Financial Daily from THE HINDU group of publications
Saturday, Jan 17, 2004
Agri-Biz & Commodities - Foodgrains
Green prospects for grain output
The Mid-Year Review, released by the Ministry of Finance in November 2003, has indicated a growth of more than 8 per cent in agriculture and allied sectors this year. Foodgrains output, projected to reach 220 million tonnes during the current year, is heading towards a new record, according to the Government, crossing the earlier peak of 212 mt in 2001-02.
The record performance is expected on the basis of the first advance estimate for kharif, and good rabi prospects with comfortable water levels in the 71 major reservoirs of the country. The 2003 monsoon was one of the best in recent years, with 92.3 cm of cumulative rainfall at two per cent above normal, distributed more or less evenly across the country, and 7 per cent above-normal rains in the crucial month of July.
The first advance estimate of kharif foodgrains production at 108.45 mt exceeds last year's production by nearly 18 mt. The kharif foodgrains production (million tonnes) figures are:
A record offtake of 49.6 mt of foodgrains from the Central Pool during 2002-03 resulted in a decline in stocks of foodgrains from its all-time record of 63 mt in July 2002 to less than 33 mt by early April 2003.While an offtake of 11.3 mt was for drought-related and other welfare programmes, an even larger component of 12.5 mt was for exports.
According to the Government, continued efforts for disposal of excess stocks, including exports, resulted in a decline to 35.2 mt in July 2003. The decline in the actual stock of rice in August 2003, for the first time since the mid-1990s, to below the buffer stock requirement of 10 mt, prompted a stay in fresh export deals in wheat and rice from the Central pool from July 11, 2003, till end-September 2003. However, rice procurement commenced in October 2003.
With a projected procurement of 22 mt of rice, and prospects of a good wheat crop in the ensuing rabi, without exports, food stocks may again go well beyond the buffer stock norms. The minimum buffer levels are decided after taking into account the requirements of public distribution system, welfare schemes and eventualities like drought. The present minimum buffer levels (in million tonnes) are: As on April 1, rice 11.8, wheat 4, totalling 15.8. July 1: 10, 14.3 and 24.3. October 1: 6.5 1,1.6, and 18.1.
January 1: 8.4, 8.4, and 16.8.
The strong supply base of foodgrains has not only ensured self-sufficiency, but also resulted in buffer stocks that allowed exports of foodgrains in2002-03, in spite of the drought. Though the buffer stocks provide a price stabilisation mechanism, the cost involved in brining about this stabilisation is difficult to ignore.
The food subsidy burden has risen nearly tenfold in the last ten years - from Rs 2,800 crore in 1992-93 to an estimated Rs 27,800 crore for 2003-04, and is now becoming unsustainable. The depletion of surplus stocks with the Food Corporation of India has resulted in reducing its buffer carrying cost, which alone constituted about 25 per cent of the food subsidy bill during 2002-03. While minimum support prices (MSP) for wheat and paddy have played a major role in build-up of the buffer, they have also affected the relative attractiveness of diversifying and growing alternative products other than wheat and paddy.
The recently formulated Farm Income Insurance Programme for testing with paddy and wheat during the rabi season of 2003 in selected states/districts may provide valuable lessons towards an alternative to the MSP and public procurement schemes in agriculture. The Government has conceded that the regime of surplus stocks of foodgrains may reappear, especially when the drought year offtake under the welfare programmes is unlikely to be sustained in a good monsoon year like the current one.
This raises questions about the appropriate policy stance vis-à-vis exports of foodgrains. To establish itself s a reliable supplier in the international market, India must enunciate a stable export policy for foodgrains. But such a stable export policy can be sustained only if the domestic price of foodgrains is properly aligned with international prices.
There is also need to consider allowing private exporters directly procuring foodgrains from the farmers to encourage competition and efficiency gains in export of foodgrains, according to the Government.
Crop promotion schemes: The Government of India has been implementing a number of schemes/programmes for improving irrigation facilities and rural infrastructure. These include Accelerated Irrigation benefit Programmes for expeditious completion of ongoing major and medium irrigation projects, national Watershed Development Project for Rainfed Areas, Integrated Wasteland Development Programme etc. which are being continued during the Tenth Plan.
Besides, to pass on the benefit of declining interest rates to the agriculture sector, public sector banks have reduced their lending rates for agriculture to a maximum of 9 per cent per annum on crop loans of up to a ceiling of Rs 50,000. These schemes are expected to go a long way in improving agricultural production and productivity during Tenth Plan.
For increasing production of pulses in the country, a Centrally-sponsored scheme of National Pulses Development Project (NPDP) is being implemented in 30 States and Union Territories in 356 districts on 75:25 pattern between Government of India and the States.
Under NPDP scheme, incentives are being provided to farmers for production and distribution of certified seeds, seed mini-kit, Rhizobium culture, micronutrients, sprinkler sets, improved farm implement, plant protection equipments etc so as to motivate them to take up the cultivation of pulses on a large scale. Besides this, for effective transfer of improved pulse production technology, field demonstrations on farmers' fields and farmers' training are also organised.
For other cereal crops, the following schemes to further improve the production are being implemented: Integrated Cereals Development Programme in Rice-based Cropping Systems Areas (ICDP-Rice); Integrated Cereals Development Programme in Wheat-based Cropping System Areas ((ICDP-wheat); and Integrated Cereals Development Programme in Coarse Cereals-based Cropping System Areas (ICDP-Coarse Cereals).
Crop diversification: Agricultural diversification, especially from cereals to high value crops, has been emphasised by the Planning Commission in the Tenth Plan document.
The Union Government is supporting diversification efforts of the State Governments. Punjab, Haryana, Maharashtra and Uttar Pradesh have sought financial assistance for diversification of agricultural production in their States. State-wise details are:
Punjab: The Punjab Government has submitted two proposals. Under one, a financial assistance of Rs 1,280 crore under crop diversification for shifting one million hectares of land from rice-wheat system to oilseeds and pulses etc. has been sought. In the other proposal, an assistance of Rs 774 crore including 25 per cent margin money to promote contract farming for diversification under Crop Adjustment Programme has been sought.
Haryana: The State Government has submitted a proposal for crop diversification under which an amount of Rs 960 crore has been sought as a compensation package for three years.
Maharashtra: The Government of Maharashtra has submitted a concept paper on agricultural intensification and diversification project for an amount of Rs 1,792 crore for seeking external assistance. The project has been designed for a period of five years to treat an area of 2.5 million hectares.
Uttar Pradesh: The State Government has sought financial assistance for diversification of agriculture under `Uttar Pradesh Diversified Agriculture Support project', which was implemented during the Ninth Plan with the support of the World Bank. The State has sought extension for its second phase implementation during the Tenth Plan. A proposal for crop diversification for an amount of Rs 145 crore has also been submitted for the period 2004-05 to 2008-09.
Storage infrastructure: The Government has decided to assign creation of storage facilities of foodgrains in the country to private sector including foreign multinational corporations. According to the Food Ministry, storage facilities would be created through private sector participation on Build-Own-Operate (BOO) basis for which the Food Corporation of India will give business guarantee for a period of 20 years. These facilities would be created at locations identified by FCI.
The names of private sector companies/MNCs who have shown interest to takeover such a job are: A consortium led by Chambal Fertilisers and Chemicals Ltd; consortium led by Adani Exports Ltd; consortium led by Reliance Industries Ltd; consortium led by Escorts Ltd; consortium led by Aban Lloyd Cargill Inc of the US and Cargill India Pvt Ltd; consortium led by Central Warehousing Corporation; consortium led by Jagson International Ltd.
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