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How to manage food inventory?
Wed, 7 Nov Pre-Open

Shortages can arise because of two reasons. First is insufficient production. Second is inability to store/manage the produce which can result in wastage and thereby shortages. While the first reason can be digested as there could be many reasons for insufficient production, it is the second one which is pitiable.

It may be noted that India is expecting a bumper harvest of wheat this season. The production could be 94 million tonnes. Technically speaking, production of such quantum means that India will not be subject to shortages. But if it is not able to manage the excess produce, it will not be able to capitalize on the bumper harvest. To see to it that the bumper harvest fetches necessary returns, the government needs to take two steps quickly.

The first measure is that it should not raise the Minimum Support Price (MSP) of wheat. MSP is the price which is decided by the government and acts as a base minimum price for the concerned agricultural produce. Raising MSP exerts financial pressure on the government. That's because while it pays the farmer based on MSP, it sells some portion of the produce at subsidized prices in ration shops. Thus, increasing MSP means it pays more to the farmer but does not get the same from the end consumer. It cannot pass on the rise to the end consumer because people buying from ration shops are generally poor.

Also, raising MSP would increase the carrying cost of wheat. It may be noted that the carrying cost (taxes paid to state government, interest cost etc) is levied on base price. So, once the base price increases so does the accompanying carrying costs. And MSP plus carrying cost equals the final cost of wheat to the government. Thus, if both increase, it can further exert pressure on government finances.

The second measure to capitalize on the bumper harvest is to allow free export of wheat. Allowing exports would mean all the excess produce would fetch returns immediately without worrying about its storage. Further, it may be noted that the demand for wheat is strong in many countries because of drought. Also, some countries have banned exports. Thus, if the government allows exports, it can fetch a good price for it.

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Mar 20, 2018 10:55 AM