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Check Govt Grain Buys, Use Cash Transfers or Food Coupons: Study by Prabha Jagannathan
Massive grain procurement to meet the requirements under the proposed national food security law could drive out the private sector and have larger implications on the state of the domestic procurement market, a study on food and nutritional security has warned.

Apart from impacting exports and cereal price in the open market, rising public procurement will only make it costly to buy, store, transport and distribute grain, the study said, adding that the government should avoid huge grain purchases and, instead, explore cash transfers and food coupons.

The observations could have a deciding impact on the ongoing tussle within the food EGoM, which will meet on Friday to take a view on the recommendations made by Sonia Gandhi-headed National Advisory Council and the Rangarajan committee on the contours of the proposed food law.

The IFPRI study by Ashok Gulati, Kavery Ganguly and Ganga Shreedhar—Food and Nutritional Security in India: A Stocktaking Exercise — has emphasised that a marked escalation in grain buys would specifically impact private players that have just begun to take “small steps” in the grain procurement area. “Strangulating the private sector could impact other key areas in agriculture, including seed and storage where its role would become even more crucial now.” Persistent uncertainty in government policies has restricted the private sector to a few states, such as Uttar Pradesh and Madhya Pradesh.

On an average, nearly two-thirds of the domestic grain finds its way to the private sector, which traditionally comprised small traders and flour millers but now includes big corporate buyers as well. However, government buys as a share of total marketed surplus has increased over time. In 2008-09, for instance, 43% of the marketed surplus of rice and wheat was procured. In contrast, food availability with the government, made on the basis of an assumption of procurement of 30% of total production, is almost 50% of the marketable surplus. Substantial increase in buys of marketable surplus would impact open market prices for all consumers, including priority households eligible for grain under the proposed food Act. As against a monthly per capita entitlement of 7 kg grain as recommended by the NAC, the total monthly per capita consumption of priority households is around 10 kg. And they procure almost 25-30% of their requirement from the open market. “Accordingly, there is an urgent need to figure out the optimal level of grain stocks needed by the government on a quarterly basis, the study says. “The inability to adhere to existing stocking norms together with huge fiscal burden imposed by the system raises serious questions about the working of the stocking policy in India today.”

If the Food Corporation of India's efficiency were to reach the level of private traders-whose costs are half of FCI's, then the optimal stock (food security stock and not operational stocks to service welfare programmes) for rice would be 6.5 million tonnes but for wheat it would remain 0.5 million tonnes. But if these operations are super-efficient and costs reduce to only 25% of the present cost, even then the optimal stock level for rice and wheat do not exceed 9 mt and 3mt, respectively, the study said.

It has de-stressed actual grain transfers, saying, “moving away from massbased direct food transfers to conditional cash transfers and other alternatives such as food coupons should be tested. This will help clearly differentiate between stocks held for emergency and buffer/price stabilisation purposes and those held for distribution, and also potentially lessen the leakages of grain from the system.”

National Food Security Law and Market Play

Govt. procurement of rice and wheat under the central pool

           2006-07  2007-08  2008-09  2009-10  
Rice      26.3%    26.3%    32.8%    22.9%
Wheat  9.2%     11.1%    22.7%    25.4%