The CACP recently released a significant report, providing an analysis of the current agricultural scenario for the 2020-21 Kharif marketing season. The existing stock of food grains in the central pool stands at a historic high of 73.85 million tonnes, distinctly surpassing the strategic and operational reserve norm of 21.04 million tonnes by over 300%. This abundance is reflected in the estimated yield of this year’s Kharif crops, which is projected to reach an all-time high.
Challenge of Overflowing Stocks and Open Market Sale Scheme (OMSS)
In response to the surplus food grain storage, the Union government introduced the OMSS in April 2019. It aimed to sell wheat and rice via e-auction in the open market. Unfortunately, this scheme failed to meet its five-million-tonne target, only managing to sell one-fifth of the goal.
Rising New Entries in Food Business and Shift of Trading Practices
Despite these challenges, the agricultural sector holds considerable attraction for private investors, as evidenced by the 65% surge in registration applications for new food businesses. Furthermore, many traders have begun to operate outside Mandis to avoid additional fees, as permitted by recent agri ordinances. However, this shift has led to a 20-40% reduction in non-perishable sale volumes at the Mandis, negatively impacting farmers.
Adjustments in Minimum Support Price (MSP) for Rabi Crops
In alignment with the Union Budget 2018-19, the Cabinet Committee on Economic Affairs incrementally increased the MSP for six Rabi crops for 2021-22. The MSPs are now fixed at a level of at least 1.5 times of the All-India weighted average cost of production.
Challenges in Agricultural Sector
Several challenges need to be addressed within the agricultural sector. The unavailability of physical storage space for the large buffer stocks presents a major issue, as it leads to grain perishing. Additionally, releasing substantial buffer stock into the market could potentially collapse prices, denying farmers a fair price for their abundant harvest. Recent protests against three farm bills passed in parliament have further complicated matters.
Recommendations from the CACP Report
The CACP report offers several recommendations to address these challenges. Urgent liquidation of excessive stocks can ease storage constraints and reduce carrying costs. It also suggests a review of the open-ended procurement policy for rice and wheat, recommending changes to the pricing, procurement, and use of other crops. Strengthening procurement from states such as Bihar, Uttar Pradesh, and Rajasthan, while limiting it from Punjab and Haryana, is another key recommendation.
Additionally, the government should refrain from selling pulses and oilseeds below the MSP in the open market during the procurement season, as it depresses market prices and discourages direct procurement from farmers by the private sector.
Given the prediction of subdued prices due to large stocks and less global demand, implementing the CACP’s bold recommendations could help manage the inflated food grain stocks effectively.
