Bumper kharif amid excess stock? Is India staring at hard agri decisions

Restrict procurement from Punjab and Haryana; stop procuring from states offering bonus on MSP; divert excessive stock for ethanol and cattle feed

By Richard Mahapatra
Published: Tuesday 22 September 2020

Restrain procurement and sale of government buffer grain stocks in the open market, the Commission for Agricultural Costs and Prices (CACP)’s latest report for the 2020-21 marketing season has recommended.

The CACP has also recommended that agencies must dispose of the extra stock, even if it is to be used as cattle feed. Another drastic recommendation is to discontinue the bonus given by states above the minimum support price (MSP) that has distorted the market and discourages private sale.

The recommendations are a clear sign that the Government of India is struggling with overflowing food grain warehouses. Procurement by government agencies have already broken records with every season. The country is also expecting a bumper kharif harvest.

Parliament recently also passed a bill to remove cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities.

The biggest challenge for the government is not just availability of physical space to store. There is also a fear that such a high buffer stock, if released in the market, would lead to a collapse in prices. This, in turn, will lead to farmers again losing on fair price for their bumper harvest.

Officials of the Department of Food and Public Distribution have been flagging this from March this year.

The central pool had 73.85 million tonnes of food grains on April 2, 2020. This is not only the highest-ever stock available but also over 300 per cent of the strategic and operation reserve norm of 21.04 million tonnes.

Of this, the 24.7 million tonnes stock of wheat was over three times the strategic buffer required for that time. The rice stock of 49.15 million tonnes was nearly four times of the required stock. 

The government’s latest estimate shows that the kharif harvest would be a historic 140.57 million tonnes. The Cabinet Committee on Economic Affairsdeclared an increase in the MSPs for all mandated rabi crops for the 2021-22 marketing season on September 21, 2020. It is expected that the government would again procure a huge amount of food grains.  

Rice and wheat stocks are expected to reach a record level of about 92 million tonnes by July 1, 2021, according to the Food Corporation of India’s estimates. This is 2.2 times more than the norms.

The CACP report for 2020-21 kharif marketing season has recommended that the “excess rice stocks should be liquidated through increased allocation under National Food Security Act and Other Welfare Schemes”.

“In order to release storage space for procurement in the ensuing season and save on storage cost, the allocation of food grains can be given to beneficiary households for three months of demand,” the report said.

The report also asked the government to divert old stocks for ethanol production and cattle feed purposes.

The above recommendations on diversion for other purposes comes in the wake of the not-so-encouraging result of the government’s sale of excess stocks in the open market.

The Union government had decided in April 2019 to sell wheat and rice in the open market via e-auction. This was to be done through a scheme called Open Market Sale Scheme and was a step again taken to divert extra stock.

The government set a target under OMSS to sell five million tonnes in the open market for 2019-20. But it could just sell one-fifth of this target.

The CACP has pointed out that the open-ended procurement has led to excessive grains stocks.

“The policy of open-ended procurement has led to excess grains stocks and adversely affected crop diversification. The Commission reiterates its earlier recommendation that the Central Government should review the open-ended procurement policy,” the CACP report said.

The CACP also asked the government to “restrict procurement from states like Punjab and Haryana where substantial groundwater depletion has occurred and other states that give bonus”.

The report argued

For instance, if a ceiling of two hectares of rice marketed surplus quantity is imposed; procurement from Punjab and Haryana will reduce to about 10.3 million tonnes from the current procurement of about 15.3 million tonnes

More than 95 per cent of paddy farmers in Punjab are covered under the government procurement system while it is 70 per cent in case of Haryana. In case of other major paddy producing states like Uttar Pradesh and Bihar, it is 3.6 and 1.7 per cent respectively.

The crisis of the overflowing stock can be gauged from the fact that CACP now recommends the Union government not to procure grains from states that offer additional benefits above the MSP declared by the Union government. Many states including Kerala, Chhattisgarh and Odisha offer bonus above the MSP to assure farmers a better price.

“The Commission recommends that in all those states that impose high fees and incidental charges and pay bonus, procurement of rice and wheat should be restricted,” the CACP report said.

A pertinent question is whether this would lead to higher — more importantly fairer — economic return to farmers.

Given the forecast for food grains like paddy, the prices would be subdued due to large stocks and also less demand globally. If the government decides to flood the market with its excessive stock, it would lead to more supply, thus reducing the price.  

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