Q. Elucidate the importance of buffer stocks for stabilizing agricultural prices in India. What are the challenges associated with the storage of buffer stock? Discuss.

Model Answer:

Buffer stocks in India

Buffer stocks in India, primarily managed by the Food Corporation of India (FCI), are reserves of agricultural commodities maintained to stabilize prices and ensure food security. Their importance in stabilizing agricultural prices in India is multifaceted:

• Price Stabilization: Buffer stocks help moderate price fluctuations by releasing stocks during shortages and procuring during surplus. For instance, in 2023, when wheat prices surged, the government released 3 million tonnes from buffer stocks to stabilize the market.

• Food Security: These stocks ensure availability of food grains during emergencies, droughts, or other calamities. The government maintains a buffer norm of 41.12 million tonnes of rice and wheat combined, crucial for India’s food security strategy.

• Market Intervention: Through schemes like Open Market Sale Scheme (OMSS), the government uses buffer stocks to intervene in the market, protecting both producers and consumers from extreme price volatility.

• Income Stability for Farmers: The Minimum Support Price (MSP) mechanism, linked to buffer stock procurement, provides a safety net for farmers. In 2022-23, the government procured 57.65 million tonnes of wheat at MSP, ensuring stable income for farmers.

• Inflation Control: By regulating supply, buffer stocks help control food inflation, which constitutes nearly 46% of the Consumer Price Index in India.

However, the storage of buffer stocks presents several challenges:

• Infrastructure Limitations: Despite a storage capacity of 816 lakh tonnes, India still faces a shortfall, leading to open storage and potential wastage.

• Quality Deterioration: Annually, about 4-6% of stored grains are lost due to poor storage conditions, pest infestation, and moisture damage.

• Financial Costs: The economic cost of wheat to FCI increased from ₹2,080.50 per quintal in 2019-20 to ₹2,588.70 in 2021-22, highlighting the rising financial burden.

• Logistics and Distribution: With 2,000 FCI godowns spread across India, efficient transportation and distribution remain challenging, especially in remote areas.

• Management Issues: The Comptroller and Auditor General (CAG) has repeatedly highlighted issues of leakages and inefficiencies in the system, estimating annual losses in crores.

Conclusion: Buffer stocks are vital for India’s agricultural stability, but addressing storage and management challenges is crucial for enhancing system effectiveness.