FCI godowns bursting at seams on weak offtake

NEW DELHI: Food Corporation of India (FCI) and other state-run procurement agencies face severe storage strains with the approaching rabi season expected to inflate the already-teeming stocks of wheat unsold due to a skewed pricing policy.

As per the first advance estimates on crop output, wheat production for 2010-11 is to touch 79 million tonnes compared to 80 million tonnes in 2009-10. Wheat stocks in the central pool, which stood at over 25 million tonnes on December 1, 2009, are expected to hit 14.7 million tonnes this April. In both cases, stocks have overshot buffer norms - at 8 million tonnes in the first and 4 million tonnes in the second - by a stretch.

The new marketing season for winter-sown crops, including wheat, begins in March.

A ministerial panel has expressed its fears in December over the "serious problems of storage" after it found FCI to have held 81.9 lakh tonnes from the 2008-09 season up to October 1 last year.

"Though FCI follows the first in, first out principle in issue of stock, there is possibility that some stocks of previous years (12008-09 or earlier ) may still remain at some FCI godowns at the beginning of the coming Rabi marketing season ,” the empowered group of ministers (EGoM), headed by finance minister Pranab Mukherjee, said.

The government must pump out 3 million tonnes of wheat designated for the vexed Open Market Sale Scheme (OMSS), under which it allocates wheat to states to keep prices stable to bulk consumers, said the EGoM. But that may not be easy.

OMSS aims to cool food inflation in the lean wheat season, which lasts only between October-February. Three months of the season are already up, adding to wheat storage problems.

Besides the brimful godowns at FCI and state trading corporations, the EGoM was also worried that states were cold-shouldering wheat bidding due to the initial high reserve price. Only five states and UTs have lifted 43,185 tonnes out of the total allocation of 10 lakh tonnes. State governments also blamed resource constraints and difficulty in distributing at a differential rate for the torpid purchases.

The EGoM decided to extend the OMSS for states to February after the poor response.

It also responded to the commodity’s sluggish offtake by slashing OMSS price for bulk users by Rs 200/quintal in December. Reserve prices for traders were earlier pegged at ex-Punjab rates (procurement plus carrying and transport and interest charges) but the Centre reduced the carrying charges. Currently, the minimum reserve price for OMSS wheat bids in Delhi by traders is pegged at Rs 1,258.08 a quintal compared to Rs 1,540.09 in December.

Incidentally, the high OMSS rates earlier served to push up open market wheat prices noticeably against the scheme’s stated objective of cooling down prices.