Economic and Operational cost of FCI

  • November 23, 2021
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Economic and Operational cost of FCI

Subject – Agriculture

Context – In a move probably aimed at reducing handling costs at the initial stage of the rice procurement process, the Centre has asked Punjab to explore the possibility of auctioning paddy in some districts where there is a surplus.

Concept –

  • Food Corporation of India (FCI) is a Public Sector Undertaking, under the Department of Food & Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.
  • FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was established against the backdrop of major shortage of grains, especially wheat.
  • It has primary duty to undertake purchase, store, and move/transport, distribute and sell food grains and other foodstuffs.

Economic Cost to FCI

  • Economic Cost is the total cost to FCI.
  • It consists of Acquisition Cost and Distribution Cost.
  • Acquisition cost consists of Minimum Support Price (MSP) plus procurement incidental cost.
    • Procurement incidentals are expenses incurred during procurement till the food grains reach the first point of godown.
    • The elements are state taxes, commission to arathias or societies, bagging materials, mandi labour, transportation from mandi to depot etc.
    • Methodology followed for Calculation of Economic Cost are based on the GoI circular to apportion the operational cost of FCI into Buffer Carrying cost and Distribution cost.
  • Distribution cost becomes the part of the Economic cost whereas the Buffer carrying cost becomes the part of Buffer subsidy.

Operational Cost to FCI

Operational Cost of FCI is categorized under the following elements:-

  1. Transportation Cost/Freight
  2. Handling Charges
  3. Storage Losses
  4. Interest cost
  5. Operational Losses
  6. Administration Charges

Food Subsidy –

  • Food subsidy has three elements.
  • Consumer subsidy. the difference between Economic cost and Central Issue Price (CIP) under different schemes of GoI multiplied by quantity of food grains issued under different schemes.
  • Second part is Buffer Carrying Cost. a part of the operation cost apportioned to buffer stock based on excess stock held over and above operation stock (four months sale).
  • Third part includes subsidy on coarse grains, regularization of operation losses of Food Corporation of India and other non-plan allocation to State Govts.
Agriculture Economic and Operational cost of FCI