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Buffer Stock

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Buffer stock refers to a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies. Buffer stock is generally maintained for essential commodities and necessities like foodgrains, pulses etc.

Buffer Stock Policy of the Government of India (GOI)

The concept of buffer stock was first introduced during the IVth Five Year Plan (1969-74).

Buffer stock of food grains in the Central Pool is maintained by the Government of India (GOI) / Central Government for

i. meeting the prescribed minimum buffer stock norms for food security,

ii. monthly release of food grains for supply through Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS),

iii. meeting emergency situations arising out of unexpected crop failure, natural disasters, etc., and

iv. price stabilisation or market intervention to augment supply so as to help moderate the open market prices.

The Cabinet Committee on Economic Affairs fixes the minimum buffer norms on quarterly basis: i.e as on 1st April, 1st July, 1st October and 1st January of every financial year. The latest norms set may be seen here. On 15 December 2015, it was decided by the Government to create a buffer stock of pulses of 1.5 lakh tonnes to control fluctuation of prices of pulses. Government has engaged National Agricultural Cooperative Marketing Federation of India Limited (NAFED), Small Farmers Agri-business Consortium (SFAC) and Food Corporation of India (FCI) to procure pulses for buffer stock.

In addition to buffer norms, Government of India has prescribed a strategic reserve of 30 lakh tonnes of wheat w.e.f. 01.07.2008 and 20 lakh tonnes of rice w.e.f. 01.01.2009.

At present, GoI prefers to use the term - Foodgrain stocking norms - which refers to the level of stock in the Central Pool that is sufficient to meet the operational requirement of foodgrains and exigencies at any point of time. Earlier this concept was termed as Buffer Norms and Strategic Reserve.

Presently, stocking norms fixed by Government of India on 22.01.2015 comprise of:

While four months requirement of food grains for issue under TPDS and OWS are earmarked as operational stocks, the surplus over that is treated as buffer stock and physically both buffer and operational stocks are merged into one and are not distinguishable. According to the present practice, the GOI treats the food stock over and above the minimum norms as excess stock and liquidates them from time to time through exports, open market sales or additional allocations to states. The buffer stock figures are normally reviewed after every five years. (Latest revision was done in January, 2015).

Food grains stock in the Central Pool consists of stock held by Food Corporation of India (FCI), states participating in the Decentralised Procurement Scheme and the state government agencies (SGAs) for both buffer and operational requirements.

The total annual stock of foodgrains in the Central Pool is distributed over different quarters of the year depending upon off-take and procurement patterns. The seasonality of production and procurement is thus, a decisive factor in determining the minimum norm of food grains stocks required in a particular quarter of the year.

As per the 2015 of the High Level Committee on Reorienting the Role and Restructuring of FCI_English.pdf Report of the High level Committee on Reorienting the Role and Restructuring of FCI , during the last five years, on an average, buffer stocks with FCI have been more than double the buffer stocking norms. These excess stocks of the FCI, over and above the stipulated buffer stock norms, lead to inflation in foodgrain prices and also increase the Centre’s fiscal deficit . The report says that some of the reasons for these excess stocks are export bans and open ended procurement (accepting whatever amount that is supplied by farmers), with distortions (through bonuses and high statutory levies). An additional key factor as per the report is the lack of a pro-active liquidation policy. The current system of liquidation of excess stocks through Open Market Sale Scheme (Domestic) or in export markets is extremely ad-hoc and slow. The report recommends a transparent liquidation policy that should automatically come into effect whenever FCI is faced with surplus stocks over buffer norms. The report stresses the need for greater flexibility to FCI to operate in Open Market Sale Scheme and export markets whenever needed.

HLC recommends that FCI hand over all procurement operations of wheat, paddy and rice to states that have gained sufficient experience in this regard and have created reasonable infrastructure for procurement. These states are Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab (in alphabetical order). FCI will accept only the surplus (after deducting the needs of the states under National Food Security Act (NFSA)) from these state governments (not millers) to be moved to deficit states. FCI should move on to help those states where farmers suffer from distress sales at prices much below the Minimum Support Price (MSP), and which are dominated by small holdings, like Eastern Uttar Pradesh, Bihar, West Bengal, Assam etc.

1. FCI was set up in 1965 (under the Food Corporation Act, 1964) against the backdrop of major shortage of grains, especially wheat, in the country. Agricultural Prices Commission was also created in 1965 to recommend remunerative prices to farmers, and FCI was mandated with three basic objectives: (1) to provide effective price support to farmers; (2) to procure and supply grains to PDS for distributing subsidized staples to economically vulnerable sections of society; and (3) keep a strategic reserve to stabilize markets for basic foodgrains.

2. Also see the summary of its recommendations here.

3. The NSSO's(70th round) data for 2012-13 reveals that of all the paddy farmers who reported sale of paddy during July-December 2012, only 13.5 percent farmers sold it to any procurement agency (during January-June 2013, this ratio for paddy farmers is only 10 percent), and in case of wheat farmers (January-June, 2013), only 16.2 percent farmers sold to any procurement agency. Together, they account for only 6 percent of total farmers in the country, who have gained from selling wheat and paddy directly to any procurement agency. That diversions of grains from PDS amounted to 46.7 percent in 2011-12 (based on calculations of offtake from central pool and NSSO's (68th round) consumption data from PDS); and that country had hugely surplus grain stocks, much above the buffer stock norms, even when cereal inflation was hovering between 8-12 percent in the last few years. This situation existed even after exporting more than 42 MMT of cereals during 2012-13 and 2013-14 combined, which India has presumably never done in its recorded history.

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