India needs
to curb food wastage to tackle inflation: World Bank
(This article was
published on September 23, 2011)
File photo of a few thousand tonnes of wheat are said to
have been damaged after the grain was exposed in the heavy rains due to poor
storage.
Input
subsidy expenses not contributing to boost productivity
Chennai, Sept 23:
The
World Bank has said that South Asia’s foodgrain stock management, especially in
India, needs to improve to tackle inflation.
In
its focus on food inflation in South Asia, the bank said that high stocks have
led to high wastage due to inadequate storage capacity and technology.
According to World Bank’s estimates, the Food Corporation of India lost 10-16
million tonnes of grains in 2000.
The
FCI’s inefficiencies not only lead to high losses of the grains it handles,
they also drive up the costs of food handling. Comparisons show that the FCI’s
handling and storage costs are significantly higher than those of the private
sector. The increase in procurement has led to a significant increase in the
fiscal costs of the system, the report said.
The
FCI procures nearly one-third of wheat, rice produced in the country, besides
coarse grains at the minimum support price fixed by the Government. The stocks
are then transported to deficit States and sold through the public distribution
system at a subsidised rate.
It
said demand for food is undergoing structural shifts as incomes rise. Growth in
consumption of pulses, fruits, meat, eggs, and dairy items is more than double
the consumption growth in cereals. Inflation in these items has been higher
than in cereals.
Public
intervention in agricultural marketing in India and Pakistan has high fiscal
costs and narrowly supports cereal production, while high food inflation and
continuing high rates of food insecurity are linked to an inadequate supply
response in non-cereal food products, the report said.
Input
subsidies contributed to the overuse of water resources, high losses of
electricity utilities, and deteriorating soil conditions because of skewed
application of fertiliser.
It
said expenses on these were not contributing to productivity and they could
instead be used as
investments
in agricultural research, education, and rural roads are amongst the most
effective
public
spending items in promoting agricultural growth and reducing poverty.
Food
and fertiliser subsidies have increased to over 1.5 per cent of the GDP since
2008-09 from around one per cent in the 1990s.
Annals
of public procurement
Outlays
on food subsidies are far higher than public investment in agriculture and
outlays for extension services, which could increase agricultural production
and lead to lower prices over time.
In
India and to a lesser degree in Pakistan, large-scale public procurement
hampered the private sector not only by pre-emption, but also by taxes and
rules for moving grains across state borders, and caps on storage of grains
designed to facilitate public procurement.
The
bank found fault with mandatory Jute Packaging Act, frequent changes in the
Essential Commodities Act, low private investment in grain marketing,
insufficient investment in supply chain and marketing rules.
The
bank proposed five policy options to tackle inflation including in foodgrain
storage management. It called for demand management policies in South Asia
earlier than in advanced countries because of the high share of food items in
consumer baskets with priority for fiscal consolidation.
Over
the longer term, it called for policies aimed at increasing agricultural output
and productivity to alleviate pressures on food prices, including focus on
technology, improved water management, rural infrastructure, agricultural
diversification, and private sector investment in marketing and the agro
industry.
It
said governments should exploit the efficiency gains they could achieve (in
terms of protecting and improving nutritional status) through provision of more
nutritious foods (e.g. foods fortified with essential vitamins and minerals)
and by increasing beneficiary knowledge on how to maximise household resources
for nutritional impact.
It
asked governments to explore developments of market-based tools and assistance
for managing risks, particularly those that affect the government’s budget.
(This article was published on September 23, 2011)
Keywords: Food wastage, Inflation, foodgrain
stock management