Saturday, May 31, 2014




6TH JUNE 2014

Massive systemic abuse emanating out of  FCI procurement policy  can be checked by farmers dealing directly with rice millers  for sale of paddy. Rice reform will mean 50% restructuring of FCI operations.


The Food Corporation of India (FCI) and State Government Agencies (SGA) under current dispensation first procure paddy and then get it custom milled from rice millers by paying fixed tolling charges. This system is exposed to massive abuse that needs correction by the new Government without affecting farmers’ interests.

Total paddy (un-milled rice) production in the country is about 160 million tons, including 16 million tons of Basmati paddy. Currently all official agencies procure each year about 49-53 million tons of non- basmati paddy eq to 32-35 million tons of milled rice. More than 107 million ton of paddy of Non –basmati and Basmati rice is annually traded between farmers and millers privately.

India’s grains/oilseeds/sugarcane/fruits/ vegetables/spices/cotton output is about 800 million tons. Barring 53 million tons of paddy and 25 million tons of wheat --total 78 million tons (10%) -- rest of 90% trade is transacted by farmers privately. Farmers are apt in dealing with trade in open market.


Presently, FCI/official agencies make payment to farmers for the procurement of paddy at MSP while stocks are stored with rice millers under Custom Milling of Rice (CMR) agreement. As of 1.04.2014, about 15 million ton of paddy is held by millers alone, that costs Rs. 20000 crores @  MSP of Rs 13450pmt.   

Millers act as Bailees of state agencies —having possession but not ownership of paddy. Since long term stocking of paddy is challenging--they generally dispose of paddy or milled rice in market and replenish FCI when demanded, by purchasing it back from the market. Commercially the transaction may be squared up on ton- to- ton basis and not on grain- to grain- basis—that means paddy supplied by FCI may not milled for FCI, but rice bought from the market is finally lodged with FCI.This amounts to unchecked misuse of official funding and leakages.

In decade of 1995-2005, Punjab, Haryana and Andhra Pradesh were prime producers of surplus rice. FCI/agencies procured paddy and then despatch milled rice to deficient regions.

Since 2005, there is a remarkable turnaround. Paddy is harvested by more than 10 States with West Bengal, Uttar Pradesh and Andhra Pradesh being three leading provinces. Rice production has scaled up from 85 million tons to 103 million tons during 2005-13.  In last 25 years India has not imported any rice on Government account. For  last three years we are the world’s largest exporter of rice. Sufficiency of paddy/rice is thus affirmed.

Paddy is a water guzzler commodity and  results  into depletion of water table. Its state sponsored over production is unreasonable specially when need and necessity of procuring and storing large volumes in north and then moving it elsewhere, is diminished.


FCI may limit itself to procurement of “milled rice” and dispense dealing with paddy purchases, which should be left to millers. Procedurally FCI may need to work out a fresh/revised Custom Milling of Rice agreement (CMR-REV) in which responsibility of paddy procurement at MSP will be of millers. Obligation of FCI will be to source predetermined tonnage of milled rice at a price notified and based upon MSP of paddy. Financing for the paddy to “approved” millers can be provided by banks, based upon letter of comfort from FCI.  Present procedure of distribution and subsidization to beneficiaries will continue.


Vested groups will cry wolf—saying that farmers will realize below MSP from millers under the proposed arrangement. To offset such a fear, Government can vest itself with power of price intervention to raise price to MSP, as in the case of Maize. This may be necessitated initially for 2-3 years to keep millers in check and farmers to plan alternatives. If farmers can trade 720 million tons of agro items privately, paddy cannot be an exception.  China, Indonesia, Philippines-- dealing with subsidised distribution of grains-- source rice and not paddy.


This systemic change means that official agencies will remain insulated from the paddy operations/ bungling/ diversion in market; double handling will cease. Transportation cost will be economised. Greed for growing water guzzler paddy will decline. Instead, alternate cropping pattern will be incentivized.   Rice reform will mean 50% restructuring of FCI operations.

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