Why govt must create a buffer stock of all main food items

• Inflation, based on the official consumer price index (CPI), stood at 8.69 % for cereals in May, and almost twice as much (17.14%) for pulses.
• These rates would probably have been higher, but for the sales from buffer stocks, especially of wheat and chana (chickpea), built by government agencies..

How buffer in chana helped

• Prices of pulses have been on fire, with retail inflation in double digits since June 2023.
• But things would have been worse had the National Agricultural Cooperative Marketing Federation of India (NAFED) not bought large quantities of the bumper 2021-22 and 2022-23 chana crops.
• These procurement operations enabled chana farmers to reap the benefits of MSP when open market prices were low, and, more recently, insulate consumers from dal inflation
• Since July 2023, NAFED has sold 14.06 lt of chana through open market e-auctions

Unpredictability in food prices

• Overall CPI inflation, at 4.75% year-on-year in May, was the lowest in 12 months. It would have been lower had retail food inflation not stayed elevated at 8.69%.
• The inherently volatility and unpredictability of food prices, exacerbated by climate change, fewer rainy days and extended dry spells, interspersed with intense precipitation, and also shorter winters and heat waves has made it difficult for the Reserve Bank of India (RBI) to consider any monetary easing or cutting interest rates.
• The government, too, is forced to resort to undesirable measures such as restricting exports, or imposing produce stock limits on traders and processors.
• One possible way out of the conundrum would be to build a buffer stock of all essential food items, by procuring these from farmers during years of surplus production, and offloading the same in times of crop failures to moderate market prices.
• There’s scope to not only expand procurement of pulses and oilseeds, but extend it to staple vegetables and even skimmed milk powder (SMP).
• The onion, potato and tomato procured can be stored in dehydrated/processed form such as paste, flakes and puree for sales to hotels, restaurants, canteens, and other institutional buyers.
• This would ensure that both households and bulk buyers do not compete to drive up prices during shortages.
• The fiscal cost of maintaining buffer stocks of essential food items may not be that much; the stocked commodities are not meant to be given out free and, instead, offloaded during scarcity/inflationary periods at near-market prices.
• Buffer stocking can be an instrument for curbing excessive volatility in food prices, similar to the RBI’s foreign exchange reserves vis-à-vis the currency market.
• Increasing climate-driven price volatility ultimately helping neither consumers nor producers only strengthens the case for a food buffer policy.