The Hindu Business Line : Irrational exuberance on food front

Higher minimum support price, especially if it is unrelated to incremental production costs, will end up being counterproductive, as it will push up open market prices and, inevitably, fuel inflation.

K. P. Prabhakaran Nair

The Rome summit saw 40 world leaders and 180 delegates discuss the food “crisis”. The assemblage allowed themselves the extravagance of banquets and lavish lunches, even as food riots took place in Haiti and Egypt and millions around the world starved, finding food far too expensive..

Returning from the summit, the Agriculture Minister, Mr Sharad Pawar, told the media that the current restrictive measures on exports were only “temporary” and soon these would be eased and exports, particularly of wheat, resumed.

A new enthusiasm

Only around a month back was New Delhi involved in a fire-fighting exercise, particularly on the wheat front, embargoing rail transport for private trade, scrapping the futures trade, telling private trade to keep off from procurement, and so on.

Now, a sort of smugness seems to have set in as the Ministry of Consumer Affairs, Food and Public Distribution is trumpeting that there is a “record” procurement of 21 million tonnes of wheat and that the Food Corporation of India (FCI) godowns are brimming. As against the buffer norm of 15 million tonnes of wheat, New Delhi is holding more than six million tonnes in excess, of which, more than four million tonnes are opening stock when procurement commenced. With harvest estimates put at more than 76 million tonnes, New Delhi is bound to feel euphoric. But a closer look at the following figures is essential.

The carrying cost in FCI godowns is Rs 2,400 a tonne a year. For each month of storage the cost gets pushed up by Rs 200 a tonne. In other words, a tonne of stored wheat would cost Rs 12,400 (at procurement price of Rs 10,000 a tonne ) plus a local tax of Rs 1,000 paid at the time of procurement.

For 21 million tonnes of wheat that might remain in the FCI godowns for a year, New Delhi will have to cough up a staggering Rs 10,080 crore just for storage.

If Mr Sharad Pawar applies the same logic for rice as well, there will be a big drain on the national kitty, with the money being used merely to store the procured wheat and rice.

The nation’s food subsidy bill will go through the roof. The bill had already ballooned to Rs 25,425 crore for 2007-08 (a 6.75 per cent increase over the previous year).

Rice in the MSP loop?

Now comes the other scare. With elections staring in the face of the UPA Government, there is intense pressure to enhance the procurement price of rice, to bring about parity with wheat. Succumbing to this populist pressure will ruin the economy. With inflation touching 8.75 per cent, New Delhi is in a quandary whether or not to allow the 34-35 per cent increase in the MSP for rice.

Already the farmers’ loan waiver has been scaled up and enhancing the MSP for rice is another carrot that can be dangled at the huge farmers’ vote bank. However, its impact can be quite disastrous on the food subsidy bill.

In the event of rice MSP going up to Rs 1,050 a quintal (Rs 1,000 for common paddy and Rs 1,050 for “A” grade paddy, as against the procurement price of Rs 745 and Rs 775, respectively, last year), the decision will have its own political repercussions.

One is not arguing that New Delhi should not pay enough to our toiling farmers. But higher MSP, especially if it is unrelated to incremental production costs, will end up being counterproductive, as it is bound to push up open market prices and, inevitably, fuel inflation.

Ultimately, the consumer will end up paying more for food. In the event MSP goes up to Rs 1,050, the corresponding rate payable to millers for levy rice custom-milled and delivered to the Government would go up by more than 75 per cent and the rice will cost anything between Rs 1,750 and Rs 1,800 a quintal. Now, who will be the worst affected? Obviously, the poor among the south Indian rice consumers. However, political compulsions may force New Delhi to announce a higher MSP for paddy sooner than later.

The export charade

Mr Sharad Pawar will, most likely, nudge New Delhi to “export” wheat. As of now, Indian wheat, at less than $300 a tonne, is the most price competitive in the world market. Already, the UN Secretary-General, Mr Ban Ki-moon, has said that “restrictive” measures like what India has put in place, is “adversely affecting” flow of food.

Flow of food is a double edged weapon and it would not be surprising if New Delhi comes around to thinking that it can “export” wheat.

The export charade of the NDA regime six years ago comes to mind. More than 25 million tonnes of wheat were “exported” to show the world that India had not only overcome food insufficiency, but produced “surplus” enough to export. The reality, however, was that the FCI godowns were overflowing with mindless procurement, and the burden of the carrying cost was draining the national kitty.

While millions of Indians in rural India starved, wheat was exported at prices below what was being sold to the BPL (below poverty line) segment of the population. Almost a similar situation is building up now, with mindless procurement and private trade being kept outside.

Bihar, for instance, has been complaining that there is no place to keep the procured wheat. In Haryana, the procured wheat is kept in the open and the intermittent rains are already ruining it. Soon germination will take place and the wheat will turn unfit for human consumption. Like before, it may end up being dumped in the sea.

Sensible thing to do

The most sensible thing to do now is get the wheat delivered to all public distribution units to keep the distribution line active and plug all the loopholes that give room for corruption. And where there is corruption, it must be dealt with firmly.

Corruption in food distribution must be punishable as a capital offence, because food is basic for human existence.

This will really help serve the interests of the poor. But, then, in an election year New Delhi has to play to the galleries. And, to export, to show the world that India is “managing” the food crisis well, is a temptation New Delhi will find hard to resist. But with food inflation going through the roof, resorting to such exports will hit the poor hard.

(The author is a Kerala-based agricultural scientist.)

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