Q14. Elucidate the importance of buffer stocks for stabilizing agricultural prices in India. What are the challenges associated with the storage of buffer stocks? Discuss.

Approach

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Introduction

Buffer stock refers to a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies. Buffer stock is generally maintained for essential commodities and necessities like food grains, pulses etc. The concept of a buffer stock was first introduced during the 4th Five Year Plan (196974) and a buffer stock of 5 million tonnes of food grains was envisaged. The buffer stock figures are normally reviewed after every 5 years.

Body

The GoI’s current buffer stock stocking standards include the following:

• Operational Stocks: The quantity of stock needed to satisfy TDPS and OWS monthly requirements.
• Food security stocks: The supplies on hand to cover any gaps in purchasing

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Importance of Buffer Stocks

• Price Stability: Buffer stocks help maintain stable prices for essential commodities, ensuring that farmers receive a fair price for their produce and protecting consumers from price hikes during lean seasons.
• Food Security: By maintaining a reserve of essential food grains, buffer stocks ensure food availability during periods of shortage, contributing to national food security. Used in Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS).
• Support for Farmers: When market prices fall below a certain level, buffer stocks can be released to stabilize prices, thereby providing a safety net for farmers against market fluctuations.
• Intervention Tool: The government can use buffer stocks as an intervention tool to counteract inflation or deflation in agricultural markets, promoting a more stable economic environment.
• Long-term Planning: Buffer stocks facilitate better long-term agricultural planning and policymaking by providing data on production, consumption, and storage needs.

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Challenges Associated with Storage of Buffer Stocks

• Storage Infrastructure: India faces significant challenges related to inadequate storage facilities. Many existing storage units are not climate-controlled, leading to spoilage and wastage of grains due to pests and moisture.
• Financial Burden: Maintaining buffer stocks incurs costs related to storage, management, and handling. This financial burden can strain government budgets, especially if the stocks remain unsold.
• Quality Control: Ensuring the quality of stored grains is a challenge. Poor storage conditions can lead to deterioration in the quality of buffer stocks, making them unfit for consumption.
• Logistical Issues: Transportation and distribution of buffer stocks can be inefficient, leading to delays in reaching the markets when needed, undermining the purpose of stabilizing prices.
• Policy and Governance: Inefficiencies in policy implementation, corruption, and mismanagement can affect the effective functioning of buffer stock schemes. Ensuring transparency and accountability is crucial for their success.

Market Distortion: Excessive intervention through buffer stocks can sometimes lead to market distortions, affecting the natural price-setting mechanisms and potentially disincentivizing production.

Conclusion

In order to enhance FCI’s financial management and operational effectiveness in the purchase, storage, and distribution of food grains, the government established the six-person Shanta Kumar committee. 

The committee’s recommendations included:

• restructuring or unbundling FCI and establishing Public Private Partnership Model for storage
• Direct Benefit Transfer of MSP, 
• Deregulate the fertilizer industry and give farmers a cash subsidy for fertilizer of Rs 7,000 per hectare.
• The committee urges the implementation of a negotiable warehouse receipt (NWR) system.

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