FCI plan to trim stocks, costs comes a cropper

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New Delhi | Updated: November 22, 2014 9:08 AM

Sufficient availability of wheat with private traders coupled with states’ inability to lift rice meant...

For the FCI, which has managed to reduce stocks by a quarter from record levels two years ago, this presents a threat of a fresh piling-up of stocks.For the FCI, which has managed to reduce stocks by a quarter from record levels two years ago, this presents a threat of a fresh piling-up of stocks.

Sufficient availability of wheat with private traders coupled with states’ inability to lift rice meant for the poor due to inadequate storage has hit a Food Corporation of India plan to offload excess grain stocks in the open market and cut its carrying costs. For the FCI, which has managed to reduce stocks by a quarter from record levels two years ago, this presents a threat of a fresh piling-up of stocks.

So, rather than keep the momentum of cutting the carrying costs — FCI saved R7,000 crore in the two years by aggressive open market sales and reduced procurement — the state-run agency might end up reversing the trend in the short term. This is bad news for the managers of government finances as FCI’s expenditure on handling stocks is a significant part of the food subsidy. Reduced grain procurements and moderate increases in minimum support prices (MSPs) in recent years have otherwise been auguring well for the Centre’s finances.

According to sources, close to five months after the government announced the release of excess wheat and rice stocks through open market sale and additional allocation to states as inflation control measures, the situation on the ground is hardly promising. Against a target of uploading 10 million tonnes of wheat through the open market sale scheme (OMSS) meant for bulk buyers by March 2015, only 1.2 million tonnes have been purchased by millers and food companies so far. This compares poorly with the the rather brisk OMSS operations in the same period last year. Since the start of October this year, only 0.61 million tonnes of wheat stocks have been offloaded by FCI in the open market, whereas the corresponding figure for October-November last year was 1.5 million tonnes.

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The demand from the private purchasers for wheat has been rather sluggish this year, while prices are ruling around the government’s minimum support prices in the open market.

Compounding the problem for the FCI is that since the finance minister’s announcement of allocating an additional 5 million tonnes of rice to states for distribution to poor families in July, only 1.5 million tonnes of grain have been lifted by the states due to lack of storage facilities.

Food ministry officials admit that even if the wheat purchases under OMSS pick up pace in the next three months as witnessed in the previous year, this year’s sale would not be able to match last year’s figure.

“The government should have sold the grain below MSP for attracting private players,” said Adi Narayan Gupta, a flour miller from Uttar Pradesh and former president of the Roller Flour Millers Federation of India.
The FCI conducts weekly auction to sell wheat in the open market using commodity bourse NCDEX as a platform. The government has set a reserve price of R1,500 per quintal plus freight cost to the consuming locations. It had fixed the MSP of wheat for 2013-14 at Rs 1,400 per quintal.

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