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Does the Food Security Act Really Offer Food Security?

Jul 21, 2016

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In late June 2016, the food minister Ram Vilas Paswan, said that by July 2016, the entire country would come under the ambit of the National Food Security Act. As he said: "National Food Security Act is in force in 33 States/UTs, and in states of Tamil Nadu and Nagaland it will be implemented in next month."

The National Food Security Ordinance (NFSO),8 2013 was promulgated on July 5, 2013. A little over two months later, the National Food Security Act (NFSA) was enacted on September 10, 2013. Given this, it has taken the states nearly three years to implement the Act.

The Food Security Act offered food security by freezing the price of rice, wheat and coarse cereals at the central issue prices of Rs 3, Rs 2 and Re 1, respectively, for a period of three years, up to July 2016. The targeted public distribution system forms the largest component of the Food Security Act.

In fact, there are two types beneficiaries under the targeted public distribution system. There are those who come under the Antyodaya Anna Yojana (AAY) and then there is something termed as priority households. The AAY was launched in December 2000 and it aims to reduce hunger among the poorest of the poor. Priority households on the other hand includes all families which come under the below poverty line. The broader definition of the priority households has been left to the state governments.

As far as entitlements go, every AAY household is entitled to 35 kg of food grains every month. Those coming under priority households are entitled to 5 kg per person of food grains every month. Close to 12.2 crore individuals come under AAY whereas 69.3 crore individuals come under priority households.

Nearly three years after the Food Security Act was passed, a question worth asking is, does it really offer food security to the citizens of this country?

The Food Security Act largely focusses on making food grains available to the citizens of this country at a rock bottom price. In order to support the ambitious coverage of the Act (nearly 81.5 crore individuals or two-thirds of the country's population as per 2011 Census), the government has to acquire a large amount of rice and wheat through the Food Corporation of India as well as other state procurement agencies.

This has led to the defacto nationalisation of the grain trade. As Shweta Saini and Ashok Gulati write in a working paper titled The National Food Security Act 2013-Challenges, Buffer Stocking and the Way Forward: "Such large-scale public procurement also has the impact of strangling private trade (as has been the case in Punjab, Haryana and now Madhya Pradesh and Chhattisgarh) (CACP, 2014). Of the total market arrivals of wheat and rice in these states, 70-90 per cent is bought by the government, indicating a de-facto state take-over of grain trade."

This has an unintended consequence. Simply stated, the law of unintended consequences refers to a situation where economic decisions have unexpected effects.

In this context Saini and Gulati point out that

And what is support reversal? "The average cereal consumption in India is 10.6 kgs per person per month (NSSO, 2011), and NFSA supplies nearly half of it (5 kgs per month per person, except for those under the AAY who have a family entitlement of 35 kgs per month). People go to the open market to buy their remaining cereal requirements. However, with the government mopping up the supply of cereals, the open market is left with less causing an upward stickiness in prices," write Saini and Gulati.

Even for those coming under AAY, the NFSA doesn't supply enough food grains. Assuming five people per household, the average individual entitlement comes to 7 kgs per month, which is lower than the average cereal consumption of 10.6 kgs per month.

The point being that even though the idea behind the Food Security Act is to provide food security by selling food grains at a very low price, it makes things a little difficult by pushing up prices of food grains. Further, one needs to take into account the fact that food grains are not the only thing that people are eating in order to survive.

The government offers a minimum support price at which it buys rice and wheat from farmers. This helps on two counts. One is that it encourages farmers to grow rice and wheat, knowing well in advance what price they can sell it at. Further, the government buys rice and wheat to create a buffer stock in order to support the food security programmes, as well as maintain food security of the nation.

But this leads to other issues. As Shweta Saini and Marta Kozicka write in a research paper titled Evolution and Critique of Buffer Stocking Policy of India: "The buffer stocking policy of food grains has become the one tool with the government to fulfil the interlinked objectives of supporting food producers and food consumers, and of ensuring food availability at the national level. Buffer stocking is used to simultaneously tackle the problem of volatility in the price of food grains, provide food security and incentivise high production. Using the same instrument to achieve the objectives of ensuring remunerative price to farmers and providing the food grains so procured to the poor at highly subsidised prices creates conflicts."

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One clear problem is the fact that farmers end overproducing rice and wheat, given that the government buys all the rice and wheat that is brought to it. This discourages farmers from growing fruits, vegetables and dal. As the Economic Survey of 2014-2015 points out: "High MSPs result in farmers over-cultivating rice and wheat, which the Food Corporation of India then purchases and houses at great cost. High MSPs also encourage under-cultivation of non-MSP supported crops. The resultant supply-demand mismatch raises prices of non-MSP supported crops and makes them more volatile. This contributes to food price inflation that disproportionately hurts poor households."

This essentially means that even though the Food Security Act wants to help people by selling rice and wheat at a low price, it ends up creating a difficult situation because prices of other crops tend to go up, as farmers tend to concentrate on buying rice and wheat. Food inflation in June 2016 was at 7.79 per cent. Within food, vegetables, pulses and sugar, saw an increase in price of 12.72 per cent, 28.28 per cent and 12.98 per cent, respectively. Spices went up by 8.13 per cent.

Hence, the unintended consequence of the Food Security Act is to make things more expensive on the whole. What is the way around this? I shall discuss some solutions in the weeks to come.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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8 Responses to "Does the Food Security Act Really Offer Food Security?"

Krishnan Venkatasubbu

Jul 23, 2016

You have written some time back that some states like Maharashtra are over producing sugar. Under the circumstances, I am unable to understand why even the sugar price has gone up by 12 + %.

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Pradip Bhadgaonkar

Jul 23, 2016

The article suggest one important point i.e. inflation may be high due to provisions of the FSA. However, this is resulting into keeping of Bank Rate at a higher level, which in tun affects many others sectors.

Providing food subsidy to needy & deserving people should be ok. But what about the ever increasing population & I am sure that more than proportionate population growth takes place in Slums. Should we, without providing education & other required facilities for up gradation of life, should continue to keep on such support on Y-o-Y basis.

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G Vijayaraghavan

Jul 23, 2016

What is the accuracy of the figure 10.5 kg of cereals per person per month? Based on my experience with my household budget, the figure seems excessive. Once we start with a wrong premise, things tend to get distorted considerably and planning goes for a toss.

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SANKARAN VENKATARAMAN

Jul 23, 2016

Food Security is a thoughtless havoc brought by Congress regime to win votes and many people pointed out this white elephant scheme is NOT sustainable in long run. Vivek Kaul has not a single word to say about the originator of the scheme.

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B r nair

Jul 22, 2016

At first glance seems like the classic chicken or egg came first type of conundrum. Wheat is mostly a crop grown in the north whearas rice is mostly a southern and eastern region crop. Consumption of these grains is also on these lines. Condiments and vegetables, non plant source foods are also consumed by the population depending on their abundance in the local environment. Hence there cannot be a one size fits all type of solution.

What you seem to be concerned about is the availability of grains to the urban populace. Perforce due to the effects of urban life styles, these populations have adapted to the most cost effective nutrition available. South Indians have discovered dosa made with atta and vice versa. Populations also have become more secular in their choice of items. A labourer in Mumbai will be satisfied with a belly full of vada-Pav and will not insist on litti-chokha.

MSPs are aimed at giving a farmer a remunerative price for his labour & efforts. I do not accept the plea that any large scale diversion of crop lands from pulses to rice/wheat cultivation etc is taking place since the crop needs of soil quality, water, fertilisers etc are totally different. Yes, due to lack of necessary inputs like water, fertiliser etc in some cases the normal second or third crop from the same piece of land may be missing in recent years due to scarcity of rains, population shifts etc for reasons entirely removed from the agricultural sector.

Will await your solutions to discuss this further.

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parimal shah

Jul 22, 2016

Simply dismantling the Food Corp of India and giving compulsory voluntary retirement to all the employees will possibly have following outcomes:
- Prices of food items will go down this will reduce inflation CPI by may be 100 or point basis (1%)
- The PDS shops can become redundant - this is the conduit for siphoning off of the subsidized food items
- The premises of FCI can be monetized to reduce fiscal deficit
- Land can be thus utilized for low cost housing
- The money received by retirees will further add to demand to improve the economy
- The wastage of food will be stopped
- The GDP will also rise
- The quality of life of average citizen will increase
- There will no storage of grains in open ground or spoiled grains will not be there to throw in sewerage.
- Expenses on pest control will reduce

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Sam

Jul 21, 2016

Hi

Cultivation choice of rice / wheat or fruits / vegetable is decided by many variables like land condition, water availability, climate etc. Government procurement may be one variable about decision of cultivation. Hence, I don't accept your point that, government policy of procuring rice, wheat etc will skew cultivation. Rather, it will help the underprivileged farmers.

Through this act, people below poverty line are provided with guaranteed basic needs and it will definitely improve their life style.

If 10.6 kg is the average cereal consumption in India, it means, that much cereal is made available in market to its citizens to procure & consume. Government procuring 7 kg of cereals for underprivileged may not affect the availability of cereals in market. Out of 10.6 kg average consumption, 7 kg is made available by government and balance 3.6 kg will be available in market for others to procure and consume. Scarcity is expected, only if government procures 100% of market available cereals for distribution to underprivileged people and it will never happen.

Moreover, food security act is a socialistic act done by government to take care of poor (this is one of the main purpose of government) and there can be suggestions for improving the implementation of act. I feel, this act deserves tons of appreciation and applause from all.

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kumar

Jul 21, 2016

a post every day comes to my inbox from this writer. every day he has to criticize something . Equity master says 70000 index and this guy cant find anything good in India. Sorry folks, you both are raveling in a diametrically opposite side. whom should i believe.

If he is so smart, make him the PM of India and see how he can handle this vast diverse country. very easy to sit in a air conditioned office and tap some ideas in a computer

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