Financial Daily from THE HINDU group of publications
Saturday, Feb 02, 2002
Agri-Biz & Commodities
Need for hard decisions to contain ballooning wheat stocks
MUMBAI, Feb. 1
YET another wheat harvest season is approaching even as production prospects are rated satisfactory on current reckoning. However, far from being euphoric, the Government finds itself in an awkward position of having to face a season that can potentially impact the ballooning food subsidy one way or the other. Large unliquidated stocks from previous seasons and political compulsions of further procurement have put the policy makers at a complete loss in the matter of judicious management of foodgrains.
As has become its wont, the Government is yet to announce minimum support price (MSP) for wheat, although commencement of harvest in only weeks away. Clearly, in recent years, MSP has lost its original intent and is used as an instrument of convenience to appease lobbies.
Over the last few years, large increases in MSP inconsistent with market conditions and financial prudence have led to distortion of the grains market with the government forced to mop up 20-25 per cent of the output. Unlimited procurement has resulted in burgeoning stocks of high cost wheat in State warehouses for which there are no takers.
Currently, wheat stocks with the Food Corporation of India are an estimated 34 million tonnes valued at over Rs 20,000 crore. The level of stocks represents nearly 50 per cent of the country's wheat output. For at least a part of the inventory, the carrying cost incurred so far has exceeded the procurement price paid for the product itself, while the quality has become suspect because of prolonged storage.
Many of the schemes floated by the Government to liquidate stocks including subsidised exports have had only a limited impact. Antyodaya Anna Yojana, Targeted Public Distribution System and Food-for-Work programmes are yet to make progress significant enough to reduce public stocks of wheat.
The only hope for the Government to wriggle out of the mess and acquit itself somewhat honourably would be to take some hard, politically unpalatable decisions. Ideally, a `procurement holiday' should be declared for the ensuing rabi season. Without doubt, the harsh decision would hurt farmers. Whether the Government has the political will to take this extreme step is unclear.
The next best and probably the most sensible option would be to freeze the MSP for wheat at last year's level and limit the procurement to what is required for the PDS. Open market wheat prices have remained subdued even during the present pre-harvest months when prices generally tend to spurt. Wheat prices could collapse once arrivals start picking up.
A freeze on MSP and limit on procurement this season would help send a strong signal to wheat growers, particularly in Punjab and Haryana, that Government can no more provide a ready market. Farmers will have to evaluate crop options and decide on crop diversification.
Among wheat and rice growers, for too long the Government has sustained a false sense of security about prices and procurement. In a free economic environment such financially-imprudent largesse cannot continue forever. Farmers should be enabled to take informed decision about which crop to grow based on the requirement of the market.
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