Buffer stock

Buffer stock: a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies.

Generally, Buffer stock is maintained for essential commodities such as food grains, pulses etc. NAFED is now maintaining a buffer stock of Onions, Tomatoes and potatoes under the TOP scheme.

Procurement:  buffer stock to  NAFED, FCI and SFAC

Importance of Buffer Stock

1. Food Security: Meeting the prescribed minimum buffer stock norms for food security – keeping consistent supply,
2. Welfare Schemes: Monthly release of food grains for TPDS & Other welfare schemes (OWS) like Mid-day meals, ICDS etc.
3. Emergency use: for unexpected crop failure, natural disasters, etc., and
4. Price Stability:  for consumers – checking inflation.
5. Support to Farmers: Providing production incentives to farmers.
6. Enhancing Investment: Price stability encourages more investment in agriculture.

Buffer Stock composition:

The Cabinet Committee on Economic Affairs (CCEA) fixes the minimum buffer norms every quarter. Food–grain stocking norms (earlier known as Buffer Norms)- Presently, stocking norms comprise of:

• Operational stocks: for meeting monthly distributional requirements under TPDS and OWS. There is a four-month requirement under it.
• Strategic Reserves: technically these Food security stocks/reserves are needed to meet the shortfall in procurement. Currently: Strategic reserve of 30 lakh tonnes of wheat and 20 lakh tonnes of rice.

Food Stock available in the central government’s pool is the stock held by:

• State Government Agencies (SGAs)
• States which are taking part in the Decentralised Procurement Scheme
• Food Corporation of India (FCI)

The excess stock is exported from time to time through open market sales.

Challenges in maintaining buffer stocks

Costs Involved in maintaining buffer stocks: 

1. Procurement costs
2. Incidental charges:
   1. Statutory charges: Market fee, Infrastructure development cess, VAT etc.
   2. Non-statutory charges: Arhatia commission, cost of gunny bags, labour and transport charges etc.
3. Handling costs: Storage charge, freight cost, Transit & storage losses
4. Investment: In technology and capacity building for storage.

• Absorbing Excess Supply: Minimum prices and buffer stocks could encourage oversupply as farmers know any surplus will be bought.
• Shanta Kumar committee: Currently only 6% of Indian farmers can sell their produce to Government agencies and 45% of PDS food grain is black-marketed.
  • As of June 2020, the FCI had69 lakh tonnes of rice and wheat in stock, which is the highest ever.
  • Shanta Kumar Committee Recommendation for Buffer Stock

To implement the Food Security Act	61MMT
Strategic Reserve	5 MMT
Forex currency reserve	Sufficient to import 3 MMT wheat 2 MMT Rice.

Inventory Cost: 

• Wastage of food grains and it rots if excess is procured. Onion stock maintained by NAFED leads to a lot of wastage as onions have a shelf life of 3-3.5 months.
• To compensate for this FCI gofor an Open market sale scheme (OMSS) to reduce its carrying cost. However, the quantity offloaded is much less compared to what is needed to liquidate excessive stocks.

Poor Managerial Efficiency: 

1. Poor Market intelligence.
2. Information regarding the sowing pattern of crops.

Routing out Private Players: The entire grain management system is fully controlled by the government which edges out private players.

Key Recommendations of  Shanta Kumar Committee

• Transfer of Responsibility (Decentralisation): at least to states who have considerable experience and infrastructure. Like Andhra Pradesh, Chhattisgarh, Haryana, MP, Odisha and Punjab. FCI should focus on farmers with small landholdings in states like UP, Bihar, West Bengal, and Assam.
• Allowing Private Player: The government can set buffer stock targets keeping 3-5 years’ timeframe in sight and some select stockists can be licensed by them to participate in buffer stock management with quantity allocation.
• Rational Procurement:Uniform procurement from all states(3-4%), stringent quality checks and direct benefit transfer to farmers instead of procurement.
• NWRS:Encourage the Negotiable Warehouse Receipt System (NWRS) under which farmers can park their produce in registered warehouses and even get up to 80% advance from banks at MSP.
• Diversify the Pool: Prioritise pulses and oilseeds and their MSP should be implemented uniformly across the country.
• Digitalisation: States should compulsorily have complete end-to-end computerisation of the food management system to get NFSA benefits and set up vigilance committees to check pilferage. This can plug leakages up to 70%.
• Early disbursement: beneficiaries must be given 6 month’s ration in advance, right after the procurement season draws to a close.
• Outsourcing: FCI should outsource its food-grain stocking operations to agencies like CWC, SWC, private warehouses etc.
• DBT: Direct Cash Transfers to farmers to help them raise productivity and cash transfers in PDS in cities with a population of over 1 million.
• Efficiency of FCI: must be increased by rationalising its overall structure like giving VRS to higher officials, outing permanent labourers and hiring contractual labourers.
• Easing the burden: The panel had recommended liquidation of the government’s grain stocks via OMSS or in export markets, whenever stocks go beyond the buffer norm.

Changing limits under NFSA: The coverage of NFSA should be brought down from 67% population to 40%. This will comfortably cover the BPL population.

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