scientific manner in covered godowns, with various preservation measures like fumigation and treatment with pesticides. In spite of all precautions, a small quantity of the foodgrains may become non-issuable due to various reasons like natural calamities and damages in transit,” the Department of Food and Public Distribution said in a statement in the Lok Sabha recently.

Excess stock

If the government does not take prompt action to liquidate the stock, there could be severe storage crunch as the kharif procurement for 2019-20 commences on October 1. Paddy starts arriving in the mandis of Punjab and Haryana by October, and procurement operations are completed within months. Food Ministry officials acknowledge that wheat stocks in the CAP have to be liquidated at the earliest.

As on July 1, 2019, the FCI had wheat stocks of 45.83 MT as against the buffer norm of 27.58 MT (Chart 1). Next year’s procurement season (2020-21) begins from April 1, 2020, and the FCI has a set target of 10 MT of wheat sale through its Open Market Sale Scheme (OMSS) for bulk buyers. Officials said that with the monthly wheat requirement under the PDS being about 2-2.5 MT, the FCI would be still holding on to excess stocks by the new procurement season. In 2018-19, FCI had sold 8.18 MT of wheat under the OMSS to bulk buyers like private parties (Chart 3).

In the case of rice, the FCI has 28.42 MT of rice as on July 1, with another 7 MT to be received from millers shortly. With the new rice procurement season for 2019-20 slated to begin from October, the rice stocks stored by the FCI also exceed buffer norms (Chart 1). Officials said that the OMSS sale of rice has not evoked encouraging response from the private trade because of wide availability of the rice across the country (Chart 3). The excess rice stock has to be liquidated fast, so that enough storage space is available for the forthcoming kharif as well as rabi paddy/rice and wheat stocks.

Freeing up space

Thus, the government has been considering several options to liquidate excess stocks held with FCI. One of the many measures being currently discussed is the allocation of additional foodgrains per beneficiary under the NFSA. Currently, around 80 crore beneficiaries under the NFSA get 5 kg of grains (rice or wheat) each per month, which is hiked to 7 kg per person per month, so that a chunk of excess grains is distributed and the cost of storing grains is saved which ultimately results in lower food subsidy expenses for the government. Officials say that the distribution of additional foodgrains would be temporary, till excess stocks could be liquidated.

Another proposal which is being considered is a ‘crop holiday’, where the farmers, especially in the Punjab and Haryana, are asked to shift to alternate kharif crops like oilseeds instead of paddy, so that the FCI and State government agencies drastically reduce procurement of paddy/rice. However, this proposal is unlikely to rolled out in the ongoing kharif season, as most of the paddy sowing in Punjab and Haryana is already completed and the harvest is expected to arrive in mandis by October 1.

Under the crop holiday proposal, the Centre may reimburse or compensate the State government agencies in Punjab and Haryana who do not have to procure paddy from the farmers.

To encourage farmers to shift to alternative crops like maize, pulses and oilseeds from paddy, the Haryana government has decided to launch pilot project in seven blocks, where farmers are being provided financial assistance of ₹2,000 per acre along with free seeds and a premium payment for maize crop insurance. The farmers have been assured that the maize produce will be procured by the government agencies such as Hafed and the Food and Civil Supplies Department at MSP.

Time is running out fast for the government to liquidate the excess stocks. Prompt action is needed to check both the burden of carrying excess grain stocks and the mounting the food subsidy expenses.

The writer is Senior Consultant with Icrier. Views are personal