Reap what you sow, lose what you reap

Why India loses Billions a year by failing to house its excess food grain

In a world filled with KFCs and Subways, a simple plate of dal chawal is still the comfort food of choice for crores of Indians today. However, the delivery of its core ingredients: rice and dal - from the farm to your spoon - have a far from comfortable journey. 

According to the Ministry of Food Processing Industries, post-harvest losses (PHL) were pegged at up to 5.92% for cereals (wheat, rice, corn, etc) and 6.74% for pulses (beans, lentils, peas, etc.), among other categories of agriculture produce.

Let’s put that into perspective: this wastage is worth 18.5 Billion USD annually. Assuming 150 Rupees a day for 3 square meals, these losses have the potential to feed close to 3 crore people a year!

Point to note: post-harvest losses (PHL) do not encompass retail and consumer-level wastage. The leaky wheat bags that DMart throws out or the biryani rice you slipped into the bin (with guilt, I hope) are not a part of these numbers. Since no national-level surveys exist for food waste; not to be confused with PHLs, these numbers remain as yet unquantifiable.

Shared Grievance

But hey, how does wasted food grain affect us on an everyday level, apart from the obvious human guilt of wastage? Well, every wasted grain drives up prices for this essential commodity, which is a direct factor in driving up inflation. The RBI emphasized in a bulletin:

“For growth momentum to become sustainable, risks to inflation from structural imbalances needs priority attention….(including) minimisation of post-harvest losses”

Inflation cuts into each of our lives, especially the most underprivileged classes of this country.

Being an essential commodity, food grain must still be provided to the masses irrespective of the cost. So subsidies and distribution programs are funded by the exchequer, the ramifications of which we see each year on budget day.

The question then arises as to what the major contributing factors to these PHLs are in the foodgrain production chain. In the supply chain from farm to table, there are multiple contributors to these losses at each stage. 

• Harvesting

• On-the-farm activities

• Storage

• Milling, and

• Transportation

Worthy of discussion in their own regard, we are going to stick to storage as part of this piece.

Problem Of Plenty

All countries must stock food grain. It’s a failsafe against a bad season, and a foolproof method to ensure consistent availability during the year, and any other contingencies. With each passing decade, India has unsurprisingly increased its foodgrain output in all aspects, but the overall storage capacity has, unfortunately, miserably failed to keep up with this growth. 

Currently, India’s storage capacity is at a mere 47% of its annual food grain production. Keep in mind that countries like Brazil and Canada have storage capacities that exceed their annual production. So it’s not a phenomenon inevitable in a growing economy. It's very much an India problem. 

This statistic poses numerous interesting questions:

1. Why does the government purchase more food grain than it knows it can hold?

   MSP. The Minimum Support Price is a guaranteed price the central and state governments must buy food grains at, from the farmers each year. For good or for bad, the scheme forces the government to stock up on food grain in Food Corporation of India (FCI) warehouses with no choice. Granted, it means farmers get a fair price for their produce, but on the flip side, it also encourages unhinged production of crops under MSP.

2. Why doesn’t the government just go all out and distribute this food grain to the masses? There are willing takers at every corner.

   Supply and Demand. Firstly, the government does distribute these procured grains through the Public Distribution System to eligible beneficiaries, free of cost. A deluge of free grain on the market will not bode well for the market price. The open price will tank since, well, one is getting it for free.

3. Why don’t the farmers themselves set up storage facilities or employ the industry of private players who would do it at a price?

   The Essential Commodities Act (ECA). The motive of this act was to protect the consumer from immoral traders, i.e. hoarders. This Act essentially criminalizes the storage of agricultural produce so it could - potentially - be stocked and sold during a lean season as compared to harvest season. If the government had the authority to force you to sell your stocked produce at any time, at the price they insisted, would you really go ahead and invest a fortune in building storage? Practically, regional farmer cooperatives should be allowed to set up grain bins and charge farmers rent to store their harvest, which is exactly the model many farming towns in the USA follow.

4. Why not export the surplus at global prices?

   Grain exports, apart from being a net forex earner also help India build a bank of goodwill with other nations. But the export of wheat - since September 2022 - and most varieties of rice is currently under a ban by the government over concerns about rising food inflation. 

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Silver Lining

Thankfully, me and you (safe assumption since you made it this far) are not the only ones concerned by this state of affairs, and some concrete steps have been taken to address these problems.

For one, the government is committed to increasing the existing food storage capacity to close to 70% from the existing 47% number over the next 5 years. The increase in planned capacity is the volume of 28000 Olympic-sized swimming pools. Talk about scale. 

The benefits of increased storage are three-pronged: less wastage due to reduced ‘open storage’, farmers can get a better price if they can sell when they deem it right, and consumers enjoy lower prices since the supply will stabilize.

There’s no escape from wastage despite all the world's good intentions. That is why companies account for things like breakage and spillage (DMart), lawsuits (hello Big Pharma), and Acts of God. It helps to plan ahead. 

Some of that rotten foodgrain from FCI godowns and open storage can be diverted towards making ethanol. According to a report by the Ministry of Petroleum and Natural Gas:

Estimated 165 LMT of surplus grain to be utilized annually from 2025 to produce ethanol which would result in estimated 42,000 crore payment to farmers.

Ethanol blending in petrol helps us reduce our oil bill and curbs environmental damage.

An ICRIER (Indian Council for Research on International Economic Relations) report also suggests the use of hermetic (literal meaning: airtight and complete) bags instead of conventional jute bags to significantly reduce PHLs based on a case study in Bangladesh. They work by protecting the crop from the effects of pests, moisture, and oxygen. 

Despite the hiccups in regulations around MSP and ECA in the recent past, it’s heartening to know that change is being debated at least. The quid pro quo is hurting and it shows. The FCI is mending its ways and disallowing open storage of food grains. 

Step one to solving any problem, is realizing you have a problem, and we are thankfully now well past that stage.

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