Buffer Stocks – Critical Evaluation

 

Inefficient Inventory management

    • The government should procure grain in times of abundant supplies in the market, and release it in times of scarcity. But, in order to meet the needs of the TPDS and the other food- based welfare schemes, the government not only withholds stocks during a bad crop year (because it expects off-take to be higher than normal), it also steps up its procurement, pushing up prices in an already supply-constrained market
    • There is no pro-active, pre-defined, sustainable policy practiced for the residual grain – which remains after allocating to the mandated schemes

Rising cost of Operation

    • Higher acquisition cost: In the current situation, MSP and Bonuses are continuously increasing, along with Mandi charges, milling charges, administrative charges . Thus, the economic costs of FCI for acquiring, storing and distributing food grains is about 40% more than the procurement price
    • Higher storage costs and losses due to inadequate capacity: Data show that FCI’s storage and transit losses have increased by close to 147% in nominal terms between 2006-2007 and 2011-2012

De-facto nationalization of the grain market

    • With more than 75% of the marketable surplus procured by the government, little grain is available for the open market.
    • This lower market supply exerts an upward pressure on prices in the open market, neutralizing much of the consumer benefits that the subsidy provides
    • These interventions adversely affect the price competitiveness of Indian grain in the international market, as well

Increasing gap between per capita production and per capita availability

    • Despite rice and wheat production increasing by 29% between 2000 and 2012, per capita net availability of grains went down by close to 1%
  • When rising stock levels with the government reduces grain availability for consumption, it counters the whole objective of buffer stocking