Informist, Friday, Apr 12, 2024
Abhijit Doshi
MUMBAI - The breakneck pace at which the official agencies have been procuring food grains this year is emblematic of the government's determination to sustain its welfare measures, such as free food supply to a large section of the population as also to ensure food availability at reasonable prices to others. As of Apr 11, the official agencies had procured 1.22 mln tn of wheat, a huge jump from 941,086 tn a year ago. The government has an ambitious wheat procurement target at 37 mln tn for 2024-25 marketing season, although market believes 32 mln tn may be a more realistic figure.
Similarly, official agencies have procured 71 mln tn of paddy, equivalent to 47.41 mln tn of rice, as of Monday, in the procurement operations that began in October. While this is slightly lower than 73 mln tn of paddy procured in comparable period last year, it is important to note that the government has covered up more than 76% of its procurement target at 62.10 mln tn.
The government had to undertake such a largescale operation to meet the requirement for its various welfare measures, the most ambitious among them being providing free food to as many as 800 mln people, said to be the world's largest welfare scheme of its kind. Under this scheme, people are provided with free supply of wheat, rice, pulses, and edible oil, in a pre-defined proportion. And then there are a few other schemes under which the government provides subsidised food grains to people who qualify for the schemes.
Given the speed with which the government is buying grains, mostly from farmers, it is no surprise that many experts believe it may overshoot its procurement targets. The government has also hiked the minimum support prices at which it undertakes procurement from growers, to incentivise them to sell their crops to the official agencies like Food Corp of India and National Agricultural Cooperative Marketing Federation of India.
What is pressing the government to pace up its procurement is a sharp fall in the stocks with the Food Corporation of India, its main buying and selling agency. According to data by the FCI, wheat stocks with the government dipped to a seven-year low of 9.7 mln tn as of Mar 1, and slipped below the buffer norm of 13.8 mln tn--operational stock of 10.8 mln tn and strategic reserve of 3 mln tn--thanks to record open market sales, free food grain scheme and lower output last year.
The open market sales scheme of rice and wheat, under which the government used to auction the grains to the market, has been discontinued. With the government taking away a major portion of farm output--roughly estimated at 30% in case of wheat in 2024-25 season--and the auction sale abandoned, market could be majorly deprived of supply.
The high levels of procurement achieved so early in the year is attributable to a number of measures the government adopted to meet the targets. It started procurement operations early this year in March rather than the usual norm of April.
The government has also taken other measures this year to facilitate its procurement campaign, not only for cereals but also for sugar, pulses et al. It has raised the minimum support prices at which it procures the grains for various crops, some of the raises being hefty. A few state governments have also announced bonus over and above the MSP, to lure farmers. In addition, the government has, according to media reports, advised private traders to avoid purchasing grains from farmers for sometime, until the government is satisfied with its stocks. Besides, the government has imposed restrictions on stocks that private traders can hold, as well as restrictions on exports, so that grains are available for its procurement programmes. Market participants have also to declare their stocks of various grains on a weekly basis.
For 2024-25 (Apr-Mar), the central government has set the minimum support price for wheat 7% higher on year, at 2,275 rupees per 100 kg. To encourage farmers to sell their wheat crop to the state government, Madhya Pradesh and Rajasthan have announced a bonus of 125 rupees per 100 kg over and above the minimum support price, taking to 2,400 rupees the total payable to farmers.
Farmers are now selling their produce to the government as the minimum support price in Madhya Pradesh and Rajasthan is higher than the prices prevailing at the mandis in these states. The prices of mill-quality wheat in the Indore mandi were at 2,360-2,445 rupees per 100 kg, which is below the minimum support price notified by the government. On other hand, in cases where the market prices are higher, the government has, at least in some cases, decided to buy the product at the higher market prices. For instance, the government has, according to media reports, decided to buy chana at market prices, which are higher than the MSP, pan-India, from farmers.
It is not a new thing for the Indian government to worry about food inflation and adopt measures like stock restrictions to curb it. What is noteworthy, however, is that this is for the first time that the government has entered the field of retail distribution of food grains. It has started selling Bharat atta, Bharat chawal or rice and Bharat dal directly to retail customers, at subsidised rates.
This ambitious programme of the government has resulted in some unexpected, probably unintentional, outcomes. The increasing responsibility that New Delhi has adopted of collecting these food items from farmers and distributing them to consumers at subsidised rates is slowly pushing the retail trade to the sidelines. Anecdotal and conversational evidences, too, support this narration.
This is also evident from the recent decline in arrivals of grains in the open market. For example, wheat arrivals in the markets at Indore, Madhya Pradesh, last week were 5,200-6,200 bags (1 bag = 60 kg) a day, compared with 10,000 bags last year, traders said. According to the agriculture and farmers' welfare ministry's AgMarknet, arrivals in Kota, Rajasthan, were 18,213 tn in the first week of April, against 33,610.5 tn at the same time last year. As the Food Corporation of India sells grains and other products to consumers, retail traders seem to have a much smaller role, if any, to play.
Although some circles believe that these measures are aimed at national elections, scheduled in the next few weeks, and could be reversed later, experience shows that steps taken in the interest of people’s welfare are difficult to reverse. Any government would find it difficult to drop schemes like free food for 800 mln people. Moreover, the government, as per media report, is now planning to penetrate the millets market. Obviously, all this would leave much smaller role for private trade in the country.
Concretely, the position could aggravate. Traders suspect that the government's estimates of output of various crops this year are on the higher side, and actual crop may be lower. And the government would endeavour to take away a large portion of whatever supply is available. Moreover, the government is selling much of the grains at a fixed price, leaving little scope for prices to move according to market forces. While the government is busy executing its welfare measures, the retail traders' span may shrink and market play may be a collateral damage. End
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