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Other problems faced by FCI and solutions

Safe storage of food grains procured is the biggest problem faced by FCI.

Wastage of food grains is not an uncommon eventuality because India has deficient storage capacity

and does not have a solid public distribution system so that the food grains reach the poor. India hasgodowns to store 16 million tones of food grains when it needs almost three times that. What that

means is wastage in these times of shortage. The total storage capacity is 28 million tonnes. This

leads to losses of 10 15 per cent. Translate this into value... that is 6 million tonnes of grains

damaged, unfit for human consumption ... it amounts to Rs 8,000 to Rs 10,000 crores annually."

Experts offer many solutions: increase allocation through PDS, give food grain through the NREGA,

offload the excess stock in the market, but don't feed it to the rats.

A conservative estimate would put the cost of food grains currently lying unprotected at a staggering

Rs 28,000 crore, enough to feed at least 2 crore people for over one year.

Solutions like using Linear programming to optimize storage space and transportation have been

looked into but there seems to be no solution to the problem in the near future as the high cost of

land in the state discourages private players from offering land to FCI.

Other solutions include using grain flow management and carefully deciding the distance at which to

set up a new procurement centre. Also, FCI can decide to put a limit on how much graings to procure

thus minimizing wastage.

But the biggest option FCI is contemplating is whether it should look into a public-privateparternship Model.

In 2005, NCDEX (National Commodity and Derivatives Exchange Limited) entered into aMemorandum of Understanding with Food Corporation of India (FCI). Under the terms of

the MoU, FCI will carry out its procurement and sale of food grains from co-operative

societies all over India with the help of NCDEX.

The government uses OMSS as a market intervention mechanism whenever it wants to cool prices of

commodities. Normally, FCI carries out auctions of a minimum 100 tonnes and a maximum of 1,000

tonnes in wheat through a tender process, which could take 15 days to a month for stocks to offload

in the open market. Selling through the electronic spot exchanges will accomplish the governments

attempts to put a lid on price in a timely manner without its having to bother about stocks being

lifted from warehouses and collecting payments for their stocks, which will be taken care of by the

exchanges. Thus, this will lead to better and more efficient distribution.

This is to achieve FCIs policy of decentralised procurement. National Collateral

Management Services Limited (NCMSL), a co company of NCDEX, is engaged in providing

warehousing arrangements, quality testing, gradation and assessment for commodities and

inventories and other services related to the commodity markets. FCI could also decide to

make use of NCDEXs trading platform for procurement and sale of food grains and the two

would work together and devise modalities for designing such contracts.

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FCI would work with NCDEX to promote online trading in foodgrains (both spot and

futures) on mutually agreed terms. FCI would also share their warehousing space with

NCDEX. Further, FCI has agreed to make available its testing laboratories to NCDEX and

NCMSL while it expects to use the services of NCMSL for third party audit of stocks and

operations facilities of FCI.

Speaking on the occasion, Mr VK Malhotra, Chairman, Food Corporation of India said, We

are continuously trying to improve our working processes and this partnership with NCDEX

and NCMSL will enable us to pool in our complementary skills and services. We would also

be sending some of our officials for training/deputation to NCDEX/NCMSL to enhance our

understanding of commodities trading which can be used to improve our own operations. Mr

PH Ravikumar, Managing Director & CEO, NCDEX said, This MoU would lead to the

creation of synergies between FCI and NCDEX. FCI is involved with probably the largest

ever operation in food grains procurement in Asia while NCDEX is in the process of building

a solid infrastructure for trading in commodities.