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FCI facing food storage crisis; costs to spiral

By Prabhudatta Mishra

The Food Corporation of India's (FCI) grain stocks level is now close to its capacity of 76 million tonne (MT) and given the expected pace of off-take under PDS and other schemes, it might face a storage crisis over the next two-three months and be compelled to sell a large surplus in the open market. This could potentially inflate the food subsidy bill, as open market sales would likely be below the economic cost of grains and loss-making.

Currently, FCI holds 56 MT of rice and wheat in its own facilities and another 26 MT of pad-dy (rice equivalent of 17 MT) pr-ocured by it for the central pool is lying with millers. While the stocks with millers will need to be shifted to FCI warehouses by April, another 20 MT tonne of kharif rice is likely to be bought by the corporation over the next four months due to its National Food Security Act obligations.

Given that PDS off-take from the pool is expected to be less than 25 MT till April, the FCI could have to grapple with a storage problem.

Also, it has to make room for wheat crop of around 35 MT to be procured in April-May. Over three years in a row, the fiscally stressed Centre has made FCI take National Small Savings Fund (NSSF) loan under sovereign guarantee to ensure the corporation’s operations aren’t disrupted. As a result, the Centre's dues to the FCI has now touched an all-time high of Rs 1.95 lakh crore, and unless it finds budgetary resources soon to salvage the situation, the result could be a debt trap.

It may be noted that FCI is facing a storage problem when its stock levels are far higher than the buffer levels. Its rice stocks, for instance, is now a little over 21 MT whereas the buffer requirement as on January 1 is 7.6 MT. Economic cost of wheat is about Rs 25/kg and rice is Rs 36/kg for the current year, and storage accounts for 15% of this.

The Commission for Agricultural Costs and Prices (CACP) in its rabi 2019-20 season report has recommended that open ended procurement policy by FCI needs to be reviewed in view of mounting stocks and the absence of an efficient liquidation policy.

Since October during the on-going kharif rice procurement season, the FCI has purchased over 22 MT, which is half of the total quantity it bought in the previous season. Only from Uttar Pradesh, India’s second largest rice producer, the agency has procured 2.4 MT so far against only 1.2 MT in the year-ago period. If this trend continues, the FCI will end up procuring about 46 MT of rice this year from across the country, against an annual off-take of 34.4 MT from its stocks in 2018-19.

"If ecologically sustainability of north-west India has to be preserved, production of paddy in Punjab, Haryana and western Uttar Pradesh has to go down. This will reduce procurement of rice in these states. Diversification to maize, pulses and oilseeds will not only help in conserving water but also reduce import bill of the country," said former agriculture secretary Siraj Hussain.