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Listen to the CACP

Source : BUSINESS_STANDARD
Last Updated: Tue, Nov 20, 2012 20:12 hrs

It is not often that the government asks the Commission for Agricultural Costs and Prices (CACP) to review its report on the pricing and marketing policy for wheat — though the commission’s recommendations have been overlooked in the past to factor in political considerations while fixing minimum support prices (MSP). The present controversy over wheat- marketing policies concerns chiefly two issues. First, the CACP has, for the first time in nearly a decade, recommended a price freeze for wheat. Second, there are suggestions from within the government to revisit its policy of open-ended grain procurement, under which it buys everything on offer.

Both these issues have implications going far beyond just the size of the food subsidy bill. They also impact the price and availability of wheat in the open market, and thus food inflation. The government, therefore, needs essentially to revisit the overall food management policy that was framed at the time of acute grain scarcity in the 1960s, and has been followed blindly ever since. This outmoded policy is now posing grave problems. The Centre has accumulated unprecedented amounts of grain — it currently sits on foodgrain stockpiles, which are far in excess of both the stipulated buffer stocking norms and the available warehousing capacity. Meanwhile, private trade in grain has dwindled considerably, and food prices are high despite surplus production. The CACP’s suggestion that the MSP of wheat be frozen at last year’s level of Rs 1,285 a quintal is, however, debatable. In fact, it has already evoked sharp criticism from farmers’ organisations as well as the governments of major wheat-producing states. The agriculture ministry, too, feels it wouldn’t compensate farmers sufficiently for the increase in diesel prices and other input costs. The price-freeze recommendation, moreover, would be incongruent with current domestic as well as international prices, which are higher than last year’s MSP.

On the other hand, the need to change the policy of untargeted grain procurement seems justified. Restricting procurement to the quantities that are needed to maintain the buffer stock for food security and meet the requirement of the public distribution system (PDS) will achieve several objectives in one go. Most notable: avoiding the needless expense of buying, transporting and storing excess stocks; lowering the food subsidy bill, which has been overshooting budgeted provisions year after year; and bringing back private trade. The fear that such a policy may result in price crash to the disadvantage of farmers, especially in the post-harvest peak marketing season, does not seem well-founded. For, the government’s presence in the market as a bulk buyer of foodgrain to cater to the PDS’ needs, coupled with purchases by the private trade, including flour millers, will help support prices. Unrestrained export and import of foodgrain, moreover, will help maintain the demand-supply balance in the domestic market. The government, therefore, will do well to keep all these factors in mind while taking a final call on the wheat pricing and procurement policy.




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