The biggest hoarder

Food Corporation's anti-competitive practices probed

It is not surprising that the Competition Commission of India (CCI) has begun to examine the anti-competition effect of the Food Corporation of India's (FCI's) grain procurement and distribution operations. The cue for such an investigation really came from Finance Minister P Chidambaram, who said at a recent CCI function that this issue should be looked into. Significantly, he not only acknowledged that the government had become the largest and, in many ways, the only bulk buyer of cereals, but also pointed out that this had crowded out the private sector from the market, thereby affecting market-driven price discovery. The Commission for Agricultural Costs and Prices has also recommended thus. One of its recent reports says that the policies adopted by the Centre and some states (which offer bonus on grain prices and impose heavy taxes on the grain trade) have led to market distortions.

While the FCI basically implements government policy, the CCI is not barred from investigating any anti-competitive practices it pursues. The Competition Act provides for scrutinising the impact of the operations of the government bodies like the FCI on the production, storage, supply and distribution of farm commodities. Even the regulated markets functioning under the state Agricultural Produce Market Committee (APMC) Acts fall under the purview of the CCI, as these tend to limit the market for farmers and prevent development of marketing infrastructure to ensure free competition. In many states, the FCI and its allied state agencies buy grains only through commission agents licensed by the APMCs - an arrangement that smacks of cartelisation. Minimum support prices essentially become benchmark prices and further distort the market. The fact that more than 90 per cent of the grains arriving at the mandis in the post-harvest peak marketing season in the major grain-surplus states are mopped up by the FCI and its allied agencies is clear evidence of the monopolistic nature of the grain acquisition operations.

Interestingly, the CCI's move has come at a time when the government is all set to enact a food security law that will exert more pressure on the FCI to increase grain procurement for distribution at highly reduced prices. This will further erode competition in the food market and alienate private trade. Thus, regardless of the view the CCI will finally take on this matter, changes in the manner of grain procurement are urgently called for to ensure distortion-free and competitive marketing of staple cereals. Only then can there be hope for the restoration of market-driven production, pricing and distribution of foodgrain.