World Grain - August 2006 - 26

REGIONAL REVIEW: GRAIN PRODUCTION AND TRADE

times the level of developed countries.
The Indian government has taken
two major steps to reduce its costs and
make the system more efficient. This
year it has accelerated the deregulation
of much of the grain procurement and
distribution system. Previously, farmers
were required to sell to and millers to

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Grain market reform is a
complex theme for India,
which produced 72 million tonnes of wheat and
87 million tonnes of rice
last year, ranking it second
(excluding the E.U.) after
China for both crops.

Wheat and rice is purchased from
farmers at or above a Minimum Support Price. For wheat, the price has been
set at U.S.$144 per tonne this year. It is
kept in public godowns (warehouses)
and distributed through a network of
400,000 Fair Price Shops to consumers grouped into two categories: Below
Poverty Line (BPL) or Above Poverty
Line (APL). The latter pay a heavily
subsidized price that the government
has found politically difficult to raise.
FCI's wheat procurement alone was
14.8 million tonnes in the last fiscal
year, and rice was more than 20 million tonnes. Needless to say, this entails
enormous storage and handling costs
for the government, particularly since
the grain is received and stored in burlap bags. Losses from infestation and
spoilage, which are hard to estimate
anywhere, are thought to be multiple

purchase from publicly controlled local
grain markets at prices partly set by the
government. Now private companies
are allowed to act as intermediaries
paying market prices. The immediate
result has been higher grain prices and
more attention to wheat quality. Mills
and traders can be expected to build

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southern and eastern states.
Government controls over agriculture have been steadily loosened since
reforms began in the early 1990s. But
through the Food Corporation of India,
the agency responsible for procurement and storage of grain, and through
various Public Distribution System
schemes, the government still plays a
giant role in the market by providing
food grain subsidies, which reached
a record U.S.$5.8 billion in the 200506 fiscal year. The true cost, including
storage and transportation, has been estimated by the U.S. Department of Agriculture (USDA) at U.S.$12 billion.

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World Grain - August 2006

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