September 5. Farmers gather in thousands in Chandigarh to protest the delayed procurement and poor price realisation. Police burst teargas shells, even wield lathis as the peaceful rally suddenly breaks through the cordon to gherao the Punjab assembly.
At Khanna - Asias largest grain market - where rice prices are ruling around Rs 330-440 a quintal, marginal farmer Baldev Singh sits holding his head in his hands. His yield was excellent and produce of the best quality, yet he was forced to sell his stock at much below the government-announced msp (minimum support price) of Rs 540.
On the outskirts of Delhi, two months after the procurement season is over, wheat is being sold at Rs 530-540 a quintal to roller flour mills, compared to the msp of Rs 580 at which it was bought.
It wasnt possibly a direct outcome of the banner heading in a daily on September 4, but the bjp government may well be accused of fiddling while farmlands burnt. If wholesale wheat prices hadnt crashed till then, even after rabi crop estimates got revised from 69 mt to 75 mt-plus, the news that the Centre planned to offload its huge grain stocks, free, on the countrys unsuspecting and probably uninterested poor, did certainly breach the last bund.
Ironically, wheat prices should have firmed up now, after the peak marketing season of April-June, as stocks dip. This is exactly the time the government had planned on entering the market with its overflowing basket and reduced prices. But its best-laid plans were overturned by its own lack of vision and wrong signals to private trade. This year, wheat procurement reached a new record. In Punjab and Haryana, for instance, procurement was 14 mt till end-August. Kharif expectations are good, rice marketing season begins two weeks from now, and there is no place to stock that rice. Add to it the fact that stocks in fci and private godowns, including wherever it is stored out in the open, have crossed 42 mt - almost twice the required buffer norm and fcis capacity of 27 mt - and the situation becomes a timebomb in the hands of the government with no one quite sure when its going off.
It may go off sooner than later. To appease agitating farmers and CMs of northern states, food minister Shanta Kumar, who comes from Himachal himself, has agreed to start rice procurement from September 21. Now, as he says, there are three options to clear the stocks rapidfire: One, give it free to the poor - not a workable idea in the prevailing corruption-ridden system, and stocks will be back in the market after lining some pockets. Two, give it on food-for-work schemes - good idea, but stocks have to be shunted onwards to respective states, propelling both cost and time upwards. Three, give 10,000 tonnes to the 792 MPs to redistribute in their respective constituencies - not a bad idea but again plagued by leakage and lack of interest.
Poor Shanta Kumar, he cant be blamed for not trying. Especially when half of fcis annual carrying cost of Rs 9,000 crore accrues on the excess stocks alone. For some time, it has been trying to auction the surplus, especially some partly damaged ones, which can be used for wheat byproducts, though not wholemeal atta, at huge discounts but to no avail. There is such high duty on wheat, rice and oilseeds coming into the country that import possibilities are almost nil. The government has also cut open market prices for wheat from Rs 900 a quintal to Rs 750 and less, reduced issue prices so that offtake from the ration shops increase and liberalised exports. But exports have been ruled out because most countries dont want Indian wheat because of its low protein content, Karnal Bunt disease and very high prices.
The world over, agricultural prices, especially those of food, have crashed to their lowest in 15 years. As against Rs 3.40 a kg offered by Russia, even Indian ration shop wheat now costs Rs 4.15 a kg (for the poorest). fci price is even higher - at Rs 8.30, as per its much-touted "economic cost" which takes into account its many inefficiencies, incentives and high taxes imposed by the grain-selling states. Its actual economic cost, say agriculture experts like Ashok Gulati, nabard chair professor at the Institute of Economic Growth, Delhi, should be only around Rs 6.50 a kg.
The Centre should have seen the stock crisis coming. Over the 90s, pds offtake has steadily dwindled, especially since an inept and poor governments obvious weapon to tackle burgeoning food subsidies has been to raise issue prices. This year, despite a glut in the making, the Above Poverty Line subscribers were virtually chucked out of the pds by being told to pay fcis economic cost for grain that was vastly inferior in quality. Also, while pds offtake was hit, procurement wasnt. It took off with huge annual hikes in msps, despite recommendations by the Commission for Agricultural Costs and Prices to freeze them. Says Anil Sharma, senior economist, ncaer: "Farmers have shifted wholesale to cultivation of wheat and rice not just due to a change in taste and preferences, but also because profits are much higher here than in coarse grains." Eventually, fci came to be procuring only to benefit the northern states and to pay lip-service to the cause of food security.
Pushed to the wall, Shanta Kumar has thought up some radical schemes: to split the fci into three entities to look after procurement, storage and distribution and retail sales, even to hire or contract private trade to store for fci; to freeze procurement price or replace it with a fixed price; to allow the poorest to lift pds supplies once a week or even once a day; overhaul the Essential Commodities Act that still rewards stockpiling; new food-for-work scheme in a week; and a new foodgrain policy that will downplay procurement. Jagdish Shettigar, senior bjp leader and member of the PMs economic council, promises all these will come in the winter session of Parliament.
Kumar has even told off farmers in Chandigarh in no uncertain terms. In Himachal and UP, most farmers arent dependent on fci but private traders who move in fast to strike deals, often at rates lower than msp. The other bane is the high 11 per cent purchase tax imposed by the northern states on grain sold at mandis, which along with the commission agents contribute to fcis economic cost cause distortions. Says Kumar: "Of total procurement worth Rs 25,000 crore, Rs 10,000 crore worth comes from Punjab alone. fci pays Rs 900 crore as local taxes to Punjab, Rs 600 crore to handling agencies and Rs 220 crore to agents."
Clearly, the food sector is calling out for radical changes - like scrapping procurement and all stocking limits, leave stocking to private trade, peg buffer at 10 mt and cut down fci to one-third its size. For now, halving pds prices, doubling the quota and/or unloading the stocks in the market would ensure freeing up of godown space. The question is: can the government do all this? Says Shettigar: "One cant forget the issue of food security, thats the price one pays for the luxury of democracy. Drastic reforms in the food economy can be carried out only when the demand for agricultural products reaches a stage to command a price that meets the economic cost of the farmer." Till that happens, humans may starve while the party goes on for the rats at fci godowns.