The great Indian grain stock-up: Can policy, prices help?

To carry out structural reforms in grain storage and cold chain infrastructure, improved crop management, better pricing and fairer cooperative lending ecosystems are critical .

At the centre of discussions about India’s protracted hunger problem sits an important, conflicting data point: an estimated 22 per cent of foodgrain output is lost in the country which, according to the World Health Organisation, contributes to a third of the global burden of undernutrition.

Towards the end of its term, the second National Democratic Alliance government under Narendra Modi fast-tracked its ambitious plan to expand India’s grain storage capacity by 70 million metric tonnes, over five years. The plan draws on another key statistic: India, with its existing capacity, can store only 47per cent of what it produces; the US (161 per cent), Brazil (149 per cent), Canada (130 per cent) and China (107 per cent) have significantly higher capacities.

Food loss between harvest and retail, and food waste at the consumption level make a compelling argument for an improved grain storage infrastructure. It, however, is an argument that also needs to resonate with farmers who are weighed down by high production costs and market fluctuations. 

Their endorsement of the programme, pitched as ‘the world’s largest grain storage scheme in the cooperative sector’, with a planned investment of $15 billion, will also depend on prices at which the stored grains are procured or bought.

Minimising post-harvest losses (PHL) in cereals has remained a stated objective with limited follow-through. According to a 2022 National Bank for Agriculture and Rural Development (NABARD) Consultancy Services study, India recorded PHL between 3.89 per cent and 5.92 per cent.

Under the new grain storage programme, Primary Agricultural Credit Societies (PACS) in 24 states and UTs will be repositioned as integrated setups with custom hiring and procurement centres, processing units for cleaning, sorting, and drying the grains, silos with up to 200 MT capacity, and fair price shops. This is a switch to decentralisation which can significantly bring down handling and transportation costs, reduce PHL, and help farmers find better prices.

The NABARD study estimates an annual loss of $18.5 billion in India caused by PHL of crops during 2020-22. A wider spread of block-level warehouses integrated with the supply chain can help farmers hold onto their produce over an extended period, without the pressure to undersell. This is where the push for augmented storage finds traction.

Ahmed Patel, a farmer from Rajapur village in Karnataka’s Kalaburagi district, had to sell his tur crop soon after last year’s harvest, at less than Rs 9,000 per quintal, because he had no space at his home to store the produce. 

The price has since risen to Rs 12,500 per quintal due to last year’s paltry production.

“I have to travel 50 km to Kalaburagi to store the produce, after paying a hefty price. Even there, we are allowed to store the produce only if we are known to the merchants because there is already a space shortage. Godowns at PACS will help farmers of surrounding villages,” says Patel.

In February, Modi launched a pilot project under the scheme being implemented in 11 states.

Agricultural economist Ashok Gulati sees the plan for enhanced storage as imperative and says it needs to be extended to perishables. He notes that farmers with small surpluses need better storage facilities; cooperatives can be utilised to expand local storage capacity. “PHL becomes a bigger issue with increased production. This calls for modern storage facilities like steel silos. At present, these silos have only a capacity of about 2 million metric tonnes which is negligible when seen against the overall production (of about 331 MMT)”, says Gulati, a distinguished professor at the Indian Council for Research on International Economic Relations.

PACS and warehousing

PACS are emerging as critical to India’s warehousing capabilities, the farm commodity supply chain and its food processing industry. India’s food processing industry has posted an average annual growth of over 8% — sharply higher than the farm sector’s growth — in the past five years.

India’s cold chain industry plays an important role in maintaining product quality and reducing waste. The cold chain market is projected to reach $45 billion by 2030, from around $18 billion in 2022, posting an average annual growth in the range of 12 to 14%.

A report by Grant Thornton and the Federation of Indian Chambers of Commerce and Industry (FICCI), released on May 29, says the market presents substantial opportunities for investment and development catering to diverse sectors, significantly reducing PHL, and ensuring the safety and integrity of temperature-sensitive goods.

“We stand at a pivotal juncture where technology diffusion, policy initiatives and market demand present unparalleled opportunities for the cold chain sector. By placing sustainability at the forefront, we can mitigate environmental impact, uphold economic viability, and fortify food security,” says Amit Kumar, co-chairman of the FICCI Committee on Logistics.

In Maharashtra, where the cooperative sector has made significant contributions to the rural economy, the state government has initiated processes to set up multi-purpose PACS in villages, following the Centre’s directives. The state government has formed a State Cooperative Development Committee, headed by the Chief Secretary, that will oversee the constitution of the PACS and help them coordinate with cooperative banks and attain financial stability. “Maharashtra is a success story in sugar cooperatives, district cooperative banks, dairies, and the textiles sector,” says Vijay Gaikwad, an agriculture sector expert.

Implementation of the grain storage programme is picking pace in Karnataka. A PACS warehouse, with Rs 2.25 crore assistance from the Centre, is being readied on seven acres of land in Ekamba village in Bidar district.  

Manjula S, Deputy Registrar of Cooperative Societies, Bidar, says more than 75% of the work has been completed at the warehouse which will be rented out to the Food Corporation of India (FCI). The godown can store 1,000 MT of food grains; machinery is also being installed for oil extraction.

The Kalyana Karnataka region has 986 PACS across seven districts, of which 27 have expressed interest in building the warehouses. Only seven proposals have made headway since the others do not meet the minimum land requirement of one acre.

Vishwanath Malkod, Joint Registrar of Cooperative Societies, Kalaburagi Division, notes that these societies will suffer losses if FCI or other agencies do not hire the godowns as per the NABARD guidelines. “Around 75% of the societies in the region own small godowns that measure less than 100×100 sq ft. PACS in Raichur, Koppal and Ballari districts have bigger warehouses,” he says.

Questions on apathy, autonomy

Structural reforms in a sector hampered by entrenched inefficiencies come with operational challenges. Experts argue that the intent needs to be backed with policies that facilitate greater mechanisation at the harvesting stage, improved crop management practices, a fairer lending ecosystem and measures to disengage external interests from the functioning of cooperatives.

Understanding the storage and transit losses traced to the FCI, which runs 2,174 depots with a stock capacity of over 40 MMT, could be a good place to start. The Parliamentary Standing Committee on Food, Consumer Affairs, and Public Distribution, in a July 2022 report, makes a note of cases initiated against FCI officials for “unjustified transit and storage losses” and recommends FCI intervention to standardise procedures, to ensure greater vigil from the employees. The loss in quality of the produce, often due to unscientific handling practices and storage beyond shelf life, leads to reduced prices; these losses are not estimated at the distribution level.

Last year, Kerala-based activist Govindan Nampoothiry sought information, under RTI, on foodgrains perishing in FCI warehouses. The response revealed that during the four years starting 2018-19, the loss came down by over three times. “The questions were specifically about the wastage in FCI godowns. There were reports about extensive foodgrain losses during the pandemic years that set off these questions,” says Nampoothiry.

Studies have found that PHL, in terms of percentage of production, is seeing a drop but experts call for closer checks on these losses to minimise production-related environmental costs that include greenhouse gas emissions.

Rampal Jat, a Kisan Mahapanchayat leader from Rajasthan, points to external influences that undermine the PACS’ autonomy. Government officials are, still, de facto bosses since they control financing agencies that disburse resources and loans, he adds.

“Under the short-term loan scheme, loans are made available to the farmers at 7 per cent and on prompt repayment, an incentive of 3% subsidy is credited to the farmer’s account. But to avail of this facility, many farmers take loans to repay the PACS loans. This rule is forcing farmers to take more loans from moneylenders. We want these loans renewed into new loans so that the farmers don’t get caught in debt traps,” says Jat.

Basavaraj Chitta, director of a PACS in Kalagi, Kalaburagi seeks government intervention to ensure that the funds are disbursed directly by NABARD or the Apex Banks. This will help the societies – that are in direct contact with the farmers and are familiar with their crops and cultivation patterns – provide loans to the farmers on their own, he argues.

The problem with pricing

Agricultural economist T N Prakash Kammardi brings to the narrative the Minimum Support Price (MSP) and says assured procurement by the government, at MSP, can positively alter market dynamics. Kammardi also contends that the inadequacies in storage are, at times, overstated to favour external interests, to keep farmers uncertain and in a perennial state of distress.

“If the government procures the produce at MSP, the traders will buy at par prices. A legal guarantee for MSP will be integral to the solution for PHL,” says Kammardi, a former chairman of the Karnataka Agricultural Price Commission.

Every year, the union government fixes the MSP for major agricultural crops, based on recommendations made by the Commission for Agricultural Costs and Prices. In February this year, it published the MSP for the 22 mandated crops, including paddy, jowar, bajra, ragi, maize, tur and moong. The government, since 2018-19, has been working with a pricing model that keeps the MSP at 150% of the cost of production (national weighted average).

A state-approved MSP, however, does not assure the farmer’s actual sales at notified or higher prices, unless it comes with a legal guarantee. “Why would a paddy farmer choose to store grains in a godown, given that he will still receive the same MSP for the grains after five months?” asks M V S Nagi Reddy, vice chairman of the Andhra Pradesh State Agriculture Mission, a state government-run advisory body.

Reddy argues that even if the godown is run by a PACS, the warehousing and transportation charges will make storage expensive. “The government should, on priority, focus on fundamental issues like the non-availability of farm labour and MSP, and measures to make agriculture lucrative,” he says.

Diligence through digitisation

Independent analysts see the grain storage scheme as forward-looking but are skeptical about a five-year turnaround because of the massive operational challenges.

Complementing the decentralised model is a programme to digitise around 65,000 PACS by August this year. Together, the initiatives are pitched as concerted efforts to elevate cooperatives as drivers of the rural economy. The Ministry of Cooperation, formed in 2021, envisions them as “thriving business ventures”.

Through the digitisation programme, the ministry has proposed to bring PACS onto a national software and link them with NABARD through state cooperative banks and district central cooperative banks. As in February, 15,783 PACS in 27 states and UTs have been onboarded; Bihar (2,626), Madhya Pradesh (2,557), and Maharashtra (2,440) top in compliance.

Telangana, as part of a NABARD-backed programme, started the PACS computerisation project in 2016 and completed it in two years. It was the first state to complete 100% digitisation of PACS.

The proposed by-laws for PACS will enable these societies to take up multiple activities; they can manage water under the Jal Jeevan Mission, run common service centres, fair-price medicine and grain stores, and petrol pumps.

There, however, are more immediate concerns. Improving the existing PACS infrastructure will involve a logistical overhaul. Mahadevappa Bhimalli, president of a PACS in Ratkal in Kalaburagi, underlines limitations of the society’s 60×28 sq ft warehouse in storing foodgrains from about 1,200 farmers across seven villages.

Mahadevappa says a plea has been made to the government to build a warehouse on two acres of land that can enable farmers to store their produce soon after the harvesting season. “Farmers can store their produce until they get better prices. The big companies can also buy from us on a large scale,” he says.

(With inputs from Gyanendra Keshri in New Delhi, Mrityunjay Bose in Mumbai, Rakhee Roytalukdar in Jaipur, S N V Sudhir in Hyderabad, and Vittal Shastri in Kalaburagi)