This document discusses India's grain crisis, caused by poor policies around production, procurement, storage, and distribution of grains. Key points: 1) Bumper harvests have led to phenomenal increases in wheat procurement but policies of subsidies and minimum support prices have distorted production incentives. 2) Grain storage infrastructure is inadequate, leading to large quantities of grain rotting each year even as food insecurity persists. Storage and distribution costs the government around 750 billion rupees annually. 3) The public distribution system is inefficient and leak-prone, with only around 40% of grains reaching households. Private traders have been largely displaced from the market. The document recommends redesigning food policy to

1. Dumb Policies & Rotting Grains
Anatomy of a Crisis*
Shantanu Bhagwat
http://Satyameva-Jayate.org
@SatyamevaJayate
This presentation was prepared by Gopal as his contribution in our fight to “Reclaim India”
N.B. All rights (including copyright)of images rests with the original author and/or publisher. These have only been reproduced
for educational purposes and creating awareness.
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2. Contents
Production and procurement
Grain trade and food security
Storage and Distribution
Solution
Questions
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3. The right time to eat for a rich man is when he
is hungry;
for a poor man when he has something to eat.
Mexican proverb
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4. Grain production and
procurement
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5. Favourable monsoon
results in phenomenal increase in food production
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6. Procurement
Leads to phenomenal
increase in
wheat procurement
Year
2010-11
225.25
2011-12
283.35
2012-13
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Lakh
tonnes
381.48
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7. And we are not even
talking about other
grains…..
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8. Agriculture success built on sand
Mindless subsidies (fertiliser, food and oil)
huge transfer of resources from the taxpayers and the exchequer to
the farmer
Agriculture ministry Vs Finance ministry
CACP Vs CCEA
disconnect
Wheat MSP increased from Rs 1285 to Rs 1350 (June 2013)
CACP advocating reduction in wheat production due to excess
stocks against domestic demand
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9. Situation made worse by “Bonus”
Bonus on wheat procurement uncalled for
Bonus of Rs 150/quintal announced by Madhya Pradesh
govt for wheat procurement for 2013-14 crop over and
above Rs 1350/quintal
• 40% increase (wheat) in 2012 when compared to 2011
Bonuses justified if
crops are inadequate
carry-in stocks insufficient
buffer tonnage in deficit
These three situations do not exist
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10. Impact of bonus
Other states may adopt populist approach
Leads to budgetary exhaustion
Strain on current and fiscal deficits
weakening its parity in export markets
Quality let down in favor of quantity
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11. Grain trade
and food
security
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12. Who controls the grain trade?
High statutory levies on marketing of wheat and rice 14.5%
in Punjab and 12.5% in Haryana
This has displaced private traders from the market and has
led to ‘state takeover in grain trade’
Result:
• Sellers are not interested as its not financially viable
• buyers are not able to get fresh grains
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13. Crazy agro-economics
National Food Security Bill:
promises to supply 7 kg of foodgrains to each Indian, every
month, at subsidised prices
Procure from small and marginal farmer and supply it
back to them !
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14. Crazy agro-economics
Vote bank! Its Catch 22 situation as it would be politically
suicidal for the opposition to talk against the bill
Torpedo the budget:
25 times the extra provision of Rs 5,000 crore made in the Budget
for 2013-14, if the Bill is passed in the current Budget session
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15. Storage
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16. Storage types
Godowns
Covered and Plinth (CAP)
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17. Grain stock quantities
FCI / Govt agencies: (Rice & Wheat) Jan 2013
Available: 66 million tonnes
Required: 25 million tonnes
Current Storage capacity
April 2012 63.8 million tonnes
April 2013 71.7 million tonnes
Source: FCI website
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18. Food grain stock – Feb 2013
India's grain mountain grows despite push for exports
India will be unable to consume or export enough wheat and
rice to rein in a record stockpile after another bumper harvest
Source: Reuters
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19. 30.52 million tonnes
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20. CAP mismatch
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21. Organisation in siloes
“…FCI has 30.52 million tonnes
(owned & hired) of storage
capacity in over 1820 godowns all
over India…”
Storage type
Covered
Cover and Plinth
Total
1 April
2012
1 April
2013
30.22
33.99
3.38
3.74
33.60
37.73
mismatch in data !
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22. Storage info
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23. Procurement info
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24. Inconsistent numbers
Storage reported
in million tonnes
but
Procurement reported
in Lakh tonnes
Disconnect between 2 wings of the same organisation
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25. Cost of storage
750 billion rupees
Procurement and storage costs for a year
almost 1 percent of India’s GDP !
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26. Wastage
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27. Wastage
Covered and Plinth
(CAP) storage
protection inadequate
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28. Wastage
Tonnes of toor lemon daal from Myanmar are
gathering mould in Navi Mumbai
Rotten sacks of rice stored
in the open in Ranwan
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29. National shame
In the words of Tavleen Singh
“…One of the things that make me very angry is the
sight of bags of food grain rotting in the open. It reminds
me every time that 45 per cent of India’s children are
malnourished….”
In a country of billion people it’s a shame that food
grain is allowed to rot
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30. “..Ordinary people do not get to buy the grain not because rats get at
it but because of flaws in our food grains policy..”
Kaushik Basu
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31. Distribution
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32. Distribution methods / routes
Public Distribution System
Open Market Sale Scheme (OMSS – Domestic)
Exports / aid
State monopoly
…well almost
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33. PDS - 1
Network of 4.78 lakh Fair Price Shops
Largest retail system in the world
Operational system varies from State to State
Private Entrepreneurs Guarantee (PEG) scheme of
FCI
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34. PDS - 2
Leaky distribution
“..Only 41 percent of the grains released by the
government reach households..” World Bank
UP food grain scam 2002-2010
Grain worth 35,000 crore diverted to open market
Upto Nepal and Bangladesh borders
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35. PDS - 3
Govt controls the grain trade – badly
Pilferage, rot/decay, inedible
Of the 64.2L tonners of grains in Apr ‘09, 95%
procured by FCI + 5 State Governments
In ‘08, the % picked up by private traders was
less than 2% (0.5L vs 27.43L)
67% of wheat meant for poor misses the target
For 1 kg we end up directing 3 kg at them
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36. Open Market Sale Scheme
Objectives
enhance supply of food-grains during the
lean season
offload the excess stocks and to reduce
the carrying cost of foodgrains
save from deterioration
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37. Worsening crisis
India wastes 21 million tons of wheat each year more than the annual production in Australia.
Global Agency of International Mechanical Engineers
The Supreme Court of India once said,
“In a country where admittedly people are
starving, it is a crime to waste even a single
grain.”
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38. Solution
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39. Redesign food-grains policy
Price stabilisation:
Govt should maintain a buffer with the aim of
using it to hold down prices during times of
food shortage
Food Security
Govt must make sure that the poor and the
vulnerable have access to food at all times
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40. Drop bad policies / practices 1
Abolish special cabinet
committees to take decisions
To commit to holding a certain
minimum reserve at all times is a
meaningless policy
It is exactly equivalent to holding no reserves
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41. Drop bad policies / practices 2
Stop doling out bonuses for
grain procurement
Instead divert wheat to other states
Enforce a cap on procurement in
excess of storage capacity + 15-20%
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42. Framework
Buy when prices are low and
sell when prices are high
•
Good market intervention
Form rules how and when to release foodgrain
•
Kind of standard operating procedures
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43. Change strategy
To be a net buyer and seller
under all circumstances is a
wrong strategy
Stop controlling the grain trade
instead regulate it !
“Government is obliged to buy all the wheat, whatever the
quality, that comes to the mandis in traditional states where
purchase is made”
The FCI Act
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44. Modify approach
Be prepared to switch the MSP
window on and off
Method of fixing bundle size
ask for tender calls from
traders needs to be reevaluated
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45. Actions / steps: 1
Resort to ‘distress sale/ exports’ of
foodgrains to dispose excess stock
additional allocations to the public distribution
system (PDS) to both APL(above the poverty line)
and BPL (below the poverty line) families
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46. Actions / steps: 2
Good policy consists of exploiting the laws of the market, not
denying that they exist
Release in small quantities
• To avoid the pitfall of “revolving door strategy”
• To limit the profits of the traders
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47. Actions / steps 3
Foodgrains could also be used as part of
MNREGS workers’ wages. At least, grains
will reach the hungry before they rot.
Assuming they are edible
• Grain storage houses are very
expensive to build and maintain
• PPP (public-private partnership)
model is the way forward
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48. Case study
Gujarat helps farmers through
• check-dams
• Drip-irrigation
• agri-extension
No bonus and hardly any procurement !
and yet Its agriculture sector has been growing
at 10% per annum for the last 10 years!
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49. Questions? Comments?
Jai Hind, Jai Bharat!
Shantanu @ Satyameva-Jayate.org
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