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Resource centre on India's rural distress
 
 

In agriculture’s pyrrhic victory, a call to caution by RN Bhaskar
There’s both good news and bad news on the food front.
 
The good news is that wheat, maize and pulses production during the current year will be the highest that India has seen.

Wheat production was expected to be high, thanks to the twin advantages of a high procurement price —- higher than international prices —- and favourable weather conditions.

But pulses production too has zoomed, because of the soaring prices in the domestic market, triggered by the shortages in pulses production during the past three years.

The bad news is, India has still not managed to work out enough storage capacity.

Compared with a combined production of 175.48 million tonne (mt) of rice and wheat —- the two crops that involve procurement policies at the government’s end —- the combined ‘safe’ storage in India is just around 63.4 mt.

This could mean that more grain will get destroyed, or pilfered, or pushed across the borders into Pakistan, Bangladesh, Nepal and China.

The government did promulgate the Warehouse Development & Regulation Act (WDRA) 2007 in October 2010 and also appointed a WDRA Regulator, undoubtedly prodded on by the Supreme Court, which was annoyed at the wastage of grains because of improper storage conditions.

But, except for a fresh capacity of 2 mt —- including 1 mt by India’s largest agricultural commodity exchange, National Commodities and Derivatives Exchange, through its subsidiary National Collateral Management Services, and 1 mt by National Bulk Handling Corporation, a subsidiary of Multi Commodity Exchange, the other major player in warehousing agri products —- there has been little accretion yet. Indeed, 2 mt of additional storage is far too little; it should go up by at least 30 mt if India is to ensure that much of the grain it produces is not wasted, and that farmers do not have to resort to distress sale, which only benefit unscrupulous traders.

The WDRA was meant to rectify all this. But the government sat on it for three years (since 2007).

Investment in grain warehouses should be encouraged, both with fiscal incentives and with other enabling legislation by states to ensure that they come up quickly.

The WDRA allows commodity exchanges to procure grain, and to store them in warehouses controlled by them. Once they have been assayed, graded and valued, the receipt they offer farmers can be traded or returned to the banks in exchange for prevailing spot market prices on the exchanges.

This will prevent farmers from selling their crop at distress prices, especially in areas where the Food Corporation of India (FCI) and the state agencies do not go in for procurement of grains.

It will also allow pulses to be stored, so that prices do not crash, and the farmers have an option to sell their produce either in the futures markets, or keep it in storage, till prices improve on the spot markets.

But the government will also have to accelerate investments in grain wagons that can speedily take the grain to the nearest storage depots managed by the commodity exchanges. It will require investments in such wagons.

It will also mean that state governments should be prodded to ensure that private investment in storage capacities are speedily ramped up in the interest of national security (food security is nothing else but national security, which allows the central government to intervene for a limited period if state governments go against national interests).

Storm clouds have been gathering on the horizon.

First, there is a global shortage of food production, causing the UN’s FAO to hold no less than six summits last year on the subject of food security.

Second, this food shortage could become worse because of higher food intake by almost all developing countries in Africa, Asia and China, thanks to improved economic growth.

When impoverished countries begin to earn a bit more money, the first surge is experienced in food consumption. People begin to consume two meals a day or even three as against the subsistence level of one.

Thus, for every 1% increase in population, there is a 3% or more spurt in food consumption.

Third, Pakistan’s grain producing areas were devastated by floods last year, causing wheat production to go down alarmingly.

Fourth, China, one of the largest producers of wheat, and a large consumer as well, has seen its crop damaged because of inadequate rains.

All these will cause the global price of wheat to soar. This will tempt some unscrupulous Indian traders to sneak foodgrain across India’s borders, especially if they have been procured from farmers at distress prices.

The lack of storage capacity will mean that if FCI and state trading agencies procure too much of grain, they will ensure that it will rot because of inadequate storage. If they procure too little, they could push the farmer into the arms of traders who might offer distress prices.

Either way, with wheat-starved people in Pakistan and China, the temptation to short-change the Indian consumer will be great.
The big question is —- will the Indian government act quickly?

Or will it take another Supreme Court directive to protect both consumers and farmers?