FCI to Sell Extra 5 MT Wheat and 2.5 MT Rice: Government Promises Steps to Arrest Food Inflation 2023

FCI to Sell Extra 5 MT Wheat and 2.5 MT Rice: Government Promises Steps to Arrest Food Inflation 2023

The government said on Wednesday that multiple actions were being taken to reduce pricing pressures in the wake of a dramatic increase in the cost of vegetables and pulses and the restart of an upward trend in cereal inflation. To keep cereal prices in check, it announced the sale of 2.5 MT of rice and 5 MT of wheat to large purchasers on the open market.

In addition to the 0.82 MT of wheat previously sold through the weekly e-auction hosted by the Food Corporation of India (FCI) under the open market sale system (OMSS) since June, other amounts of food grain need to be offloaded.

However, FCI has only sold roughly 2200 tonnes of rice to large purchasers. The government has announced a Rs 2/kg drop in the introductory price of rice to Rs 29/kg against an economic cost of more than Rs 36/kg to encourage private players to buy rice via e-auction.

Food Secretary Sanjeev Chopra emphasized the government’s intervention, stating that although there has been a dramatic rise in food prices, the current actions are dynamic and consistent in containing food inflation.

Food Corporation of India (FCI) now has 27.99 MT of wheat on hand compared to a buffer of 20.52 MT for October 1. Similarly, the central pool’s rice stock is 37.09 MT, including the 12.43 MT that must come from millers. This compares to the 10.25 MT buffer on October 1.

According to Ashok Meena, chairman and managing director of FCI, we have enough grain supply to sell on the open market.

At the Wednesday e-auction, the average selling price for wheat increased to Rs 2,254/quintal from Rs 2,136/quintal at the June 28 e-auction.

Every auction has seen an increase in wheat’s weighted average selling price, proving there is still a market for the product, according to Chopra.

Retail inflation for cereal and related items was recorded at 12.71 in June, down from 16.12 in January. Cereal inflation has reached double digits since October of the previous year.

After falling to 2.96% on the year in May, retail inflation in the food basket increased to 4.49% in June due to higher prices for grains and pulses and a sequential increase in vegetable costs.

Due to a significant increase in tomato prices at the end of June and trends in rising onion costs, experts predict that food inflation will increase in July.

Due to decreasing output due to unpredictable weather, the cost of spices like cumin seeds (Jeera), turmeric, and coriander (dhania) has climbed significantly during the past several months. Retail inflation in Jeera reached a record 74% year-over-year in June 2023.

The government has announced many actions in the past several months, including a prohibition on the export of white rice, the start of the open market sale of wheat and rice from the central pool, and the implementation of stock-holding limitations on a policy that was previously started in 2008.

According to Chopra, the government is exploring several steps, including lowering the import tax on wheat. As local prices have decreased, India increased the levy from 30% to 40% in April 2019 to deter imports of less expensive wheat.

The Consumer Price Index (CPI), which measures retail inflation, is predicted by the CMIE to soar to about 7% in July 2023, with a propensity to nudge up to 7.5%. Inflation for June was 4.81%. “The food group, notably vegetables, is anticipated to be the main driver of the sharp increase in inflation in July. In July, food inflation may reach double digits, it was noted.

In a strategic move to counter the rising food inflation in the country, the Indian Government has instructed the Food Corporation of India (FCI) to release an additional 5 million tonnes (MT) of wheat and 2.5 MT of rice into the open market. This decision aims to augment the supply, stabilize prices, and ensure the commoner is shielded from soaring food prices.

The Food Corporation of India (FCI) is the principal agency responsible for safeguarding India’s food security. Established in 1965 under the Food Corporations Act, its primary role has been to procure and store food grains and distribute them across the country to support the Public Distribution System (PDS) and other welfare programs.

A mix of irregular monsoons, droughts, and untimely rains impacted crop yield. International prices for food commodities were upward, affecting import and export dynamics. The post-pandemic aftershocks and subsequent localized lockdowns disrupted the normal functioning of the supply chain.

Rising global oil prices translated into higher transportation costs, pushing food prices. To combat the rising food prices, the government, after deliberation with economists and experts, decided to tap into the FCI’s massive grain reserves.

The release of 5 MT of wheat and 2.5 MT of rice is expected to enhance the market supply, thereby providing downward pressure on prices.

With increased availability, consumers can expect some relief as grain prices stabilize or reduce in the retail market. This move will also help FCI minimize these stocks’ carrying costs and manage its warehousing space more effectively.

Economists and agricultural experts are primarily optimistic about this decision. As an agricultural economist, Dr Raghav Mehra opined, “Releasing the extra grain stock is a timely move. It serves a dual purpose – supporting consumers during price escalation and ensuring that excess grain does not go to waste due to prolonged storage.”

However, some experts believe that while this is a welcome step, long-term structural reforms in the agriculture and supply chain sectors are needed to ensure sustainable price stability.

The Indian Government’s move to release additional grain stocks through FCI is a testament to its commitment to maintaining food security and affordability for its citizens. While this step is expected to provide short-term relief from rising food prices, it also underscores the need for broader reforms and strategies to manage food inflation in the long run.