Buffer solution

Government should have the means to intervene in commodity markets, which isn’t the same as fixing prices.

By: Express News Service | Published:May 16, 2016 12:35 am
 buffer stock, Soaring sugar prices, sugar prices rise, India farmers, wheat production, wheat price, onion price, pulses price, sugar price, high price, rise in price,sugarcane farmer, wheat procurement crisism, sugar production, sugar factories, india news, indian farmer, indian express editorial In the case of sugar, the Centre till early this year was actually forcing mills to export at prices below domestic market realisations.

If 2015 was the year of onions and pulses, with their respective retail prices soaring to highs of Rs 80 and Rs 200 per kg, the current one looks to be that of sugar. The sweetener is already selling at around Rs 40 a kg — a third more than its level at this time last year — and could rise further as the effects of lower cane plantings in Maharashtra and Karnataka fully show up in production during the upcoming season beginning October. This comes even as onion is today retailing at about Rs 15, with farm gate prices in Maharashtra and Madhya Pradesh falling to Rs 5 per kg and below. A common theme running through these is the absence of proper market intelligence with the government or a mechanism for intervention to check extreme price fluctuations that benefit neither consumers nor producers in the long run.

In the case of sugar, the Centre till early this year was actually forcing mills to export at prices below domestic market realisations. It clearly had no clue on the extent of drought in Maharashtra and Karnataka, despite ground-level reports, including in this newspaper, warning of sharp acreage reductions and diversion of cane for fodder. Having woken up late, it has now swung to the other extreme.

Stock-holding limits on traders have been imposed and one could expect more controls to follow in the days ahead. We saw all these — from a crackdown on so-called hoarders, to curbs on exports and fixing of price ceilings — in onions and pulses. Needless to say, these actions were prompted only in response to prices shooting up for consumers. The Centre displayed no such alacrity when ex-mill prices of sugar had collapsed to Rs 20-22/kg about nine months ago or have crashed from Rs 50-plus to Rs 5 for onions over this same period.

All this can be avoided through the creation of buffer stock in commodities having a significant bearing on food inflation. Right now, this is limited to just rice and wheat — where the problem is really of too much of stocks with government agencies — while practically non-existent in pulses, sugar, onions, potatoes or milk powder. There is need for buffer stocks in the latter commodities as well, created out of purchases during gluts and only for market intervention in the event of unusual price increases. A sugar buffer stock of 2-3 million tonnes from last year’s production would, for instance, have been most useful today. The government has no business setting prices of tur dal or clamping stock/turnover limits on dealers. What it can certainly have, nevertheless, is flexibility for intervention for dealing with excessive price volatility in essential commodities. Buffer stocks are a means for that, just as the RBI’s foreign exchange reserves are vis-à-vis the currency markets.

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  1. T
    TEJAS seth
    May 16, 2016 at 1:22 pm
    Make sense...but this needs a indept research...wheat surpluss is there since last 5 years...no sense in creating a buffer nd wasting resources from govrmnt. Coffees....
    Reply