FOOD SECURITY- Taming Food Price Volatility: The Case for Buffer Stocks

 

Maintaining Orderly Food Markets: Learning from the RBI

 

 

The Reserve Bank of India (RBI) manages foreign exchange reserves to ensure "orderly" fluctuations in currency exchange rates, not to dictate market prices. A similar approach is necessary for essential food items. The government should establish buffer stocks not only for staples like rice and wheat, but also for pulses, oilseeds, sugar, skimmed milk powder (SMP), and even key vegetables.

 

The primary goal is not to control prices or undermine the market, but to mitigate excessive price volatility that harms both consumers and producers. Volatile food prices complicate the RBI's monetary policy decisions. For instance, how should the central bank respond when core inflation (excluding food and fuel) is low, but food inflation remains high? Buffer stocks can help alleviate this dilemma.

 

 

Climate Change and the Vicious Cycle of Food Price Swings

 

 

 

 

 

Climate change is a major culprit behind rising food price volatility. Erratic weather patterns, including fewer rainy days, intense precipitation, shorter winters, and heat waves, disrupt agricultural production. These disruptions lead to supply shocks, causing sharp price spikes. Farmers then ramp up production in response, leading to oversupply and price crashes.

 

The dairy industry exemplifies this cycle. Last year, milk prices for farmers were high. However, a recent crash in SMP prices has led to drastically lower procurement prices for milk, potentially leading to milk shortages and inflation next year.

 

 

Buffer Stocks: A Solution for Smoother Markets

 

 

Creating buffer stocks of essential food items can help mitigate these extreme price fluctuations. The government can procure excess produce during years of surplus and release it during times of scarcity. The fiscal cost can be minimized by storing certain items like potatoes, onions, and tomatoes in dehydrated forms like flakes, pastes, or purees. These stocks can then be sold at near-market rates during periods of scarcity or inflation.

 

The government's previous use of open market sales for wheat and chana demonstrates the effectiveness of this approach in moderating food price inflation. Furthermore, buffer stocks can eliminate the need for regressive policies like export bans or stockholding restrictions on private traders, which ultimately harm farmers.

 

In conclusion, implementing a buffer stock system for essential food items is a crucial step towards ensuring stable food prices and a more resilient food system in the face of climate change and other challenges.

 

 

Farmers Hit by Unfulfilled Procurement:

 

 

The Punjab government's failure to live up to its promise of procuring moong dal this year has left farmers in a difficult situation. They are forced to sell their produce to private companies at prices lower than the Minimum Support Price (MSP) set by the government, which is currently Rs 8,555 per quintal. A similar pattern emerged in 2022 when Chief Minister Bhagwant Mann had promised government procurement of moong dal at MSP.

 

 

Targeted Interventions for Food Security:

 

 

By implementing these targeted interventions, the government can not only protect the livelihoods of farmers in Punjab but also contribute to achieving the nation's goal of food security, ensuring citizens have access to the nutritious food they need.