Food Security

Why in News- The government’s decision to impose stock limits on cereals, effective from June 24 and applicable till March 31, 2025, is to “manage overall food security and prevent hoarding and unscrupulous speculation.

UPSC Syllabus:

Prelims: Economy

Mains: GS-III: Economy

What are stock limits?

• Stock limits refer to the maximum quantity of a commodity that traders, wholesalers, and retailers can hold at any given time.
• These limits are imposed by the government to regulate the supply of essential commodities in the market, prevent hoarding and control inflation.
• Stock limits are part of the Essential Commodities Act, of 1955, which allows the government to regulate the production, supply, and distribution of certain commodities to ensure their availability at a reasonable price.

What is buffer stock?

• Buffer stock is a stock of a commodity, such as food grains, that the government keeps in place to meet supply disruptions, poor harvests, or other emergencies.
• The Food Corporation of India (FCI) is responsible for procuring and maintaining buffer stocks of foodgrains such as wheat and rice.
• These stocks are used for distribution through the Public Distribution System (PDS) and other welfare schemes.

Importance of Buffer Stocks

Buffer stocks play a vital role in:

Stabilizing prices: By releasing stocks during times of shortage, the government can control price rises.

Ensuring food security: Buffer stocks ensure that there is an adequate supply of foodgrains during emergencies.

Supporting farmers: Through procurement operations, the government assures farmers of a minimum support price (MSP) for their produce.

Reasons for restoring stock controls

Despite record wheat production, the government has restored stock controls because:

Retail grain inflation: Retail grain inflation was 8.69% year-on-year in May.

Low government wheat stocks: Wheat stocks in government warehouses stood at 29.91 MT on June 1, the lowest in 16 years for this date.

Uncertain monsoon: Despite a reasonable stock position at present, a poor monsoon so far could impact rice production.

Contradictions in government policies

• There is a contradiction between the Agriculture Ministry’s estimate of record wheat production and the imposition of stock limits by the Ministry of Consumer Affairs, food, and Public Distribution.
• Despite high production and curbs on exports, cereal inflation remains high.

Need to rethink policies

• If the government doubts the supply situation despite high production estimates, it should consider removing the 40% duty on wheat imports.
• Elections are over and farmers have sold their produce, so there is no political reason to maintain high import duty.

Impact on agricultural exports

• Indian agricultural exports are affected by global price dynamics and domestic export policies.
• When global prices rise, India’s agricultural exports tend to surge, as was seen during the UPA era.

However, recent export restrictions and blanket bans on sensitive commodities such as wheat, rice, sugar, and onion have significantly impacted agricultural exports due to domestic food inflation concerns.

Key points on restoration of stock controls on wheat

After the marketing of the harvested wheat crop was completed, the government has formally restored stock controls. Despite record wheat production, the move has been taken primarily for three important reasons.

Retail grain inflation

• Retail grain inflation is a serious concern, with rates standing at 8.69% year-on-year in May.
• High inflation rates can impact consumer affordability and overall food security.
• The government aims to contain this inflation by controlling stock limits to prevent hoarding and ensure stable supplies in the market.

Low wheat stocks in government warehouses

• As of June 1, wheat stocks in government warehouses stood at 29.91 million tonnes (MT), the lowest in 16 years for this date.
• Low buffer stocks can pose risks to food security, especially during emergencies or poor harvest seasons.
• Maintaining adequate buffer stocks is essential to keep prices stable and ensure an uninterrupted supply of wheat through public distribution channels.

Erratic monsoon and its impact

• The current monsoon has been less than ideal, raising concerns about future agricultural production, especially rice.
• Although rice stocks are currently reasonable, a poor monsoon could impact the upcoming rice harvest, raising the need for tight stock controls on wheat to mitigate any potential food security issues.

Factors Affecting Indian Agri-Exports

Indian agricultural exports are influenced by two main factors:

Global prices of agri-products

• The behavior of global prices plays a vital role in shaping India’s agricultural export trends.
• When global prices of agricultural produce are rising, Indian exports surge.
• This trend was particularly observed during the UPA era when favorable global prices prevailed. 1. Liberal Agri-export Policy
• The extent to which India’s agricultural export policy is liberal has an impact on export volumes.
• A more liberal policy facilitates higher exports by reducing regulatory barriers and promoting market access for Indian produce.

Effect of Export Restrictions

• The recent imposition of export restrictions and blanket bans on sensitive agricultural commodities such as wheat, rice, sugar and onion have significantly impacted India’s agri-exports.
• These measures are primarily driven by concerns over domestic food inflation.
• The government often imposes such restrictions to ensure adequate domestic supplies and control price rises within the country.

Export Restrictions and Domestic Food Inflation

Wheat: The imposition of stock limits and export restrictions on wheat is aimed at preventing hoarding and ensuring adequate domestic supplies, thereby controlling food inflation.

Rice: Restrictions on the export of non-basmati rice are implemented to maintain stable prices and availability in the domestic market, especially during periods of anticipated shortages due to poor monsoons.

Sugar and Onions: Similar measures are implemented for sugar and onions, which are staple commodities with significant consumption in India. Export restrictions or bans help stabilize domestic prices and curb inflation.

Challenges in India’s Agricultural Export Policy

India’s agricultural export policy is facing several challenges, which affect the country’s ability to maximize its export potential. These challenges include:

1. Policy Uncertainty

• Frequent changes in export policies create an environment of uncertainty for exporters.
• Export bans, restrictions, and varying tariff rates make it difficult for exporters to plan their long-term strategies.
• This inconsistency can deter investment in the agricultural sector and impact export growth.

2. Lack of infrastructure

• Inadequate infrastructure, such as poor storage facilities, lack of cold chain, and inefficient transportation systems, impede the quality and competitiveness of Indian agricultural produce in the global market.
• These deficiencies lead to considerable post-harvest losses and affect the shelf life of perishable commodities.

3. Quality standards and compliance

• Meeting international quality standards and compliance requirements is a major challenge for Indian exporters.
• Variations in standards, certification, and regulatory norms in different countries can create barriers to market access.
• Ensuring consistent quality and adhering to global standards is essential to enhance export competitiveness.

Impact of global and domestic policies on agricultural exports

Global trade policies, tariffs, and international agreements affect India’s agricultural exports. Favorable global price trends can boost exports, while protectionist measures by importing countries can restrict market access.

Global price trends: An increase in global prices for agricultural commodities can lead to an increase in export volumes from India. For example, during periods of high global demand, exports of crops such as wheat and rice from India increase.

Trade agreements: Participation in international trade agreements and negotiations under the World Trade Organization (WTO) can open up new markets and reduce trade barriers for Indian agricultural products.

Domestic policies

Domestic agricultural policies, including export restrictions, subsidies, and minimum support prices, play a key role in shaping export dynamics.

Export restrictions: To control domestic inflation and ensure food security, the government may impose export bans or restrictions on certain commodities. While this helps stabilize domestic prices, it may limit export opportunities.

Subsidies and assistance: Government subsidies and assistance for agricultural inputs, such as fertilizers and seeds, increase productivity and competitiveness, which indirectly benefits exports.

Importance of agricultural exports for farmers

Agricultural exports are of great importance to farmers in India, contributing to their livelihoods and economic well-being.

1. Increased Income

• Exports provide farmers with access to larger and more lucrative international markets, which often fetch better prices than the domestic market.
• This increased income can improve their standard of living and financial stability.

2. Market Diversification

• Engaging in exports allows farmers to diversify their markets and reduce their dependence on domestic demand.
• This diversification can reduce the risks associated with market fluctuations and ensure a more stable income.

3. Technological Advancement

• Exposure to international markets encourages farmers to adopt better agricultural practices, technology, and innovations to meet global standards.
• This can lead to increased productivity and efficiency in the agricultural sector.

4. Rural Development

• Increased agricultural exports can promote rural development by creating employment opportunities, improving infrastructure, and stimulating economic activity in rural areas.