Food Corp is a Rs 75,000 cr problem: Five areas that needs urgent govt attention

Imagine a company that is the largest distributor of a product in a country. Its cost of inputs and the price at which it sells the product are fixed by the government. The company all of a sudden changes tack and starts eyeing profits. It wants to invest in improving efficiency. In short, this is the Food Corporation of India’s (FCI) predicament today.

It is a Rs 75,000 crore problem, the size of the government’s food subsidy burden.

FCI’s mandate is to procure wheat, paddy and coarse grains under a price support scheme and rice under statutory levy scheme. The purchase is done at procurement points at various mandis set up in consultation with the state governments. FCI claims that it sets up more than 14,000 such procurement points during the harvesting period for rabi and kharif crop.

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And FCI’s problems start right from these procurement points. This is because during the peak harvest season these points turn out to be major bottlenecks in themselves as farmers pile up their produce on roads, and open areas near these points. This pile-up of grains at procurement affects the quality of the produce. The reason for this is that farmers bring in their produce as and when the harvest is done.

Madhya Pradesh, however, has found a way out by using some innovative scheduling techniques. One such scheduling system applied in a few districts was to use SMS to guide farmers when they should come with their produce to the procurement point.

But procurement is just the beginning. There are several other processes and even physical infrastructure that need to be revamped at FCI. FCI has always been known for its underperformance. A privatization plan was even floated in the mid- nineties for it.

Now, a panel has been set up by the government under the former Himachal Pradesh chief minister N Shanta Kumar.

Broadly there are five problem areas for FCI.

1. Optimisation: FCI procures, stores and then distributes food grain under the Public Distribution System scheme. This involves logistics cost for transportation of commodities from the warehouse to the PDS shops. Maximum leakages happen here.

Warehouses themselves are a huge infrastructure cost and some of them are located in the heart of a city, where the real estate that they sit upon is far more expensive than the purpose they serve. Moreover, being inside a city means that these warehouses cannot expand or be procurement centers. So, the first is a classical optimisation problem based on location, distances, PDS shops density and logistics cost.

The panel has some economists on board. Maybe it also needs an econometrician, who can help the panel look for ideal locations for future warehouses to expand their capacity.

2. Scheduling: FCI and its procurement centres across the country need to connect with farmers on a platform that identifies each farmer with a mobile phone. This should not be a difficult task as even subsistence farmers have mobile phones nowadays. Every procurement centre needs to help the farmer plan the harvest and the arrival at the mandis or the procurement centres, this will reduce the wastage.

3. Storage: A number of warehouses storing wheat, particularly in the north, still follow outdated methods for storage. The grain is packed in jute sacks and they are piled up and covered with plastic sheets to protect them from rains. This is a labour intensive method and involves time. Moreover, the grains are finally exposed to climate and the wastage is high.

As the largest storage centre in South Asia, if not the world, FCI needs to invest in new methodologies. Akshay Patra Foundation, an NGO that provides mid-day meals, stores wheat, rice and cereals for up to six months in specially developed units. Large cylindrical units made up of aluminum that can store millions of tonnes are used to store grains in developed countries. There is no reason for the FCI to be stuck with jute sacks.

4. Price control: As Firstpost editor R Jagannathan points out FCI has to become a more dynamic organisation estimating demand and supply. This means that it has to create space in its warehouses anticipating supply in the coming season. It needs to understand the impact of off-loading its stock in domestic and international markets.

As the largest hoarder, it has to move in such a manner that it can keep a check on prices of coarse grains while maintaining the farmer interest. It needs to connect with international markets in Africa or parts of Asia to offload its stock at opportune time, even if it has to do this with private dealers. Private dealers may benefit from this more than FCI but it is still worthwhile to explore this route.

5. Global play: FCI can play a role in the international markets. As the largest player, it can move markets and this is something that has never been explored in detail by the government. This will help India gain a better grip while negotiating in international forums or bilateral relationships. FCI can be the muscle that India has rarely used in the international commodity markets.

This is something that the international commodity traders active in India understand, and they know the government does not use it. This has lead to an unhealthy relationship between bureaucrats, traders and politicians who use FCI stocks to play the market. This nexus needs to be understood and its impact on inflation and global relations respected by India.

_K Yatish Rajawat is a senior journalist. He is the founding Editor in Chief of Business Bhaskar, the first hindi business daily in India and former Managing Editor of Dainik Bhaskar group. In a span of two decades of journalism he has worked with Economic Times, Businessworld and The Hindu Business Line newspapers._He tweets at @yatishrajawat