India’s Food Security Needs Policy Consensus on Punjab

Farmers of Punjab have again taken to agitation as they are not able to sell their paddy at procurement centres in APMC mandis. The reason given is that there is shortage of storage capacity in the state for rice.

For decades, Punjab has been at the forefront of the procurement of rice and wheat. After procurement by the state agencies, the wheat and rice are taken over by the Food Corporation of India (FCI) and they are moved to consuming states, mostly by railway rakes. The movement to Himachal Pradesh and Jammu and Kashmir is by trucks.

Outward movement creates storage space for next year’s procurement. Rice is stored only in covered warehouses, while wheat is also stored in covered and plinth (CAP) storage.

Why is Punjab facing storage problem?

By the end of Kharif marketing season (KMS) 2023–24 (October–September), 124 lakh tonnes of rice was delivered to FCI in Punjab, but it could move out only 7 lakh tonnes. This was primarily due to high procurement of rice in non-traditional states like Odisha, Chhatisgarh, Madhya Pradesh, Telangana and Tamil Nadu. Bihar and West Bengal have also increased their rice procurement. As a result, the requirement of food grains for PDS in these states is met by local procurement. It is another matter that in 2014, the Union Government had itself asked the states not to declare bonus on wheat and rice. It was directed that if decentralized procuring (DCP) states announce bonus over and above MSP of rice and wheat, the Centre will give subsidy only on the quantity required for the PDS of that state.

This policy has changed over the years and now Chhattisgarh, Madhya Pradesh and most recently Odisha are procuring paddy at Rs. 3100 per quintal, Rs. 700 above the MSP.

In addition to bonus, several states are providing very high subsidy on electricity for agriculture. The Council on Energy, Environment and Water, a reputed think-tank estimates that in 2022–23, the subsidy on electricity for the agricultural sector is estimated to be Rs. 101,745 crore. These incentives for the cultivation of rice have caused lower demand for rice from Punjab for meeting the PDS requirement.

As a result of higher rice production in non-traditional states, the outward movement of rice from Punjab has been very slow and the rice stock with FCI in Punjab rose from 60.65 lakh tonnes on October 1, 2023, to 119 lakh tonnes on October 1, 2024. The storage capacity in Punjab was almost fully occupied leaving little space for accepting rice milled from paddy procured in the state in KMS 2024–25. Another reason for the shortage of storage space is due to the storage of about 45 lakh tonnes of wheat in covered godowns, rather than in CAP storage.

PEG scheme and steel silos

Over the years, the Union Government has supported the creation of storage capacity for food grains by attracting private investment. In 2008, the government introduced the Private Entrepreneurs Guarantee (PEG) scheme under which the storage gap in every district of India was assessed based on four months requirement of food grains under PDS in consuming districts and peak level of stocks in the previous three years in procuring districts. The private entrepreneurs were given guaranteed payment of storage rent for ten years. The guarantee period for CWC/SWCs was fixed at 9 years.

FCI invited bids for setting up warehouses based on the storage gap. Thus, storage capacity was created without any investment from the Union budget. As of August 2024, 16.34 million tonnes of storage capacity has been sanctioned under PEG and 14.6 million tonnes has been completed, out of which 13.24 million tonnes has been taken over by FCI/ state agencies. In Punjab alone, FCI has taken over 4.46 million tonnes of warehousing capacity.

The current crisis has its origin in lower wheat procurement in Rabi Marketing Season (April–March) 2022–23, 2023–24 and 2024–25. In 2021–22, the wheat procurement was 43.3 million tonnes, which came down to 18.8 million tonnes in 2022–23 and about 26 million tonnes in the next two years. In view of this, FCI and the state agencies may have de-hired the warehouses resulting in the storage capacity coming down from 78.83 million tonnes in March 2022 to 71.15 million tonnes in March 2023. This is reduction of 7.68 million tonnes of warehouse capacity.

FCI’s own capacity under covered godowns came down from 42.66 million tonnes in March 2022 to 33.74 million tonnes in March 2023. In the past, the Comptroller and Auditor General (CAG) had objected to excess capacity of rented warehouses. As a result of fear of audit paras, the de-hiring may have taken place.

In addition to traditional warehouses, the government has also approved steel silos under public–private partnership (PPP) mode. Silo capacity of 5.5 lakh tonnes was created in Punjab, Haryana and a few consuming states under circuit-based model in 2007. In addition to this, silo capacity of 29.25 lakh tonnes has been awarded by the FCI. Out of this, 10.75 lakh tonnes has been completed and taken over by FCI. For example, silo projects have been completed at Darbhanga and  Samastipur in Bihar; Basti, Dhamora and Kannauj in Uttar Pradesh;  Vadodara in Gujarat; and Sahnewal, Chheheratta and Batala in Punjab.

The creation of silo capacity will enable FCI to move wheat procured in Punjab and Haryana to consuming states. Ideally, the  movement of wheat  should also be in bulk rather in jute bags.

De-hiring of warehouses 

Due to lower wheat procurement in the last three years, the storage capacity went down due to de-hiring of warehouses. By August 2024, FCI had again hired the warehouses, and its capacity had gone up to 40.8 million tonnes. But it was still lower compared to 2022 and it continues to be insufficient to meet the requirement of rice procurement in KMS 2024–25.

Looking ahead in short term

The crisis of storage and procurement of paddy in Punjab has to be solved as the government cannot afford to face another large agitation of farmers in Punjab. So, the government will take steps to increase the storage capacity and also reduce the central pool stock of rice.

Storage capacity will be hired in Punjab and other states and railways will provide more rakes for moving rice out of Punjab. Some of the newly hired warehouses may not meet the quality standards of warehousing, but in an emergency-like situation, leniency is expected.

The government has also allocated 2.3 million tonnes of rice for sale by FCI for ethanol at the rate of Rs. 2,800  per quintal,  while the economic cost of rice in 2024–25 is estimated at Rs. 3,975 per quintal. The government may be thinking that it will also help in reducing the rice stock, but it seems that grain distilleries of ethanol are able to source broken rice at a cheaper rate. So, the demand of rice at this price is not there.

Now that the restrictions on export of non-basmati rice have been lifted, the exports will be higher than last year. This may help the state government reduce procurement of rice and manage the stock.

Looking ahead to 2034

An important policy decision the government has to take is whether the MSP regime and PDS will continue in its present form? Will the foodgrain distribution continue even in food surplus states which are procuring wheat and rice at MSP? Is there a need to move to direct benefit transfer for PDS, at least in some surplus states?

There is a consensus that area under non-basmati paddy in Punjab and Haryana needs to go down. But there is no road map to achieve this. In July 2024, the Agriculture Minister of  Punjab announced that an incentive of Rs 17,500 per hectare will be given for diversification from paddy to less water-consuming crops. By this time, the transplantation was almost over. It is not clear if the Union Government has agreed to contribute to this incentive. It is in the interest of Indian agriculture that an agreement between Punjab and the Centre is reached well in time before the next Kharif sowing so that farmers have clarity.

Punjab’s agriculture is much less diversified than even its neighbouring state of Haryana. In the interest of India’s long-term food security, clear roadmap is need of the hour.

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References:

1. https://www.tribuneindia.com/news/comment/paddy-procurement-crisis-due-to-lack-of-planning
2. https://indianexpress.com/article/explained/how-paddy-variety-pr-126-became-a-victim-of-its-own-popularity-9625697
3. https://www.financialexpress.com/policy/economy-food-subsidy-for-fy25-may-be-revised-upward-by-over-rs-35000-cr-3442219/
4. https://www.financialexpress.com/policy/economy-food-subsidy-for-fy25-may-be-revised-upward-by-over-rs-35000-cr-3442219/

(Siraj Hussain is Former Union Agriculture Secretary and Jugal Mohapatra is Former Union Rural Development and Fertiliser Secretary)