Time to revamp FCI? It offers little to the farmer or PDS management

Will the government move to revamp the Food Corporation of India (FCI)? Numerous committees have provided multiple recommendations to make it more efficient. 

Let’s look at what exactly is the role of the FCI and if it has really done its job well.

Genesis, objectives

In the 1960s, as India was emerging from chronic food shortages, it was envisaged that a national granary should be put in place to hold food stocks in time of abundance. Thereby, the Food Corporation of India Act, 1964 had three primary objectives:

1. Effective price support operation to safeguard the interests of farmers.
2. Distribution of food grains throughout the country for a public distribution system.
3. Maintaining a satisfactory level of operation and buffer stocks of food grains to ensure national food security.

So, in a nutshell, a single behemoth was created to solve various ills.

Effectiveness

If one were to look at the functioning of the FCI and evaluate it against each of the stated objectives, some observations emerge. These have been pointed out by experts, reports and committees over time:

1. MSP benefits: The  National Sample Survey Office (NSSO) #39 (70th round) data for 2012-13 reveals that of all the paddy farmers who reported sale of paddy during July-December 2012, only 13.5 per cent sold to any procurement agency (in January-June 2013, this ratio for paddy farmers is only 10 per cent); in case of wheat farmers (January-June 2013), only 16.2 per cent farmers sold to any procurement agency.
2. Effectively, that first objective itself has not been met till date. Though the data is about a decade old, and the situation may have marginally improved, the maximum this could have gone up is 30 per cent of the total.

Counterpoint: Govt procurement from farmers is necessary till abject poverty ends

The number of farmers benefiting from the MSP programme has over the years dropped dramatically, especially in the years when the MSP is lower than the market prices. This was evident in the past two years.

Beneficiaries

Further, the number of beneficiaries is not even 10 per cent of the 14 crore farmer population.

In both the above seasons, it is clear that the number of beneficiaries is well under 10 per cent. It is important to note that as and when the MSP is lower than the market price (as it happened in the past two years), the farmers don’t sell to the government.

Based on the first principal objective of providing MSP to farmers, it is evident that FCI has not been as effective as was envisaged.

PDS management

The second objective of FCI is to manage the PDS. Various studies that evaluated over two time-frames — 2004-5 and 2011-12 —  have established the quantum of PDS leakage which ranges between 45 per cent and 56 per cent. Here, again, the stated objective has not been fully achieved by the FCI.

The third objective of being the granary of the country holding the minimum required stock has its own challenges but this seems to be working well.

Of the three, great efforts to move away from the PDS is being experimented by using Direct Bank Transfer (DBT).

Reorientation

Can the Budget push for providing food coupons or token using the E-Rupee platform wherein the beneficiary can buy from any place including a large store? He can show the coupon and pay the differential or get it free. This will bring in more efficiency to the current system of PDS and streamline the critical operation of efficient outreach.

The biggest pain is around the complete failure of MSP. The best way the government can potentially wriggle out of this is by hoping that the market prices remain well above the MSP. This year, the government just managed to get around 3 lakh tonnes in Uttar Pradesh.

However, the sale in the open market and the overall arrivals in Uttar Pradesh were a record high of close to 7 million tonnes as the market price was way higher.

This has been a huge blessing in disguise for the government as it didn’t have to buy in large quantities. It got enough to maintain the stocks and meet the food programme. Can this scenario prevail all the time? This is a billion dollar question.

Suggestions

What can the budget provide to ensure that the government has minimum interference in the functioning of the market and at the same time the producers get remunerative prices.

1. Crop diversification: 2023 has been declared the year of millets. The budget should provide additional resources to encourage farmers to diversify from the existing crops, especially wheat and paddy. This is needed for multiple reasons including maintaining the health of the soil which is deteriorating continuously given the large monocropping practice between paddy and wheat.
2. Exports: Special focus on food grains export will help ensure higher farm income and also reduce the government food subsidy outlay. Currently we account for just under 2 per cent of the global commodity trade. Given the strategic advantage India has with respect to crop production and ready markets, we should be able to leverage the situation. A policy guideline should be in place to encourage exports of wheat and other coarse cereals. Millets can be the key driver to push for exports.
3. Procurement: There should be a silent policy change wherein the government only buys what is needed to keep the minimum buffer stocks, provided the food token programme picks up.

The time is ripe to relook at the FCI, which was created when the country was going through a severe food crisis. Today we are envisaging to feed the world. Hence the entire approach needs to be changed.

China example

It will be a good idea to turn FCI into a commodity trading entity. For instance, China has COFCO (China Oil and Foodstuffs Corporation). It is a Chinese state-owned food processing holding company which essentially looks after Chinese interests across the globe. 

The FCI can have the mandate of ensuring an Atmanirmar Bharat in an emerging global order that has changed dramatically since the Ukraine conflict erupted.

(The writer is a banker turned entrepreneur and founder of Agriculture Risk Management Firm Agri Risk, an independent agriculture data entity.)