3 min read.Updated: 14 May 2013, 03:06 PM ISTRenu Kohli
Exporting one’s way out of the surplus is a losing proposition as global prices have fallen rapidly in the past few weeks
India held 77.5 million tonnes (mt) of food stocks in its central pool on 1 May. These stocks had reached a record high of 82.4 mt on 1 June 2012, and that level could be crossed if wheat procurement this May is similar to the procurement a year ago. So, food stocks could very well peak at 88-90 mt this June.
That this food mountain was built in anticipation of an early implementation of the proposed National Food Security Bill (NFSB) and to meet exigencies because of the drought, just before the national elections, is no secret. At 88 mt in June 2013, the government would have accumulated more than 22.5 mt of additional food stock in the last two years. The fact that the Food Corporation of India managed to procure a record 40 mt of rice in a year of inadequate monsoons shows the urgency with which the government has been building up these stocks.
Unfortunately, it looks like neither may materialize: the government was unable to convert the National Food Security Bill into a law before the Parliament session concluded, while forecasts predict a normal monsoon this year. With a good wheat crop on its way and a possible boost to rice output from a normal monsoon, what is to be done with the food mountain, when the stretchable storage capacity is not more than 50-60 mt? Is it about to become a liability?
Current food stocks are far in excess of buffer and public distribution needs. Buffer stocks are normally around 21-31 mt, of which 5 mt must be kept at all times for emergencies. Food grain offtake for the public distribution system (PDS), including open market sales for price management, was 56.4 mt in 2011-12 and 47.2 mt up to December 2012 in the previous fiscal year.
Assuming a 50 mt offtake under PDS and welfare schemes, with adjustments for open market operations (10 mt) and emergency stocks (5 mt), a quick calculation yields an upper-bound estimate of 65 mt as required food grain stock. Surplus stocks therefore, could be in the 20-25 mt range. Even assuming a delayed implementation of the Food Security Law in the next session of Parliament, food stock offtake is not expected to pick up fast. The food minister told Parliament in March that NFSB implementation might need 61 mt; all welfare schemes are subsumed in this. Thus, the problem of the plenty is not going to go away soon.
Where then is the space for further procurement? Wheat output is estimated at 93.6 mt for 2012-13; the initial procurement target of 44 mt for 2013-14 was scaled down to 40 mt to start with, and then to 33-35 mt. This may have something to do with lack of storage space and, perhaps, availability of bank credit. Still, some space has to be created to accommodate procured stocks in the near term. In that event, food grain stocks kept in the open may rot or force dumping as cattle feed, as was the case some years ago.
Exporting one’s way out of the surplus is a losing proposition as global prices have fallen rapidly in the past few weeks. As the economic costs of food grain (sum of support prices, additional procurement charges, storage and distribution costs) continue to rise, the economic survey shows these roughly doubled in the six years to 2012-13 to almost ₹ 1,900 and ₹ 2,400 per quintal, respectively, for wheat and rice. Any effort to increase offtake could see a sharp rise in the food subsidy, which is budgeted at ₹ 9 trillion for 2013-14, and constant at 0.8% of GDP at last year’s provision, ironically even while the Food Security Bill remains pending.
Renu Kohli is a New Delhi-based macroeconomist; she is currently Lead Economist, DEA-ICRIER G20 Research Programme and a former staff member of the International Monetary Fund and Reserve Bank of India.