Elucidate the importance of buffer stocks for stabilizing agricultural prices in India. What are the challenges associated with the storage of buffer stocks?

Introduction

Buffer stocks managed primarily by the Food Corporation of India (FCI), plays a crucial role in stabilising agricultural prices in India, ensuring food security and protecting both consumers and farmers from price volatility, by procuring essential food grains like rice and wheat etc.

The concept of buffer stock was first introduced during the 4th Five Year Plan (1969-74).

Importance of Buffer Stocks:

1. Regulating market supply: Acts as a tool for government intervention to support farmers when market prices drop below the Minimum Support Price (MSP).

 – Example:  India’s wheat stock increased from 13.3 million tons (2019-20) to 31.1 million tons (2020-21).

1. Price stabilisation:  helps stabilise prices by releasing food grains when market prices rise and procuring them when prices fall thus  preventing extreme price fluctuations.

Eg:  Buffer stocks of rice helped maintain prices during the 2019-20 drought  to tackle covid crises.

1. Food security:Ensures availability of food grains during poor harvests or emergencies, protecting vulnerable sections of society from food shortages.

Eg: 100 million tons of food grains were distributed, 75 crore beneficiaries received food grains under PMGKAY (2020-21).

1. Inflation control: Helps in controlling food inflation by releasing stocks during high-demand periods, preventing price spikes.

Eg: In 2015, the government has created a buffer stock of pulses of 1.5 lakh tonnes to control the fluctuation of prices of pulses

1. Protection against Natural Calamities: In the event of droughts, floods, or other disasters, buffer stocks are crucial to meet urgent food requirements.

Challenges Associated with Storage of Buffer Stocks:

1. Storage Infrastructure: Inadequate and outdated storage facilities lead to wastage due to poor handling, improper storage conditions, and pest infestations.

Eg. Example: CAG, 2020-  20% of wheat stock damaged due to inadequate storage (2019-20).

1. High Carrying Costs: The government bears significant costs in maintaining large buffer stocks, including storage, transportation, and wastage costs.
2. Wastage and Spoilage: due to pest infestation –  Lack of proper warehousing and scientific storage methods result in wastage and spoilage of grains, especially during monsoon seasons.
3. Quality Deterioration: Prolonged storage often leads to the deterioration of grain quality, reducing their market value and usability.

Eg: As per FCI, 10% of buffer stock grains deteriorate annually due to poor quality 

1. Corruption and Leakages: Corruption in distribution and procurement systems causes inefficiency, leakages, and mismanagement of stocks.
2. Financial Burden: Managing buffer stocks adds a fiscal burden on the government thus straining public finances.

Way Forward: 

1. Enhancing storage infrastructure: FCI plans to create 117.75 LMT of storage capacity under a new 5-year guarantee scheme, approved by DFPD (2023).
2. Improving supply chain efficiency: ₹500 crore allocated to address price volatility in key agri-horticultural commodities like onion, potato, and pulses to safeguard consumer interests.

Conclusion

Thus, addressing these challenges through improved infrastructure, efficient procurement, and distribution systems is essential to fully realise the benefits of buffer stocks.

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