Early end to FCI’s open-market sales

By: | Updated: March 7, 2016 2:39 AM

Despite holding stocks much in excess of the buffer norm, state-run Food Corporation of India (FCI) has wound up its FY16 Open Market Sale Scheme (OMSS) for wheat by February-end, one month ahead of the schedule.


fciExperts say that FCI could have liquidated a million tonne of wheat under OMSS in March and reduced the stock position. (Reuters)

As against the the target of selling around 10 million tonne of wheat to bulk buyers like food companies, the FCI had sold 6.6 million tonne up to till the last week of February. Sources told FE that the decision to wind up OMSS operations was taken in order to create “sufficient (stocking) space for the new crop” which would start arriving by April.

In early February, FCI had a wheat stock of 20.3 million tonne, which was significantly higher than the buffer stock norms of 13.8 million tonne for January. Taking into account the requirement of Public Distribution System, FCI needs about 5 million tonne of wheat during February and March. Thanks to under selling of grains in FY16, the corporation would have opening stocks of around 14-15 million tonne as the procurement for the 2016-17 rabi marketing season begins on April 1. This would be way above the buffer stock requirement of 7.4 million tonne for that time.

Experts say that FCI could have liquidated a million tonne of wheat under OMSS in March and reduced the stock position. The economy cost for wheat for FCI is fixed at Rs 2,267 per quintal.

Since April last year, the FCI has been conducting weekly auction to sell wheat in the open market using the platform of commodity bourse NCDEX. The government has set a reserve price of Rs1,500 per quintal plus freight cost to consuming locations.

In Punjab, Haryana and Madhya Pradesh, the reserve price of wheat has fixed at Rs 1,550 per quintal under OMSS. For depots of FCI located outside these states, the reserve price of wheat is fixed at Rs 1,550 per quintal plus railway freight from Ludhiana to the nearest railhead and road transportation cost from such railhead to the depot.

FCI releases wheat and rice at predetermined prices in the open market from time to time to enhance the supply of wheat and rice especially during the lean season to moderate the open market prices.

The food ministry had set a 30 million tonne target for wheat procurement for rabi marketing season (RMS) for 2016-17. In 2015-16 marketing season (April-June), FCI and state government owned agencies had purchased 28 million tonne of wheat from the farmers despite a chunk of crop hit by untimely rains and hailstorms during March-April last year.

The High-Level Committee (HLC) for FCI restructuring chaired by former food minister Shanta Kumar in its report earlier last year had observed ‘during the last five years, on an average, buffer stocks with FCI have been more than double the buffer stocking norms, costing the nation thousands of crores of rupees loss without any worthwhile purpose being served.”

graph 1

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition