Govt stocks dip to 5 year low amid high food inflation

Govt stocks dip to 5 year low amid high food inflation

Subject: Agriculture

Context :Stocks of wheat and rice with government agencies have plunged to a five-year low, even as retail cereal price inflation soared to a 105-month high in September.

Concept:

• According to data from the Food Corporation of India (FCI), wheat and rice stocks in public godowns totalled 511.4 lakh tonnes (lt) as on October 1. This was as against 816. lt a year ago and the lowest for the same date since 2017.
• For example, wheat stocks are just above the minimum buffer (three-month operational stock requirement plus strategic reserve to meet procurement shortfalls) that needs to be maintained by FCI.

What is Buffer stock?

Buffer stock refers to a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies. Buffer stock is generally maintained for essential commodities and necessities like food grains, pulses etc. In India, buffer stocking of food grains is conceptually seen as a vehicle to deliver strategic food and agricultural domestic support policies through which the government caters multiple objectives such as providing famine relief, ensuring food security to consumers and providing production incentives to farmers. The concept of buffer stock was first introduced during the IVth Five Year Plan (1969-74).

Objective of Buffer Stock?

Buffer stock of food grains in the Central Pool is maintained by the Government of India (GOI) / Central Government for:

1. Food Security: Meeting the prescribed minimum buffer stock norms for food security,
2. Welfare Schemes: Monthly release of food grains for supply through Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS),
3. Emergency use: Meeting emergency situations arising out of unexpected crop failure, natural disasters, etc., and
4. Price Stability: Price stabilization or market intervention to augment supply so as to help moderate the open market prices.

• The Cabinet Committee on Economic Affairs fixes the minimum buffer norms on quarterly basis: i.e as on 1st April, 1st July, 1st October and 1st January of every financial year.
• In addition to buffer norms, Government of India has prescribed a strategic reserve of 30 lakh tons of wheat w.e.f. 01.07.2008 and 20 lakh tons of rice w.e.f. 01.01.2009.
• At present, Government of India prefers to use the term – Food grain stocking norms – which refers to the level of stock in the Central Pool that is sufficient to meet the operational requirement of food grains and exigencies at any point of time. Earlier this concept was termed as Buffer Norms and Strategic Reserve.
• Presently, stocking norms fixed by Government of India on 22.01.2015 comprise of:

1. Operational stocks: This is maintainedfor meeting monthly distributional requirement under TPDS and OWS.
2. Food security stocks/reserves: This is maintainedfor meeting shortfall in procurement.

• While four months requirement of food grains for issue under TPDS and OWS are earmarked as operational stocks, the surplus over that is treated as buffer stock and physically both buffer and operational stocks are merged into one and are not distinguishable.
• According to the present practice, the GOI treats the food stock over and above the minimum norms as excess stock and liquidates them from time to time through exports, open market sales or additional allocations to states. The buffer stock figures are normally reviewed after every five years

Food Stock available in the central governments’ pool is the stock held by:

1. State Government Agencies (SGAs)
2. States which are taking part in the Decentralized Procurement Scheme
3. Food Corporation of India (FCI)

Consumer Food Price Index

• It is a measure of change in retail prices of food products consumed by a defined population group in a given area with reference to a base year.
• The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI) started releasing Consumer Food Price Indices (CFPI) for three categories -rural, urban and combined – separately on an all-India basis with effect from May, 2014.
• Like Consumer Price Index (CPI), the CFPI is also calculated on a monthly basis and methodology remains the same as CPI.
• The base year presently used is 2012. The CSO revised the Base Year of the CPI and CFPI from 2010=100 to 2012=100 with effect from the release of indices for the month of January 2015.
• CFPI (Rural/ Urban/ Combined) is compiled as the weighted average of the Cereals and Products sub group of CPI for each of those categories – Rural/ Urban/ Combined. Modified weights of these Sub-groups within CFPI are as follows:

All India Weights of different Sub-groups within Consumer Food Price Index

• Inflation rates (on point-to-point basis i.e. August, 2014 over August, 2013), based on general Indices and CFPIs, are issued by CSO.
• Globally, food price index is being released by Food and Agriculture Organization of the United Nations. T
• The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities.
• It consists of the average of five commodity group price indices (Cereal, Vegetable Oil, Dairy, Meat and Sugar) weighted with the average export shares of each of the groups for 2002-2004.
• After the revision of Whole Sale Price Index (WPI) with the new base year 2011-12, a new “WPI Food Index” is being compiled by combining the “Food Articles” under “Primary Articles” in WPI and “Food Products” under “Manufactured Products” in WPI. Together with the Consumer Food Price Index released by Central Statistics Office, this would help monitor the price situation of food items better.