Benefits of government buffer stocks in stabilizing food prices

Source: The post benefits of government buffer stocks in stabilizing food prices has been created, based on the article “Why govt must create a buffer stock of all main food items” published in “Indian express” on 28th June 2024

UPSC Syllabus Topic: GS Paper 3– minimum support prices; Public Distribution System objectives, functioning, limitations, revamping; issues of buffer stocks and food security

Context: The article discusses the benefits of government buffer stocks in stabilizing food prices. It highlights how releasing stocks of wheat and chana (chickpea) from surplus production years helped lower inflation in cereals and pulses despite adverse weather and crop failures.

For detailed information on government buffer stocks read this article here

What is the current status of buffer stock and food information?

1. Wheat Buffer Stock: In 2022-23, FCI sold 34.82 lakh tonnes (lt) of wheat, rising to a record 100.88 lt the next year, helping reduce wheat inflation from 25.37% to 6.53% by May 2024.
2. Chana Buffer Stock: NAFED procured 25.56 lt and 23.53 lt of chana in 2021-22 and 2022-23, respectively. It sold 14.06 lt through auctions and 16.09 lt as ‘Bharat Dal’.
3. Current Inflation: Cereal inflation was 8.69% and pulses inflation was 17.14% in May 2024.

What are the reasons for food inflation?

1. Climate Change: Unpredictable weather, such as fewer rainy days, extended dry spells, and intense precipitation, has impacted food production. Poor crops over the last three years reduced wheat stocks from 603.56 lt in July 2021 to 301.45 lt in July 2023.
2. Increased Demand: High demand has driven up prices. For instance, chana prices rose from Rs 70 to Rs 90 per kg in a year, while tur/arhar prices jumped from Rs 120 to Rs 170 per kg.
3. Limited Procurement: NAFED could procure only 43,000 tonnes of chana this season, compared to higher quantities in previous years.
4. Market Volatility: Prices of pulses, like urad and moong, have increased due to market volatility, with inflation rates for cereals and pulses at 8.69% and 17.14% respectively in May 2024.

What are the benefits of buffer stocks?

1. Price Stability: Buffer stocks help stabilize prices. For example, wheat inflation dropped from 25.37% in February 2023 to 6.53% in May 2024 due to FCI’s open market sales.
2. Consumer Protection: Consumers benefit from lower prices. NAFED sold 16.09 lakh tonnes of chana as ‘Bharat Dal’ at Rs 60/kg, helping keep prices affordable.
3. Support for Farmers: During surplus years, farmers benefit from minimum support prices (MSP). NAFED bought chana at MSP of Rs 5,230 and Rs 5,335 per quintal in 2021-22 and 2022-23.
4. Supply Management: Buffer stocks ensure supply during poor crop years. NAFED’s chana stocks reduced price volatility, even with market prices above MSP.
5. Inflation Control: Overall CPI inflation was 4.75% in May 2024, the lowest in 12 months, aided by buffer stock interventions in essential commodities.

What should be done?

1. Expand Procurement: The government should increase procurement of pulses and oilseeds, beyond just rice and wheat.
2. Include Vegetables: Buffer stocking should extend to staple vegetables like onion, potato, and tomato. These can be stored as paste, flakes, or puree for future use.
3. Build Milk Powder Stocks: The government should create buffer stocks of skimmed milk powder (SMP) during periods of low prices, like the current drop from Rs 315-320 to Rs 210 per kg.
4. Improve Market Interventions: Continuously release buffer stocks during scarcity to stabilize prices. FCI’s wheat sales helped reduce cereal inflation from 16.73% to 8.69%.
5. Monitor Climate Impact: Adapt buffer stock policies to address climate-induced price volatility, ensuring both consumer protection and farmer support.

Question for practice:

Examine how government buffer stocks have contributed to stabilizing food prices and managing inflation in cereals and pulses.