Subsidised sale of wheat, rice by Govt inevitable .

Mumbai, March 31 Storage and logistics issues threaten the Government's inventory management of foodgrains. On behalf of the Centre, the Food Corporation of India (FCI) is holding humungous quantities of rice and wheat even as a new wheat crop is staring us in the face. How will the situation of plenty be handled? No one has a clue.

Huge buffer stocks

The FCI records show as of March 1 it was holding 26.6 million tonnes of rice, which may decline to around 25 million tonnes after despatches this month. So as of April 1 as against the minimum buffer stock norm of 12.2 million tonnes, FCI will carry double the quantity of rice.

In case of wheat, the situation is worse. As of March 1, FCI was holding 18 million tonnes. After accounting for likely March despatches, the stock level may decline at best to 16 million tonnes by the end of the month. The minimum buffer stock norm for April 1 is 4 million tonnes. So, FCI will hold four times the minimum stock norm.

New Delhi keeps harping on 80 million tonnes as the size of wheat production, while FCI has set a procurement target of 24 million tonnes.

Fraught with risks

At some stage in the coming two months, if FCI manages to meets its procurement target, it will hold as much as 40 million tonnes of wheat, which is 50 per cent of the estimated wheat output this season.

The situation is unconscionable and fraught with high risks in terms of costs and operational as well as administrative problems. The country's food managers have not learned any lesson from what happened between 2002 and 2005.

There is a wholly unsustainable and unnatural smug feeling in New Delhi that huge foodgrain stocks in Government warehouses mean food security.

Deceptive

Nothing can be more deceptive. The Government is waging an unequal battle against raging food inflation, and yet excessive stocks continue to sit in public warehouses.

No one in the domestic market will buy FCI wheat unless it is priced as near as the current market price, or slightly lower, because of expectation of further softening. But the cost of wheat procured last season is already in excess of Rs 13,000 a tonne. So, subsidised sale is inevitable. On every tonne sold, the Government may lose about Rs 1,500. Sale of three million tonnes would entail a subsidy damage of Rs 450 crore.

Export option

Sale in the domestic market should receive priority, even if it involves large subsidy. Export is another option that cannot be overlooked either, and such export must involve no subsidy; it must be explored seriously. Why not link rice and wheat export? The Government must permit export of two million tonnes of rice and impose a condition that rice exporters must ship out 1.5 tonnes of wheat for every tonne of rice exported.

Profit on rice exports will go to subsidise loss on wheat exports, with no attendant cost to Government.

Through such linked export, up to five million tonnes can be shipped out in a time-bound manner, and scarce storage space may be released for the new crop. The suggestion may, on the face of it, sound outrageous, but given the compulsions of the time, the Government must seriously consider the option. Of course, one needs to work out the finer details of costs and other aspects.

The grain trade is resourceful enough to scout for markets; but it is for the Government to ensure that the export business is conducted in a systematic and transparent manner by imposing an appropriate monitoring system.

Source : Business Line