Last updated Saturday, January 12, 2002
Grains of paradox
India's grain mountain has grown to Himalayan heights. And fresh stocks are arriving in the granaries every month
Surinder Sud
There's only one question that agriculture experts are asking about India's mountain of grain. When will it touch an Everest-sized 100 million tonnes? The answer: probably in about six months time after the next rabi crop is harvested and taken to already bulging silos. It is a problem of plenty that has turned into a mountainous scandal - and it is getting worse every few months. There's already over 60 million tonnes in the Central grain pool and that will probably rise to 75 million tonnes when rice procurement from the last kharif crop is completed. And if the next rabi crop is at the same levels as last year, over 20 million tonnes more are likely to be added to the coffers. That means that total foodgrain stocks could touch a new - and embarrassingly high peak - of anywhere between 95 million tonnes and 100 million tonnes barely six months from now. Says Union Food Minister Shanta Kumar: "The present system needs to be reviewed and changed in its entirety. A piecemeal approach will not do." Unfortunately, this is easier said than done. India's food surpluses have been caused by a mix of changing consumption patterns and wrongheaded policies. The results have been almost catastrophic. The granaries of north-west India have become a graveyard of grain. There isn't nearly enough capacity by road or rail to move the grain out of this zone. Millions of tonnes of grain are, therefore, left in the region every year to meet a logical end through decay. Consider what is happening in Punjab and Haryana. On July 1, 2001, the two states had foodgrain stocks of over 40 million tonnes. A substantial chunk of this is being stored in the open, sheltered only by tarpaulins. Punjab alone had 28.7 million tonnes. The state government estimates that it would take at least six-and-a-half years to clear accumulated stocks. That doesn't take into account the fresh annual procurement of around 17 million tonnes of wheat and rice. It is reckoned that this grain mountain must be worth a Himalayan Rs 95,000 crore. Besides that, it costs almost Rs 6,000 crore annually to store and maintain these stocks. Paradoxically, the surplus grain came into being during a decade when the annual growth in foodgrain production dropped below the rate of increase in the population. That's the first time since the Green Revolution that this has happened. Equally amazing, most of the grain was accumulated in the second half of the '90s when the monsoons were not very satisfactory. The genesis of the problem can be traced to flawed pricing policies and a faulty foodgrain management system that obliges the Centre and the state governments to buy almost everything that is on offer at arbitrarily determined prices. As a result, very few people are selling to private traders who've been rendered irrelevant. And the minimum support prices (MSP) have invariably been fixed on political, rather than economic, considerations. Thus, the MSP of wheat and rice are rising faster than the rate of inflation. While the annual average inflation between 1992-93 and 1999-2000 ranged roughly between 7.2 and 8.8 per cent, the average annual hikes in the MSP of wheat and rice have been 10.8 per cent and 10 per cent, respectively. This has had two unfortunate results. First, almost the entire marketable surplus is sold to government agencies - at highly inflated prices. Second, it has become difficult to export surpluses because domestic prices are far above international levels. While foodgrain procurement has been rising in leaps and bounds, offtake from the public distribution system (PDS) has been falling as there isn't much price difference from the open market. So, more grain is being procured each year - 23.8 million tonnes in 1997-98, 35.6 million tonnes in 2000-01 and possibly 40 million tonnes this year. Meanwhile, annual offtake is static. It has stayed at around 20 million tonnes in most years. However, it dropped sharply in 2000-01 to 18 million tonnes. Another factor here is that states like Assam, Bihar and Tamil Nadu, which once had to import grain, have now become self-sufficient (see box). The fact is that the PDS, created during an era of shortages, has outlived its utility. It was supposed to boost food output with input subsidies, support prices and help from organisations like the Food Corporation of India (sometimes called the Food 'Corruption' of India). It was also supposed to protect the consumer by supplying subsidised food and by selling grain in the open market to bring down prices. But prices are already low because plenty is available and the policy is almost entirely irrelevant. The government, is aware that the system has to be changed from top to bottom. The Economic Survey 2000-01, minced no words. It stated: "A temporary glut can be dealt with through unorthodox measures such as raising BPL (below poverty line) quota and attempting to export, if possible. But, if the surplus situation persists ... there may be a need to re-formulate the policy framework to make it more relevant in terms of the present domestic and global market realities." Shanta Kumar backs these statements. He points out that out of 20 million farmers who have marketable surpluses, only about 6.8 million get the benefit of state procurement. Most of these farmers are in Punjab, Haryana and Andhra Pradesh. He says: "This system is not helping farmers. Besides, it has distorted trade to the extent of making it irrelevant. Nearly 90 per cent of the market arrivals have to be bought by the government." Shanta Kumar has three suggestions on how the system could be reformed. First, procurement could be decentralised and the state governments could get into the business of purchase, storage and movement of grains. This, however, has already been turned down by most states. Besides, if every state started buying wheat, rice and other crops, the situation might actually worsen. The second option involves diversifying the cropping pattern and reducing the area under wheat and rice, especially in the problem states. "By offering higher prices for commodities like oilseeds and pulses which the country is short of, the farmers can be made to shift from cereals to these crops. I am asking the agriculture ministry to expedite this move," the minister said. The third option is the proposed income support scheme. Under this proposal the government would fix the MSP but would not buy any grain. Instead, it would make payments to the farmers - by cheque - to cover the difference between the support price and the market price. The government would buy the stocks for the PDS through an open tender system to be delivered in the same state where it has to be distributed. The task of buying, storing and transporting foodgrain would be left to private traders. Says Shanta Kumar: "The government spends about Rs 21,000 crore annually on foodgrain management. It would be able to provide income support to 100 per cent farmers with relatively less expenditure." The proposal is before the experts committee headed by former Commission on Agricultural Costs and Prices (CACP) chairman Abhijit Sen which is reviewing the entire foodgrain management system. The only silver lining in this otherwise bleak scenario is there is now a better chance of exporting the surplus grains. The government gives these cereals to exporters at reduced prices. About 3.2 million tonnes of wheat and about 660,000 tonnes of rice were exported till September-end. Also, exporters may find it easier to get orders because a drought reduced production in the United States and some other exporting countries. But, exports alone cannot cut this food mountain to size. That will need a change in policy that goes to the roots.
The growing glut
Surinder Sud
Why has the north-western region, especially Punjab and Haryana, been hit so badly by grain surpluses? And why has the situation assumed such menacing proportions in the last three years? The answer to both questions is the same. It is because foodgrain production in other regions has gone up, reducing the need for the grain grown in Punjab and Haryana. There have been gigantic changes in the agricultural picture in different parts of the country. In the south, Andhra Pradesh and Tamil Nadu now produce enough to take care of the entire region.
States like Andhra Pradesh and Tamil Nadu that were once short of grain are now self-sufficient. This has hit the original Green Revolution states in north-west India
Elsewhere, states like Bihar, Orissa, Madhya Pradesh, Rajasthan, Uttar Pradesh and West Bengal, which were short of food earlier, are now turning in a surplus. In Assam the recent tubewell revolution has helped the state to become self-sufficient in rice. It even has a large enough surplus to partly meet the needs of the neighbouring north-eastern states. Besides, Punjab, Haryana and the adjoining region - though the birth place of the Green Revolution - are situated in one corner of the country which makes it geographically unsuitable for sustained surplus production of high-volume, low-value crops like cereals. The grain grown here has to be moved long distances to reach the consumption centres and this adds to costs. Such movement was justified as long as other regions of the country were not producing enough to meet their own needs. Now that many other states have become either self-sufficient or surplus in foodgrain, the demand for supplies from the Punjab and Haryana regions has dropped steeply. The demand for north-grown cereals will fall further when other large but marginally food-deficient states like Maharashtra, Gujarat and Karnataka also become self-sufficient in the near future.
Tough options (As told to Smita Tripathi)
Prof Abhijit Sen Former chairman, Commission for Agricultural Costs and Prices (CACP)
Grain stocks have been on the rise since 1998 for several reasons.First, the support prices have been increased well above the CACP's recommendations. Second, world prices have come down. Third, the cost of PDS grain for the non-poor population has been raised significantly, dissuading them from buying grains from the PDS. Support price mechanism has virtually been made an income providing system. Thus, while farmers have been wooed to sell more grains to state agencies, the number of potential consumers has been brought down. The present stocks can be pruned by either reducing the price or increasing employment and providing food as a part of wages. If prices have to be brought down, it will have to be done across the board.
Dr Ramesh Chand Principal Economist, National Centre for Agricultural Economics and Policy Research
Government policies have favoured rice and wheat at the cost of other crops. We have not let market forces come into effect. The minimum support prices can neither be justified by demand nor by international prices. Grain exports are constrained both by higher domestic prices and poor grain quality. Offtake from the PDS has also fallen partly because of diversification in the consumption pattern. With rise in per capita income, people have shifted towards other products like pulses, milk, eggs, etc. Thus, the demand for cereals is not rising in proportion to the rise in population. The inventories can be pruned by supplementing wages with food and by releasing deteriorated stocks as cattle feed. Some of our wheat is already being sold abroad as cattle feed. Subsidies are essential to boost exports. However, it should be in the form of transport subsidy or consessional rates and not a direct subsidy.
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