2007..Highlights of ‘Food Sector’

The food sector, in 2007, saw acceleration of procurement and movement of foodgrains, which in turn ensured adequate consumption-stocks.

A package was introduced to improve liquidity of sugar mills by defraying carry-over costs, offering concessional loans and export assistance to stabilize domestic sugar prices. This was primarily intended to ensure that the dues of sugarcane farmers are paid in time.

Effective steps have been taken to strengthen the PDS system and infusing transparency in it.

Efforts are on for sprucing up the efficiency in FCI.

Enactment of Warehousing (Development and Regulation) Act was another important initiative taken in 2007 with a view to ensure that the farmers are able to keep their goods in certified warehouses and use the warehouses receipts as a negotiable instrument. With the full implementation of this Act, farmers would find it easy to take loans from commercial banks against negotiable warehouse receipts and not resort to distress sales to take care of their urgent cash needs.

Details of the initiatives taken by the government in 2007 towards food sector management are as follows:

Initiatives in procurement:

* Procurement of wheat in rabi marketing season (RMS 2007-08) was 111.27 lakh tonnes as against 92.226 lakh tonnes in the previous year.
* Procurement of rice in 2006-07 was 250.761akh tonnes. In KHARIF MARKETING SEASON (KMS 2007-08), Procurement of rice is 111.23 lakh tonnes as against 113.25 lakh tonnes in the same period (as on 18th December, 2007).
* The minimum support price (MSP) plus bonus for paddy stands at Rs.745(common) and Rs.775 (Grade 'A') per quintal for this year as against RS.550 and Rs.580 per quintal in 2003-04. The MSP for wheat has been announced at Rs.1000 per quintal for the coming Rabi Season as against Rs.620 in 2003-04. The Government has, thus, provided the biggest increase in MSP to increase procurement of wheat and paddy and also to ensure that farmers get better prices for their produce.

Reduction in storage and distribution costs

* 100 lakh MT of decentralized procurement leading to saving on freight was achieved.
* Carrying cost has also been reduced through improved stock management.

Improving the warehousing system

* The National Policy on Bulk Handling, Storage and Transportation of Foodgrains is under implementation.
* The Warehousing (Development and Regulation) Act 2007 has been enacted to ensure that the farmers are able to keep their goods in certified warehouses and use the warehouses receipts as a negotiable instrument. The Act is proposed to be implemented during the year 2007-08. With the full implementation of this Act, farmers would find it easy to take loans from commercial banks against negotiable warehouse receipts and not resort to distress sales to take care of their urgent cash needs.
* 5.5. lakh MT capacity for Bulk Handling, storage and transportation facilities is being created on build-own-operate (BOO) basis through private sector participation; Silos each of 21akh MT have been constructed at Moga and Kaithal. The construction of field depots at New Mumbai, Chennai, Coimbatore and Bangalore is in progress.

Revamping/strengthening the public distribution system

* 2.43 crore households have been identified under Antyodaya Anna Yojana (AAY) households against targeted 2.50 crore poorest of the poor families, and issued with distinctive AA Y ration cards.
* Offtake of foodgrains under AA Y has increased more than 200% - at 86.61 Lakh MT in 2006-07 from 41.65 Lakh MT in 2003 -04.
* Beefing up of PDS system through nine-point Action Plan for streamlining the Targetted PDS (TDPS) - (i) 1 crore bogus/ineligible ration cards have been eliminated in 11 states, (ii) number of inspections has been increased, (iii) direct delivery of foodgrains to fair price shops is being done in 14 states and UTs, (iv) panchayati raj institutions are being involved in vigilance committees and running of fair price shops in 23 states & UTs, (v) BPL lists are being displayed at fair price shops in 27 states and UTs, (vi) computerisation of PDS has been initiated in 12 states, (vii) States & UTs are being persuaded to allow sale of non-PDS items by ration shops, and (viii) the government of India has removed restrictions on margins to be given to fair price shops.
* Revised Citizen's Charter has been issued for facilitating use of RTI provisions in relation to functioning of TPDS.
* Rationalization of allocation of wheat and rice for above poverty line (APL) category has been done to accommodate allocations within stocks in the central pool.

initiatives in the sugar sector

Efforts to reduce cane arrears -The decline in open market realization of non-levy sugar by about Rs. 450-600 per quintal in 2006-07 season severely constrained the capacity of sugar mills to liquidate cane arrears of about Rs. 2,600 cores (as on 30.9.2007) payable to the sugarcane farmers and accordingly the Government came out with a sugar package primarily intended to ensure that the dues of sugarcane farmers are paid in time. The provisions of the package are:

A.

1. Creation of buffer stock of 50 lakh tons for one year involving an annual subsidy of Rs. 880 crore (approx) to be borne from Sugar Development Fund.
2. Additional credit by banks estimated to provide additional credit of Rs. 978 crore (approx) on creation of buffer stock.
3. Export assistance estimated at Rs. 300 cores to defray expenditure on internal transport, marketing and handling charges and ocean freight @ Rs. 1350/- per tonne for sugar factories located in coastal areas and Rs. 1450/- per tonne for sugar factories located in non-coastal areas (subject to actuals for export by road/rail to neighboring countries) has been announced for a period of one year with effect from 19th April, 2007.
4. Facilitation of sugar exports - Procurement of Release Orders for export has been dispensed with from 31st July, 2007 to facilitate sugar exports and improve liquidity position of sugar companies.

B. Besides the above, the Government has recently taken the following decisions to further help sugar factories and sugarcane farmers:

1. Extending of moratorium period for outstanding term loans of co-operative sugar factories: announced in September 2005, from 2 years to upto 5 years (reckoned from 01.04.2005) and to include co-operative sugar mills in the modified NABARD package [not included in the earlier 2005 NABARD package], for availing the benefits of term loan restructuring. Harvesting and transport charges figuring in the books of accounts of sugar factories were also made eligible for restructuring to medium term loans at existing rates of interest. Interest subvention amount to be provided by the Central Government from budgetary support, to the banks for reduction in the rate of interest to 10% per annum on the restructured loans, has been increased from Rs. 560 crore to Rs. 600 crore (approx). The decision of the Government has already been conveyed to NABARD.
2. To give loans from banks under special guidelines to the sugar mills - in private, public and cooperative sectors - of an amount equivalent to the notional central excise duty payable on total production during 2006-07 and 2007-08 sugar years and to provide interest subvention to the banks on account of this loan through budgetary provisions by the central government to the extent of 5% and further 7% to be provided through the Sugar Development Fund, which could be replenished by a loan. Fresh lending to the cooperative sugar factories will be done against guarantees to be issued by the respective State Governments in case of units classified as NPAs
3. To extend export assistance scheme continuing at present, by one more year from 19th April, 2008 to 18th April 2009 to target an additional export of 3 million tons of sugar. The export assistance estimated at Rs. 420 crore (approx) will be provided from the Sugar Development Fund. This would help the sugar factories to make advance contracts for export of sugar.

C. Apart from the above, the Government has also taken the following decisions to improve the financial position of sugar factories:

1. Ethanol doping- Making 5% blending of ethanol with petrol mandatory across the country, except in J & K, North Eastern States and Island Territories and to make 10% blending optional from October, 2007 and mandatory from October, 2008, except in the areas mentioned above.
2. Uniform purchase price of Rs. 22.50 per litre ex-factory for supply of ethanol which can be implemented all over the country for three years.
3. Reduction of customs duty from 7.5 % to 5% on ‘denatured alcohol’ and from 10% to 5% on molasses and to implement the same only when mandatory ethanol blending at 5% level is operationalised in the country.
4. Permitting sugar factories to produce ethanol directly from sugarcane juice to augment availability of ethanol and reduce oversupply of sugar.

Imports of wheat:

* Wheat imports had to be resorted to ensure that the PDS is not starved of foodgrains and that there would be adequate supplies in the country. The Government, in March, 2007, decided to import upto 5 million tons of wheat to meet the shortfall in procurement. Accordingly, the STC was authorized to float tenders in the months of April, June and August. The Government considered the recommendations of the STC and authorized STC to place orders for 5.11 lakh tons of wheat in July, 2007 at the weighted average price of US$ 325.59 per ton and 7.95 lakh tons in September, 2007 at the weighted average price of US$ 389.45 per ton. It has been decided to import another about 5 lakh tonnes of wheat in November -December 2007, bringing the total imports this year to about 18 lakh tonnes.
* As on 30.11.2007, 5.63 lakh MT of imported wheat have arrived at the Indian Ports.

Improving the efficiency of the food corporation of India:

* To improve the efficiency of the FCI, the recommendations of M/s Mckinsey & Co. is under speedy implementation.
* FCI negotiated rate of interest from 10.95% in December, 2003 to 8.75% in 2006 on its cash credit limit for its operation, resulting in a saving of Rs. 1003 crore.
* Linear programming has been implemented to save on rail freight on movement of foodgrains.