INDIA TO BECOME A GLOBAL FOOD GRAIN TRADER?-THE RISK FACTOR

Food security for a country implies that adequate food is available to every citizen and there is no short supply. Unfortunately in India this term is being touted to imply that government warehouses hold adequate stocks of food grains, that too rice and wheat to meet the statistical average need of a person. The wide income disparity and extensive property do not allow such citizens to buy their food requirements is gloated over under the excuse that these segment of the population is covered by the inefficient and corrupt Public Distribution System or PDS under which Below Poverty Line families are supposed to get their minimum needs at very low cost. In this scheme Food Corporation of India {FCI) which is the nation's store keeper under GOI is supposed to manage grain procurement from farmers, store them safely and supply the same to so called ration shops spread all over the country. According to many studies it has become clear that more than 50% of the grains do not reach the targeted beneficiary, getting "leaked" on the way! FCI is also used as an arm for export and import of food grains as when there is a contingency. This very same agency is now being asked to get into global grain trading business assuming that such activities can reduce the subsidy burden of GOI. How far this may work out and the long term implications on country's domestic market are discussed in a recent report by an experienced expert on agricultural policies. here is a gist of it.  

"At a time when the Global Hunger Index 2012 ranks India 65th among 79 countries, K V Thomas, minister of state for food and public distribution and consumer affairs, has revealed that the Food Corporation of India (FCI) will soon trade wheat in the futures market. Seeking clearance from the Forward Markets Commission, the minister said: "The market has to perform the economic function of price discovery and price risk management." Well, what I can see as the basic objective is to replace the open market sales scheme with trading in the futures market. In other words, futures trading will provide an opportunity for FCI to make some profits, which in turn can be ploughed back in its procurement operations, thereby reducing the subsidy outgo".

A moot question that begs for an answer is whether India can really sustain itself as a viable food grain business player when the government is trying to usher in a new policy of supplying food grains at ridiculously low price covering almost 70% of the population? The requirement for such populist scheme is going to be huge and FCI is going to be tied to this challenge in the coming years. GOI does not seem to have learned its bad experience in propping up State Trading Corporation (STC) as a state controlled business arm by giving it monopoly in dealing with some portfolio and if FCI is now going to follow the footsteps of STC, one can imagine what would be the result. Unless the management structure and working style of FCI are drastically improved, the new policy may end up in another fiasco. This is not to under estimate the potential for FCI to become a global player in grain business as it is one of the world's largest grain dealers, handling massive quantities of food grains, primarily for domestic market and if this is to be realized GOI will have to relax its iron like grip on the functioning of the organization, giving it a free hand in day to day operations. Will this ever happen? No way, knowing the unlimited power wielded by bureaucracy on every institution in the country to day.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com