Kharif season 2021: As FCI stocks pile up, Centre prunes paddy purchases at MSP

October 04, 2021 5:00 AM

For FY22, the food subsidy has been estimated at Rs 2.42 lakh crore while the revised estimate of FY21 was raised to Rs 4.23 lakh crore from Rs 1.16 lakh crore (BE).

Foodgrain 01It has also reduced the procurement target for the current year to 50 million tonne.

By Prabhudatta Mishra

Given that augmented procurement of paddy in the 2020-21 crop marketing year (October-September) in the wake of the farmers’ agitation raised the grain stocks with the Food Corporation of India (FCI) to an unmanageable level, the Centre is planning to regulate the purchases from farmers at MSP in the current year.

It has also reduced the procurement target for the current year to 50 million tonne, as against actual purchases of close to 60 million tonne last year, which was an all-time high and almost half the total production of the grain in the year.

This may, however, anger the farmers, especially those in Punjab and Haryana, who have conventionally been the biggest beneficiaries of open-ended procurement policy.

According to sources, as the kharif crop arrivals have commenced, the Centre has asked states to enforce caps on paddy procurement in 2021-22, by restricting purchases from farmers as per their land holding records and average yields. Accordingly, Punjab and Haryana have decided to buy paddy at the rate of 25 quintal per acre. Farmer organisations have already raised objections saying there should not be any such cap as yield varies across districts. A section of farmers has even seen yield of even more than 30 quintal per acre, they point out.

In 2020-21 crop marketing year, paddy procurement at MSP was 49.3% of the annual production of the crop; in 2019-20, procurement was 43.7% and in 2018-19, at 38.1%. In fact, MSP purchases of paddy reported from Telangana and Punjab during 2020-21 were even higher than the recorded annual outputs of the respective states, implying recycling of grains and possibly, farmers from neighbouring states also getting their crops sold at the procurement centres in these states.

Source added that many states like Chhattisgarh, Andhra Pradesh and Telangana have been told by the Centre not to transfer parboiled rice this year, as the Central Pool has enough stock of it to meet the demand for the next 3-4 years. Paddy procured by states and their agencies are allowed to be processed by them before being handed over to the FCI in the form of rice. The Centre wants to save expenses as processing cost of parboiled rice is higher.

According to estimates by informed observers, FCI’s rice stocks are now hovering around 36 million tonne, an all-time high, as against 27.8 million tonne at the same time last year. This is against the buffer level of 10.25 million tonne. The stocks were only 15.9 million tonne on October, 2016.

The FCI rice stocks as on October 1 was even higher than the total offtake of rice (35.2 MT) from Central pool under all regular schemes like NFSA, mid-day meal and open market sale during FY21.

The Centre on Saturday rescinded its decision to defer procurement by 10 days in Punjab and Haryana after farmers protested. A few hours before procurement of paddy was to begin from October 1, the food ministry had issued a circular to commence it from October 11 in view of high moisture content in the grain due to late rains in September.

FCI’s carrying cost (handling, storage and interest) of rice is around 19% of the economic cost of the grain (`4,293.79/quintal for 2021-22) and it inflates the food subsidy bill. The Centre was considering privatising food stock management to bridge the deficit in India’s public capacity for food grain storage and cut the carrying cost of FCI. However, the plan could not take off due to overflowing granaries near the agency’s warehousing capacities.

Under a plan earlier initiated by Niti Aayog, the revenue generated from the leasing of FCI’s covered warehouses to private players was to be used by the agency to create greenfield warehousing infrastructure. The idea was that private players, to be selected through competitive bidding, would get fees for carrying out the stock holding and maintenance operations.

The Commission for Agricultural Costs and Prices (CACP) has pointed out that government has emerged as the single largest buyer of food grains and driven out private sector from the market after increased production. “The Commission, therefore, reiterates its earlier recommendation that the government should review open-ended procurement policy for rice and wheat and take a policy decision to procure from small and marginal farmers, who constitute 86% of total operational holdings, and a fixed quantity from other farmers,” CACP said in its report for Kharif 2021-22 season.

“It is very difficult decision, politically and economically, when the farmers are demanding legal guarantee of MSP. The government has been showcasing the high procurement as an achievement whereas it is a liability in terms of country’s finance,” said food policy expert Vijay Sardana. But given the budgetary constraints and difficulties in disposing of the surplus stocks, there has to be a decision in the next few years to manage the unmanageable, Sardana said.

The shifting of liabilities on account of the NSSF loan for FCI to the Budget (for FY22) was aimed at reducing the economic cost of grains and the actual food subsidy outgo, as FCI will save the interest it pays on its borrowings from banks and NSSF.

For FY22, the food subsidy has been estimated at Rs 2.42 lakh crore while the revised estimate of FY21 was raised to Rs 4.23 lakh crore from Rs 1.16 lakh crore (BE). With the continuance of free food grains distribution under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for seven months (May-November) in the current fiscal, entailing an estimated expenditure of about Rs 94,000 crore, the subsidy outgo is set to rise further.

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