Government Faces Mounting Surplus in Rice Stocks: Potential Challenges and Solutions
The Indian government is bracing for a significant surplus in its rice stocks as the procurement drive for the 2023-24 season proves robust. While this surplus represents a boon in grain availability, it also poses challenges in managing storage costs, potential losses, and swelling subsidy expenditures.
Projections indicate that the Food Corporation of India (FCI) could possess more than double the buffer stock of rice by the end of the current season. With 19.44 million tonnes (MT) already in possession and an additional 23 MT expected from millers, the surplus threatens to strain storage facilities and escalate costs.
The accumulation of surplus rice can be attributed to a blend of factors. Robust procurement initiatives by governmental agencies and a higher Minimum Support Price (MSP) have contributed significantly. However, tepid responses from bulk buyers in the open market sale scheme (OMSS) and the government's decision against supplying rice for ethanol production have compounded the challenge.
Officials indicate that the procurement drive, which commenced on October 1, has already amassed around 17 MT of rice-equivalent of paddy. This procurement is poised to exceed 50 MT for the entire kharif season, surpassing the annual requirement of 40 MT for the Pradhan Mantri Garib Kalyan Anna Yojana (PMFBY) free ration scheme. An additional 5-6 MT is anticipated during the rabi season.
The surplus situation has been a brewing concern since December 2023, following the conclusion of the additional 5 kg of rice monthly provided to 800 million beneficiaries under the PMGKAY, launched in April 2020 as a Covid-19 relief measure. This surplus, around 16 MT annually, has continued to escalate due to policy decisions against allowing states to purchase rice under OMSS and halting supplies for ethanol production.
The government is under pressure to offload surplus stocks, especially as it had previously diverted 1.3 MT of rice from FCI for biofuel production during the 2022-23 ethanol supply period.
While the FCI has conducted e-auctions since July, offloading a mere 0.1 MT of rice in the open market, the government aimed to release 2.5 MT of rice from the central pool to bulk buyers this fiscal year. Despite reducing base prices under the OMSS in August, the response from buyers has been lackluster, with bid prices marginally exceeding the reserve price.
Furthermore, the government has intervened in the rice market by banning white rice exports and imposing a 20% export duty on par-boiled rice to stabilize domestic supplies, given the rise in retail rice prices by 11.6% in October.
The impending surplus underscores the urgent need for strategic policy initiatives to manage and mitigate the challenges posed by surplus rice stocks. The government must explore innovative strategies to balance procurement, distribution, and offloading to ensure food security while curbing mounting expenses.