Financial Daily from THE HINDU group of publications
Monday, Jul 08, 2002
Agri-Biz & Commodities
Daunting agenda for new Food Minister
MUMBAI, July 7
WITH change of guard at the Ministry of Food and Consumer Affairs, a good deal of suspense over the direction of food management policies of the Centre from now on seems to have emerged. The predilections of the new minister are not known, but Mr Sharad Yadav has the job well cut out.
Mounting food stocks continue to be a cause for serious concern. Although offtake from the Central Pool is increasing, the inventory size is still too large for comfort. Despite a two million tonnes reduction in both estimate of wheat crop size and procurement in the current season, there is no reason to believe that year-end stocks this fiscal too will be any less than they were last year.
Report of the high-powered committee for evolving long-term policies for foodgrains is still awaited. The committee's prescriptions for a rational food management policy will be known when the report is presented.
But what is already known rather well is that unless hard decisions possibly, politically inconvenient relating to foodgrain procurement price and the volume of procurement are taken, the country will continue to pay a heavy price in terms of wasteful food subsidy.
Without doubt, domestic producers should be supported with assured incomes, particularly in the context of extraordinary levels of agricultural subsidies given out by developed countries. However, in our country what is accounted for as food subsidy is largely expenditure relating to procurement and storage of foodgrains (wheat and rice).
The buffer component of food subsidy has been rising over the last four years and is estimated to be as high as 50 per cent at present. This current expenditure seriously compromises essential expenditure for building long-term assets as rural infrastructure.
Latest estimate of agricultural subsidy given by OECD countries during 2001 was $311 billion, representing 1.3 per cent of GDP of the OECD area. 70 per cent of the subsidy went as direct payment to producers. Contrast this with the Indian condition. India's total GDP at factor cost was $431 billion in 2001-02 and agriculture-related subsidy was less than one per cent, only a small part of which benefited producers.
This also brings up the question of India's export competitiveness in the international grain market and need for an unwavering export thrust. There has to be a fine balance between the imperative of meeting domestic food needs at affordable prices and liquidating excessive inventory in the export market.
Currently, the pricing policy is such that we are willing to heavily subsidise overseas consumers, but not poor domestic consumers whose per capita food use is already low. The Government has launched a series of schemes to reach grains to poor people; but the delivery system needs to be strengthened to ensure that food actually reaches the intended beneficiaries. The Centre is of course hamstrung by unenthusiastic response from State Governments.
No less a person than the Prime Minister of the country had announced early last year of a restructuring of the behemoth Food Corporation of India. Yet, there are no signs that anything is happening at all to downsize the organisation, infuse efficiency and make operations transparent.
Another area of concern and one that everyone is keenly watching is the sugar sector. With a new minister coming in, will the promised decontrol of the sugar sector happen before the end of the current fiscal? There should be no going back on the assurance of the Government to effect complete decontrol during the current fiscal.
There is reason to believe, however, that attempts have already begun to have the decision postponed. It would be a pity if the Centre succumbs. It was at the instance of the industry that the Centre decided last year to make quarterly release of free-sale quota, promising to make it half-yearly to enable mills plan sales.
But because of downward pressure on prices and lobbying by the industry, the old system of monthly release has been reverted to. It is unfortunate, the policy makers are willy-nilly supporting inefficiency. There are a number of mills financially performing well, exporting large quantities and making profits.
These are not to be seen as islands of excellence, but as examples for others to emulate. Also, it is as good a time as any to create conditions for consolidation of fragmented capacities in the sugar industry.
Equally important is the vegetable oil sector, which has been going through convulsions because of chronic domestic shortages and increasing dependence on imports. Fresh investment is not coming about (except in refineries) and modernisation is conspicuous by its absence.
The so-called industry is essentially trade-driven and numerous associations in the country have been lobbying the Government only for trade-related sops, without a vision for the future. We need a clear medium to long-term strategy for domestic production and promotion of consumption, without compromising the interests of oilseed growers and consumers. But there is none at present.
Undoubtedly, in matters relating to the country's food economy, the Food Ministry has a vital role to play; but its effectiveness will be enhanced only when it functions in tandem with related ministries such as Agriculture, Commerce and Finance.
There has been only a limited evidence so far of a concerted approach on the part of various ministries to pull together towards a common objective. The challenges of globalisation are daunting. It is hoped Mr Yadav will rise to the occasion and provide pragmatic leadership.
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