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Differences persist in govt over Food Bill impact on open market prices by Prabha Jagannathan

Sharp differences persist in the government over whether and how much of an impact the impending food law is likely to have on open market food prices. At a time when input costs for farmers have already gone up significantly and threaten volatility in food prices, the food ministry has dismissed apprehensions voiced by Commission for Agricultural Costs and Prices ( CACP) chairman Ashok Gulati on the issue.

Last week, food minister K V Thomas dubbed the difference between marketable surplus in grains and the total production as "marginal". The difference between the two is a key criterion for deciding the price and demand-supply equations in the open market. Food ministry officials assert, however, that the food law will be "scale neutral." On Monday, however, Gulati, reacted by reiterating his apprehensions on open market prices of foodgrain and an availability crunch in drought years.

Speaking to ET, he stressed that the government will also have to boost its strategic buffer norm, in tandem with increased welfare commitment to 10mt, i.e., double its current level.

He pointed out that support prices for key crops, would have to go up exponentially this year in view of higher input costs, although meeting "full production costs" for crops would "remain a major challenge." In view of that, the operational costs for the food law would also go up manifold.

But, he added, "I have no worries on how the needs of the food law will be met for the first year or two, given the huge stocks available with the government now." Compared to stocks of only 19mt by the July 1 quarter in 2006, the government had 64mt this July 1.

"There is very little difference between the two. Any significant impact is unlikely because the law is not procuring to store but procuring to release into the market and cool down prices for both priority and the general category. If the latter, who have been procuring from the open market, find prices high, they will access grain from the food law allocation at lesser price to make up their food grain needs. We are currently procuring 55mt of grain for welfare and PDS programmes. For the food law, we will be procuring 61mt, which is only a marginal increase in buys. The price or supply impact will be neutralised since 48% of rural (75% of the rural poor) and 28% of urban population will be covered. The laws of demand and supply will act to make the food law scale neutral," a senior ministry official said.

Quite contradictory to the food ministry's contention on marketable surplus of grain, the farm ministry's Agricultural Statistics at A Glance registers marketable surplus of grain as a proportion of total production in states.In the three year period between 2005 and 2008, marketable surplus of rice was 74.35% of total production and for wheat, it was 60.95% of the total production, the publication says.


Gulati, co-author of a key IFPRI study gauging the impact of the food law on open market prices of grains and the participation of the private sector in grain buys (reported first in ET May 11) released earlier this year, pointed out, "Even priority consumers have to depend currently on the open market for around 5kgs of grain per person, over and above the 7 kgs per person that the food law will accommodate.

As for the general category, high value rice forms only a small proportion of total production. If the law doles out 3kg/person, that will mean that 8 kgs will have to be accessed from the open market. Logically, prices should go up with increased demand. If that happens, the pressure will increase on the food law allocations. If there is only one bucket of water available and most of that is with the government, obviously, the demand fro that will intensify, and the price for what's available outside will go up.

The early 2011 IFPRI study had emphasized that the impact on prices could not be dismissed since if the government bought around 30% of the total production of the grain, it would translate to around 50% of the total marketable surplus.