Modi Said to Bring Grain Storage Revamp Closer: Corporate India

Aug 05, 2014 7:05 am ET

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Aug. 5 (Bloomberg) -- About thirty miles from New Delhi, a stray dog walks among sacks of wheat rotting in a field. The grain is part of more than 3 million tons that India stores in the open exposed to pests and damp, enough to feed Kenya.

Simple plastic sheets at the site in Sonepat in Haryana state cover the sacks owned by Food Corporation of India, a government agency at the heart of the world’s largest public food distribution program for the poor. As grains decay, 255 million Indians remain food insecure because they eat less than 2,100 calories daily, U.S. Department of Agriculture data show.

Indian Prime Minister Narendra Modi is set to tackle the issue by setting up a panel to assess how to overhaul the 50 year-old Food Corporation of India, two government officials with knowledge of the matter said, requesting anonymity as the plan isn’t public. Modi took power in May after vowing to revamp the agency, part of a sweeping economic agenda whose progress will be in focus at his Independence Day speech next week.

“Supposing you buy a bag of wheat for your own household consumption, would you store it in the open covering it with a polyethylene bag?” said Atul Chaturvedi, the chief executive officer of agri business at billionaire Gautam Adani’s Adani Enterprises Ltd. “If you’re not going to do it for your own wheat, then why are we doing it for such a massive operation?”

Food Ministry spokesman N.C. Joshi declined to comment on the potential overhaul. Food Corporation of India Chairman C. Viswanath couldn’t be reached for comment.

Grain Diversion

India’s food security law entitles about two-thirds of its 1.2 billion people to low-cost grains. Modi plans to spend 1.15 trillion rupees ($19 billion) on food subsidies in the year ending March 31.

The challenge is to get the grains to the poor, as risks such as corruption and wastage cause supplies to hemorrhage.

About 44 percent of wheat and rice is diverted from beneficiary households, Reetika Khera, who studies food security at the Indian Institute of Technology Delhi, estimated in 2011. Ashok Gulati, who headed the Commission for Agricultural Costs and Prices, puts the figure at 40 percent.

In Samalkha in Haryana, flies buzz around a bull lying at a storage site. In Karnal 31 miles (50 kilometers) to the north, discolored grain spills from torn sacks. Three men who said they guarded the Karnal site told a Bloomberg reporter to stop documenting conditions there and leave.

Wheat kept under Food Corporation of India’s direct supervision is in good condition, said Devesh Kumar Yadav, the agency’s deputy general manager in Haryana. About 140,000 tons is stored in the state on plinths under plastic sheets, he said.

Plastic Sheets

Food Corporation of India had 68.7 million tons of wheat, rice, unmilled paddy and coarse grains on July 1, more than double its requirement of 31.9 million tons, its website shows.

The agency’s storage capacity is 39 million tons, including 3.3 million tons in the open under plastic sheets. India’s states also keep Food Corporation of India stocks.

Covered warehouses owned by the agency can store 13 million tons as of April 1, little changed from eight years ago. Countries such as the U.S. and China make greater use of metal silos and India should follow suit, said Adani Enterprises’ Chaturvedi.

Saving even 5 percent of India’s 264 million tons of annual food grain output from rotting would make a major difference, according to Chaturvedi. That proportion would meet Malaysia’s rice and wheat demand for three years, calculations by Bloomberg using U.S. Department of Agriculture data show.

Open Air

“The problem is the open air,” said Abdolreza Abbassian, senior economist for the UN’s Food and Agriculture Organization. “If you’re producing beyond consumption and you’re therefore building inventory, you have to be cautious of the fact that you need to keep the good old extra grain in a safe place.”

The election manifesto of Modi’s Bharatiya Janata Party pledged to “unbundle” Food Corporation of India’s procurement, storage and distribution activities for greater efficiency.

That could help curb food costs and consumer-price inflation that’s averaged 9.1 percent in the past year.

The government must also consider if the food security law enacted in 2013 needs reviewing, as part of a move toward cash welfare payments rather than grain distribution, said former agricultural commission chairman Gulati.

“You can’t streamline this entire thing unless you do a rethinking of the Food Security Act itself,” he said.

Proponents of cash transfers say they curb graft. While the government doesn’t have data on how much food is stolen, some 39.3 million fake or ineligible ration cards were scrapped by March 31, Raosaheb Patil Danve, India’s junior food minister, said last month.

Modi swept to India’s first single-party parliamentary majority in 30 years on an agenda that includes improving infrastructure, boosting energy output and fighting corruption.

Restructuring Food Corporation of India could be among the stiffest tasks as challenges include bureaucratic inertia and labor unions, according to Biraj Patnaik, principal adviser to India’s Supreme Court on food issues.

“It may take three to four years,” he said.

--With assistance from Andrew MacAskill in New Delhi and Thomas Kutty Abraham in Mumbai.