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Mega stocking by government pushing up food prices? -Surojit Gupta & Sidhartha
-The Times of India

Stocking up of foodgrains by the government could be one of the major factors for the continuing surge in food prices, warn experts.

Latest wholesale price data available on the industry department's website shows that wheat prices are up almost 20% in October compared to a year ago. That's at a time when the government is holding stocks of 42 million tonnes — three times the buffer stock norm.

Experts say the government is not releasing enough wheat in time and exports were not pushed to unload the massive stocks. In some cases, roller flour mills are being impacted as not enough wheat is being released in the open market.

Food inflation has emerged as a major policy headache for the government. Experts blame faulty policy and execution for the rising prices of some cereals.

'Excessive grains in storage should be in market'

Sugar prices have shot up 18.7% year-on-year despite moderation in global prices and reasonable stocks. The imposition of a 10% import duty in July would appear to be one of the key factors driving up prices. In fact, market players allege that the levy was imposed after Uttar Pradesh made a strong pitch for the duty in the wake of higher crop area in the state.

"At this point, it is the excessive storage with government agencies and this needs to be liquidated. This needs to be in the market," Ashok Gulati, chairman, Commission for Agricultural Costs and Prices (CACP), told TOI, adding that this would save the government high storage costs while helping moderate prices.

Planning Commission member Abhijit Sen conceded that government policies had a significant impact on food inflation. "In the case of rice and wheat, it is absolutely clear that it is government stocking which is the main problem," Sen said.

One reason why the government is holding such huge stocks of foodgrains could be that it is preparing for the eventual introduction of a Food Security Act, experts said. However, they pointed out that there seems to be a contradiction since the government has also announced its intention of shifting to a cash transfer system for food subsidies. It is not clear what role the buffer stocks would serve in such a situation.

The high-price story holds for pulses too, where prices shot up an annual 20% in October with masoor going up 23.6% and gram 34.2%. "The solution to the problem is to promote gram and masoor and hold prices of wheat," Gulati said, referring to the minimum support prices for the commodity.

Sen said in commodities other than rice and wheat, the logic of rising prices was somewhat more complex, although there were linkages.

Times View

The idea behind government agencies maintaining buffer stocks of foodgrains was to provide a cushion against volatility in prices for both consumers and farmers. It is amply clear now that the manner in which the policy has been implemented in recent years is actually proving counter-productive. When the government, even if unintentionally, ends up creating a shortage of supplies in the open market, it only contributes to fuelling inflation. Considering that holding such huge stocks also carries a cost — in terms of storage space, transporting grain from one place to another for distribution and so on — it is hurting both the consumer and the government. It must, therefore, quickly bring down the stocks to more sensible levels by releasing more grain into the market as well as the public distribution system.