Sunday, September 12, 2010

Rotting of Food-grains - an exaggerated concern or a serious shame ?

There has been, during the last six months, an onslaught in media, both in electronic (especially NDTV & Sahara Samay) and printed media (Hindustan Times, TOI, ET, Dainik Jagran) on rotting of food-grains and the callous manner in which there have been no remedial measures to stem the rot. Highly exaggerated reporting on rotting as to how this could have fed the entire nation of France & so on has appeared regularly. A stage came when even I started to look at myself defensively and started avoiding eye-contact with friends and strangers lest they hold me responsible for this rot.
Co-incidentally, a case filed by PUCL (People’s Union of Civil Liberties ) in WP (civil) no 196 of 2001 came up for hearing during August and September 2010 and together, along with the fact that Parliament was in session, made everybody sit up and take note of the food-grains scenario in the country. For people who have been suffering food inflation for more than an year, the rotting of food-grains provided an angry outlet which has put Government and officials almost on the defensive.
It is in this regard, I thought it necessary to clarify some of the points involved so as to decide in an unbiased manner whether the problem actually is of the magnitude as projected and whether something can be done to tide over the situation by looking at a long term solution.
What did Supreme Court order?
Supreme Court in WP no. (civil) 196 of 2001 dated 12/08/2010 (PUCL vs UOI) ordered, inter alia, that “The Union of India must ensure food security of the country. In view of the record procurement which the GOI is not able to properly store and preserve, it would be appropriate that the GOI may take some long term & short term measures to solve the problem. Permanent solution lies in constructing adequate storage facilities. The UOI may consider constructing atleast one large FCI godown in every State and consider the possibility of construction of one godown in every division if not in every District.
Similarly, the GOI may consider taking some short term measures to deal with the problem of food-grains which is rotting:
(a) Increase in the quantum of food supply to the population which is BPL;
(b) Opening the FPS for all the 30 days in a month and;
(c) Distribute food-grains to the deserving population at a very low cost or no cost;”

Before getting into the specifics, let's look at the procurement and storage scenario in the country. The procurement of food-grains in the country is as follows:
It can be seen that there has been a record procurement from the last two years and the trend is continuing this year too. It is also to be noticed that procurement, both in absolute terms and as percentage of production has been increasing at a much faster rate and procurement, as on today is 35% of production in case of rice and 28% in case of wheat. It is mainly due to the fact that farmers find it remunerative enough to sell off to procurement agencies at MSP. It also partly shows the effectiveness of procuring agencies in ensuring its reach to farmers. The 3 years moving average of procurement and production is as under:

How much can be stored safe and what happens if there are more stocks?
Government has a total storage capacity - covered & permanent of about 43 million tones (FCI+CWC+State agencies including SWC). This implies that food-grains stocks upto 43 million tones can be stored in these permanent godowns with minimum damages. The capacity utilization of these godowns, during the last two years has gone up from 74% to 91 % against accepted norms of 75% ( this is due to factors such as geographical location of the godown, its actual condition etc). Whenever, depending upon the levels of procurement and also on the offtake under PDS, the stocks with Government exceeds this capacity, it has to be kept in the open under “Covered and Plinth” (CAP). Due to continuous higher levels of procurement during the last two years and during this year, the stocks in the Central Pool of the Government, reached a level of 57.85 million tones as on July 1, 2010 (which was incidentally 1.8 times the buffer requirement). As a result, 16.8 million tones had to be kept under CAP. Despite best efforts to preserve and maintain the quality & to ensure that the principal of FIFO is followed while taking out the food-grains from the godowns (& where CAP is given precedence over permanent godowns while taking out food-grains), some damage do take place. At times it is human error (when FIFO is not followed or simple negligence), at times it also could be due to other factors which are beyond human control such as floods (in Kurukshetra for instance). The probability of damage is much higher under CAP and while all efforts are made to minimize the dependence on CAP, it is inevitable due to higher procurement.
Why shouldn’t Government procure only that much what can be stored safe?
The Supreme Court has observed, in its order dated 31/08/10 in 196 of 2001, inter alia,
“According to the Court Commissioner’s report, about 50000 tones of wheat have already been deteriorated and is not fit for human consumption. He further submitted that several lakh tones of wheat which has been procured has not been properly preserved. We would like the Central Government to inform us what steps they have taken to preserve the remaining food-grains procured by them. The FCI must properly evaluate capacities of their godowns and procure only that much food-grains which can be properly preserved.”
Procurement policy of the Government has twin objective of (i) ensuring Minimum Support Price (MSP) to farmers and (ii) meeting the requirement of food-grains for the Public Distribution System (PDS). As part of first objective, Government assures to every farmer that whatever quantities of food-grains they wish to sell to Government’s procuring agencies at MSP (& which is conforming to quality specifications) will be purchased by these agencies. As such, the procurement operation of Government is open ended. Since the farmer has an option either to sell to Government agencies at MSP or in the private market at the prevailing rates, limiting procurement by Government only to the extent of present storage capacity would deprive farmers the benefit of MSP, especially in the years of higher production leading to lower levels of prevailing prices in the open market. Absence of adequate returns would not only imply exploitation of farmers by traders but also a likely shift from food-grains to non food-grains during subsequent years and would seriously jeopardize food security. As such, procurement cannot be restricted.
Government’s effort should be to augment storage to accommodate increased procurement rather than limit procurement to storage which would be retrogressive.
The way out
As a long term measure, answer lies in creating additional storage capacity, in tune with the procurement and also the requirement under PDS. The requirement of storage is calculated based on the peak production during last three years for procuring States and four months requirement under PDS in the consuming States. Government has announced a scheme for incentivizing private sector for construction of godowns under an assured guarantee for usage for 10 years. However, a lot more needs to be done. A District level and block level exercise needs to be taken up, as suggested by Supreme Court and policy initiatives should be rolled out for promoting decentralized storage scheme and involving stake holders ( PRIs, SHGs & Local people) not only in construction but also its management and stock inventory management.
Mechanism of PDS
The second objective of Government in undertaking procurement of food-grains is to make food-grains available to poor and needy at affordable (subsidized) prices under Targeted Public Distribution System (TPDS). The Department of Food & Public Distribution (DFPD), the nodal department responsible for this scheme follows the poverty estimates of 1993-94 of the Planning Commission projected on population estimates of March 2000 of Registrar General of India. The total number of Below Poverty Line (BPL) families (following a family size of 5.5 persons per family) comes to 6.52 crore. There are three categories followed for distribution under TPDS – (i) Antodaya Anna Yojana (AAY) – these are the poorest of the poor and a total of 2.43 crore AAY families are covered under TPDS, (ii) BPL – the ones classified as BPL as per Planning Commission’s estimates and (iii) Above Poverty Line (APL) families. The number of BPL families at 6.52 crore include 2.43 core AAY also. The difference assumes significance as the scale of food-grains allocation and the extent of subsidy varies for these 3 categories. While BPL families including AAY are issued food-grains @35 Kg/family/month, APL families are allocated @ 15-35 kg/family/month depending upon the food-grain stocks in the Central Pool. These food-grains are distributed at highly subsidized rates as can be seen from the table:

The total subsidy involved as a result is ballooning and was Rs 72500 crore (actual requirement including backlog) during 2009-10. The requirement of subsidy has already exceeded Rs 80000 crore during the current year.
These food-grains are actually distributed through a network of 5.04 lakh Fair Price shops which may be run by a dealer or managed by SHGs /Co-operatives. Even though the food-grain stocks are allocated for 6.52 crore identified BPL families, the actual number of BPL ration cards issued by the State Governments are 11.08 crore. As a result, even though entitlement and issuance for 6.52 crore families is @35 kg/family/month, these State Governments, wherever the actual coverage is more, lowers the entitlement to cover the additional numbers. For instance, Andhra Pradesh allocates @20 Kg/family/month, Bihar @25 kg, Tamilnadu @12-20 Kg, Kerala @ 25 kg and Madhya Pradesh @ 20 kg/family/month. This in fact, goes against the order of Supreme Court dated January 10, 2008 (ensuring BPL coverage @ 35 Kg/month).
Why not increase the coverage under BPL by following the latest population estimates?
Why are we still following 1993-94 poverty estimates and population projections of 2000? The reason is that the poverty estimates of the next round of Planning Commission of 2003-04 actually brought down the poverty levels and if these were to be applied to population estimates of 2009 or 2010, the actual coverage under BPL would actually have come down. Since most of the States would not have agreed for such a reduction, the norms have not been changed.
The latest poverty estimates (of a Committee headed by Prof Tendulkar) of Planning Commission are under examination. It is estimated that number of BPL families (at 37% of population) under this latest report will be around 8.15-8.40 crore families. Moreover, the issue of coverage - universal vs targeted and the extent is under action consideration under the proposed National Food Security Act and is likely to be firmed up in next six months. One of the key considerations will be availability of food-grains on a long term basis.
Extent of rotting of food-grains and why can’t it be distributed free ?
A total of 67,539 tones of food-grains have been reported as damaged or unfit for human consumption, part of which is what’s shown in media. By its very definition, this is unfit for human consumption and will have to be used, either as cattle feed or for industrial use. An impression is being created by the media as to why is it not being distributed free instead of letting it rot. Just as clarification, Supreme Court didn’t ask this stock to be distributed free. What Supreme Court suggested was whether it’s possible to consider distributing the stocks kept under CAP at a highly subsidized rate or even free. The Government, as an interim measure, has decided to release another 2.5 million tones at subsidized rates.
Another option which the Government has been exercising since October 2009 is release of additional food-grains under Open Market Sale Scheme (OMSS). The food-grains released under this scheme are subsidized though not to the extent of what's extended under TPDS. More than 8 million tones have been released under OMSS during the last one year. However, there are two points here- firstly, there could be a long term stable policy of the Government regarding OMSS i.e. there should be an automatic mechanism to release stocks whenever it exceeds certain ratio of buffer after meeting the requirements of TPDS and secondly, the pricing under OMSS could be a bit more liberal i.e. closer to APL rates rather than keeping it artificially close to the prevailing market rates. This will make the OMSS intervention very effective and the offtake will improve leading to greater liquidity and availability of foodgrains in the market. Anything free, apart from creating huge financial implications, has long term repercussions in terms of political compulsions and will be totally regressive. It also has a danger of disincentivizing food-grains production in the long run with serious repurcussions on food security. It is instead a matter of prudence that additional storage capacity is created with a part of that financial cost which will have a more long term salutary impact on food security.
I would like to conclude by saying that yes, there is a problem of rotting of food-grains and that all efforts must be made to minimize the wastage and damage of food-grains during its procurement, transportation, storage and actual distribution but it’s not happening for the first time. It’s just that media has tasted the blood this time . I would also like to mention that a coterie of armchair intellectuals and ill informed reporting will do no good for the cause except playing to the gallery at a time when everybody finds it convenient to sail in the populist boat of angry emotions fuelled by food inflation. However, a watchdog is a must to keep the pressure on all concerned and hopefully, something good and on a long term sustainable basis will be come out of this mess & rot.


  1. good post...

    just one thing sir, in the context of food inflation and rotting stocks, when somebody says, "instead of letting foodgrains rot, the government should off-load some stocks into the market", how feasible is this suggestion. i would have thought that PDS is the only channel for government to off-load stocks.

    are there any other market operation means to influence prices (given that the futures market too is absent)? or are "helicopter drops" the only option??

  2. Agreed Gulzar. Government has to consider the option of off-loading stocks, in excess of its requirements which will otherwise get damaged, at a price which is lower than the market price. Open Market Sale Scheme (OMSS) is meant for such interventions though the scheme requires to be announced as policy mandate rather than 'helicopter drops'. The pricing under OMSS also needs to be made more attractive for BPL families.