FCI Continues to Stock 3x Buffer Requirement of Wheat and Rice

4 comments Written on June 6th, 2014 by
Categories: Macro

The government continues to buy food and stuff its buffers but things seem to have come under some layer of control now. The Food Corporation of India (FC() buys food from the market and stores them in warehouses.

FCI is required to maintain certain optimal buffers because the food it buys goes to the Public Distribution System (PDS) at lower prices. The buffers it must maintain are specified on a per-quarter basis.

The latest data (May 2014) shows they have stocks of Rice+Wheat that add up to 548 lakh tonnes, with another 123 lakh tonnes of unmilled paddy, adding up to 671 lakh tonnes of rice+wheat. (67.1 million tonnes)

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This is more than 4x the buffer needs which is just 152 212 lakh tonnes. (figure corrected) When we have so much in stocks already, why do we buy more? The standard answer is that farmers have to have a buyer. I don’t think so. The government buys to distribute food, not to store and let it rot. we should stop all buying until we’re close to actual requirements.

The saving grace is that we are slowing down buying:

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If you wonder what the Food Security Act will need - it’s between roughly 500 lakh and 550 lakh - and we have current stock of 20% more than even that. Already the government is procuring more than 30% of all production, which we should eliminate over time. The Food Security Act must be rationalized to much lower requirements, and we should strive to keep production higher while removing the large middleman cost.

The Food subsidy is going to be Rs. 100,000 cr. in the year, and we need to create a mechanism to lower this for the sake of a more sane fiscal deficit.

Update: Alert reader   points us out to the fact that the June data is now available. Here are the charts for June:

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We now have 736 lakh tonnes, which is nearly 4x buffer requirements, and substantially more than the FSB needs.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

4 comments “FCI Continues to Stock 3x Buffer Requirement of Wheat and Rice”

Hi Deepak,

Can you please inform us the source of these data? Government unwinding some of its stocks along with the base effect may provide a surprising fall in CPI (and WPI to a much lesser extent) a few months from now. With stable exchange rates and crude oil prices, El Nino seems to be the only known unknown for now. I won’t be surprised if RBI starts reducing rates from Q4 of this calender year.

Regards,
Shyam

The source is Fciweb which has monthly details.

Government’s not unwinding. It’s buying, but just not as much as last year :)

Thanks for the link.

Yep it is buying but I am just comparing YOY figures because production is seasonal. The YOY chart has gone sub zero which means adjusted for seasonal inflow and outflow, the amount of grains available in the market is higher than the production. If you see the first chart, the 2013 peak was already lower than the 2012 peak. Btw the June data is out and the 2014 peak (usually June) is lower than 2013 peak. Something like 748 lac tonnes against 777 lac tonnes

http://fciweb.nic.in/upload/Stock/6.pdf

If the government can’t stop buying atleast they should make some rice chips and fryums which can be preserved and have a longer shelf life