Overflowing Granaries: How India Can Manage Its Rice Surplus
India's food grain management has reached a critical juncture, with the Food Corporation of India (FCI) holding rice stocks at a two-decade high of 30 million tonnes (MT) as of November 1, 2024. This stockpile, nearly triple the buffer requirement, comes with significant economic costs - excessive stock levels lead to wastage, quality deterioration, and a high economic burden on the government for storage and maintenance.
To address this surplus, the government has taken measures to release stock through the Open Market Sale Scheme (OMSS) and by offering it to ethanol manufacturers. However, these measures have had limited success. Under OMSS, only 0.2 million tonnes of rice were sold to bulk buyers at a subsidized price of ?28/kg in FY24, far below the desired volumes. Even the initiative to allow ethanol manufacturers to purchase 2.3 MT of rice stock has garnered lukewarm response, highlighting the challenge of managing surplus stock effectively through domestic avenues.
This vicious cycle of high procurement, underutilization, inflation, and demand for higher MSP and procurement - threatens sustainable price discovery and market stability.
Despite this scenario, the government plans to procure an additional 50 million tonnes of rice this year, up from last year's 46.3 million tonnes. This decision is driven by India's steady increase in rice production, reaching 135 million tonnes in 2023, while domestic consumption remains around 100-105 million tonnes. With total sown area for paddy up by 16% to 39.4 million hectares, the government is compelled to procure more rice to support farmer incomes and prevent distress sales.
At this critical juncture, a strategic solution could be for the government to consider exporting directly from its stockpile.
The Vicious Cycle of Procurement and Inflation
However, the inability to efficiently utilize procured stocks has an unintended consequence: a supply shortage in the open market. This artificial scarcity drives cereal and food inflation, compelling farmers to seek higher MSPs and procurement, which, in turn, pressures the government to increase procurement further. This vicious cycle of high procurement, underutilization, inflation, and demand for higher MSP and procurement - threatens sustainable price discovery and market stability.
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At this critical juncture, a strategic solution could be for the government to consider exporting directly from its stockpile.
Recognizing these dynamics, the government recently lifted key restrictions on open market rice exports, including removing the floor price for non-basmati white rice exports and scrapping the export duty on parboiled rice. India, the world's largest rice exporter, is projected to export 20.5 million tonnes of rice in the 2024-25 marketing year, up from 15.7 million tonnes in the previous year, when export curbs were in place. While this move will benefit farmers by providing access to international markets, it risks exacerbating domestic supply shortages, potentially pushing inflation even higher.
Exporting from the Stockpile: A Strategic Solution?
At this critical juncture, a strategic solution could be for the government to consider exporting directly from its stockpile. Exporting the stored rice—typically of lower quality due to prolonged storage and diverse grain varieties—could help reduce stockpiles while meeting demand in international markets that may accept these quality levels. As the world's second-largest rice producer after China, India accounts for 26% of global rice production (Bangladesh, the next largest producer, accounts for just 7%). This puts the country in a favorable position to leverage its surplus for exports.
India's rice dilemma presents both a challenge and an opportunity. By strategically managing surplus stock through exports and domestic demand-driven redistribution, the government can break the cycle of inflation and support farmer incomes sustainably.