Going out of reach

The vegetable markets seem to be possessed by a strange inflationary fever; the news emanating from the grain trade is none too cheerful either.

SUKUMAR MURALIDHARAN

AN election season is clearly the worst time for politicians to confront livelihood pressures among the mass of voters. The Bharatiya Janata Party-led Government at the Centre is, by this index, not having an easy time. The vegetable markets seem to be possessed by a strange inflationary fever and the news emanating from the grain trade is none too cheerful either.

Procurement operations in the ongoing kharif harvest have been set back by unseasonal rains, showing rather poor accruals so far to the central pool. Since October 1, the kharif procurement of rice totalled a mere 2.31 million tonnes in three weeks. This represents a substantial decline over the procurement of 3.73 million tonnes in the first three weeks of the 1997 season. Since the month of October normally brings in close to 30 per cent of the total annual procurement of rice, the early performance this year has caused some disquiet.

Preliminary explanations have focussed on the delay in the harvest this year on account of the peculiar pattern of rainfall in the main procurement area of Punjab. When the harvest commenced, market arrivals were disrupted by another spell of rain. Soaked in these downpours, the moisture content of paddy in transit went up far above the norm allowed by the procurement agencies.

In an effort at retrieval, the Union Cabinet decided on October 26 to relax the moisture content norms applicable to rice procurement operations. This has not yet caused a significant increase in accretions to official stocks. And if current trends are any indication, it is unlikely to, since the rice market is being driven by forces very different from those the Government seems prepared to recognise.

CENTRAL to the new configuration of forces in the rice trade is the fact that after years of restraint, price expectations this year are again buoyant. India's rice exports have been on the decline since 1995-96 as a result of rather weak international price signals. Between 1995 and 1997, the world export reference prices for qualities equivalent to India's main export varieties declined by around $40 a tonne.

S. THANTHONI

The current year brought about a qualitative transformation. It opened with the lowest level of global rice stocks in several years. The harvest in much of South-East Asia has been poor; Thailand, a traditional exporter, has suffered a decline of about one million tonnes in its rice harvest and is unlikely to play an active trading role in the immediate future.

The estimated import needs of the principal consumers are at their highest in many years. Indonesia, it is expected, will need to import 5.5 million tonnes of rice this year, while the Philippines will require two million tonnes to meet domestic requirements. Bangladesh, which suffered unseasonal rains and serious floods, will, by most forecasts, need to import 1.5 million tonnes.

Market trends indicate clearly that private trade is perhaps equipping itself with the stocks to optimise its profits from export opportunities. Significantly, market arrivals have not been quite as low as procurement figures may suggest. In Punjab, market arrivals in the first three weeks of the kharif harvest have been only 10 per cent below the 1997 level - 5.96 million tonnes against 6.63 million tonnes. There has been an increase in the arrivals in the Haryana markets, However, this is of little consequence since the State contributes little to the overall rice procurement.

Private trade has obviously rushed in to drive a wedge between the production and procurement operations. The three weeks of kharif harvest have brought forth abundant evidence of acute private trading interest in the Punjab rice crop. Private millers are estimated to have bought 2.6 million tonnes or 43.6 per cent of the total market arrivals of paddy in Punjab as against a modest 1.89 million tonnes last year.

A factor that partly mitigates this pronounced skewing of proportions between the official and private channels is the high volume of food stocks held by the Central Government. Total food stocks stood at over 25 million tonnes at the end of September, which is well in excess of the stipulated norm of 16.6 million tonnes. Of the total holding, rice accounted for close to 10 million tonnes, again well above the six million tonnes that is considered essential for securing the food market against untoward fluctuations. One major qualification needs to be introduced. Around 2.5 million tonnes of rice stocks do not meet the basic quality requirements. They were procured as a fairly transparent electoral deal with the farm lobby in Punjab on the orders of the I.K. Gujral caretaker Government last year. There have since been no takers for this grain, which continues to occupy scarce warehouse space and imposes a rather stiff carrying cost on the Central Government.

As part of its recommendations for the kharif season, the Commission on Agricultural Costs and Prices (CACP) proposed that this entire volume of grain be sold through market channels. However, the price realised on these sales is unlikely to meet the cost incurred by the Food Corporation of India (FCI) in procurement. Open market sales would appear to be an infeasible option unless the Government is willing to bear the difference as a subsidy.

The Government's current strategy of accelerating the tardy pace of rice procurement is only likely to compound the problem of sub-standard stocks. In an environment of buoyant speculative expectations, the relaxation of quality norms might conceivably draw into the official hoard, grain that may not have gained buyers elsewhere. However, without a strong price incentive, quality grain is unlikely to change course and seek out FCI procurement operations in preference to private trade channels.

The available options then would range from increasing the procurement price for rice, to curbing the export option. The former would in a difficult fiscal situation only feed into higher issue prices through the public distribution system, further compounding livelihood pressures. As for the latter, the only instrument of control available is the rather crude one of export duties, which fails entirely in curbing the illegal export of rice. If, between the two tough choices, the Government resorts to the easy option of bluster with little action, it is only likely to accentuate the speculative forces that are already evident in the market. A re-enactment of the sordid drama of onions, only this time in the much more vital and sensitive foodgrain market, would then be a distinct possibility.

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