Sunday, March 6, 2011

198 - Time To Stem The Rot - Logistics

By Jayashree Kini-Mendes

Sprucing up infrastructure, both warehousing and supply chain, bringing in the private sector, and improving quality of grains are some of the steps that can be taken to quicken the public distribution system, says Jayashree Mendes.

Back in 1957, Mother India, the movie, showed the poignant struggle of a mother who feeds her two children roots plucked from a barren field after the village is stricken by a flood. Elsewhere in the village, the local landlord’s henchmen are guarding a warehouse stocked with grains.

Circa 2010: National newspapers and television channels publish pictures of children in the hinterland sustaining their frail bodies with rice and a curry devised from water and chili powder. Not much has changed in these four decades.

The press is agog with reports about thousands of ton of food grains rotting at warehouses across the country. Meanwhile, statistics indicate that almost half of the children under the age of five in India are chronically malnourished. Forty-three percent of the children under the age of three are underweight, which is double the Sub-Sahara Africa average. Against this backdrop, thousands of sacks of rotting grains kept out in the open with a tarpaulin sheet thrown over them casually make for a sordid picture.

According to reports, in Sirsa (Haryana) alone, about two lakh quintals of wheat were discovered submerged in water. Though the Food Corporation of India (FCI), the body responsible for storage and distribution of grains for the Public Distribution System (PDS), could have salvaged the grains, the authorities reportedly did not act on time. Similarly, in Gondia in Maharashtra, four thousand metric ton of wheat has been lost. Many other states too have similar stories to tell.

How can a food-starved country be so cavalier about food grain storage? Veena Goel, Economist, Punjab Agricultural University, says, “It’s evident that the government lacks serious, efficient administrators who can be entrusted with the task of food safety. Otherwise we wouldn’t have food grains rotting.”

So much was the rot that last month, as a short term measure, the Supreme Court of India directed the Center to distribute the grains to the poor at very low cost or no cost instead of leaving it to rot in warehouses.

However, economists Log.India spoke to fear that rotting grains could be a blind used by officials with vested interests to continue with a certain level of inflation. Consider India’s production of wheat and rice. From July 2009-June 2010, the country’s estimated production of wheat, rice and pulses was around 218.2 million ton (mt), a little more than it consumes in the same period, according to Rajender Parsad, Head (Design of Experiments) at Delhi-based Indian Agricultural Statistics Research Institute (IASRI) – a body under the Ministry of Agriculture that undertakes research, education and training in agricultural statistics for research. Of the 218.2 million ton, wheat production is estimated to be 98 million ton; rice around 100 million ton, and the rest is pulses. If the distribution of grains were to happen with promptitude, then chances are with the next harvest round the corner, there wouldn’t have been several million ton of grains lying at warehouses.

R Rukmani, Program Director (Food Security) at MS Swaminathan Research Foundation (MSSRF) – a globally renowned, a Chennai-headquartered no profit research organization – says, “Governance is only part of the problem. There has been certain apathy on the part of the government in allocating resources to quicken the pace of supply chain in PDS.”

For Rajesh Rajaguru, Assistant Professor, (Marketing), SolBridge International School of Business in South Korea, whose main research interest is logistics and supply, rotting of food grains is a serious supply chain problem. “It arises due to a lack of co-ordination and information sharing in the supply chain communication systems. Effective and efficient supply chain are rooted in a combination of information and product flow,” he adds.

There are several reasons to the case of the rotting food grains. Besides poor infrastructure, quality of grains, warehouse mismanagement and poor storing conditions, officials, on their part, are not prompt in quick distribution of the grain.

Infrastructure Glitches

Rotting of food grains is not new to India. The supply chain that starts from the time of harvesting and ends at local fair price shops or retail outlets are bogged with several constraints. State agencies buy the harvested grains from farmers at minimum support prices, which are then purchased by FCI. These are exclusively meant to be channeled to the PDS and distributed to the poor through fair-price shops (see diagram: The Long March). But insiders say most of the time the officials move new stocks, thus leaving older stocks alone. Goel says, “State Grains Procurement Corporation and the Civil Supplies Corporation do not adopt scientific methods to store the stocks. Regular disinfection and fumigation of the warehouse is a must after a stockpile of grains have been cleared out. This helps retain the quality of the next incoming stock, along with the hygiene of the warehouse. This (process) is not followed at most warehouses.”

Obviously, grains as a seasonal and perishable commodity require safe warehousing. According to figures available on the FCI website (as of June 2010), FCI-owned covered depots have a capacity to store 129.7 lakh ton. Hired depots at state and central level of the SWC (state warehousing corporation), CWC (central warehousing corporation) and those set up with the help of private participation comprise another 143 lakh ton. Besides this, the agency maintains another economical method to store bagged grains – Cover and Plinth (CAP), a damp- and rat-proof elevated plinth in the open space at depots, and covers them with 250 micron low-density polyethylene sheets made for the purpose.

An expert says that tarpaulins and open storage systems assure minimum safety and the food grains stored using these methods cannot withstand adverse environment and climatic conditions. Grains, in this method, can be stored for up to a year. He adds that since the quality of grains do not match global standards, its storage longevity cannot be guaranteed.

For the distribution of food grains to various warehouses across the country, FCI uses the services of Indian Railways. Although most FCI warehouses are situated close to railway lines, a majority of them are not equipped with rail sidings for quick and easy loading. Officials, on their part, too are not prompt in securing timely and regular availability of rail wagons to push forward the grains into the supply chain. So grains tend to remain at warehouses for long durations under unhygienic circumstances thus hastening its rot.

The right storage of grains also requires the officials in charge of warehouses to take precautions. Rakesh Singh, Founder and Chairman of Mumbai-based Institute of Supply Chain Management (ISCM), opines, “The agency in charge of procuring the grains for FCI also needs to plan the quantity and time of procurement. Upon procurement, grains need to be sorted out for long-term and short-term storage. For instance, grains with ideal moisture content and maturity have a long vase life and should be stored in warehouses for long-term purpose with care. Certain food grains don’t have the feature of long-term storage and hence it needs to be processed and distributed, instantly. Ideally, the grains should be stored in third-party warehouses in each territory and distributed to the point-of-sale (POS), upon request.”

Procurement of grains also calls for skills in forecasting. Officials responsible for moving the grains are well aware of demands across various states. Singh says, “Indian companies are unsure of what the harvest will bring next season. There is a tendency to hoard. Grains cannot and should not be stored for more than a year. It becomes seed for the next year.”

 Chandigarh-based FCI official, on condition of anonymity, refutes this statement saying, “There is no question of hoarding. Last season, an increase in production resulted in higher procurement. This caused a shortage of space at warehouses. So while older grains from inside the depot have been channeled into the PDS, newer grains have been stored in CAP.”

Goel refutes this, saying that most of the stock lying under CAP at Chandigarh warehouses is more than two years old.

Ideal Warehouses

Warehousing is part of the large supply chain and are scientific storage structures constructed to protect goods from elements, theft, rodents, etc. An ideal warehouse should be computer-administered and must have ready infrastructure to monitor incidence of pests and diseases, internal and external temperature, humidity, aeration, moisture content of the food products, among other things.

There have been several feeble attempts to spruce up warehousing facilities since the Agricultural Produce (Development and Warehousing) Corporation Act, 1956, came into being. It has come to evolve over the years as the Warehousing (Development & Regulation) Act, 2007. While the Act has yet to see the light of day, its essence was to introduce the concept of negotiable warehouse receipt, wherein farmers could store their produce at accredited warehouses and avoid distress sale. The other benefit would have been the involvement of the private sector to maintain warehouses specially marked for grains meant for PDS.

Warehousing (for PDS) was solely the government’s responsibility. There has also been this idea of roping in the private sector, but it was not until 2002 when the first tenders were floated for private sector participation.

Agro-economists have, for some time, been suggesting roping in the private sector for warehousing. The public-private-partnership (PPP) in warehouses would ease many time-lag issues, especially if the public sector will build the warehouses and the private sector will maintain it. According to Singh, “At a time when the public sector has failed to avoid grains rotting, an effective cure would be involving the private sector. By eliminating the problem of PDS supply chain malfunction, it will facilitate effective and efficient flow of products to the beneficiaries. There are several private and co-operative warehouses operating profitably in India. However, farming communities and food storing agencies have a lack of awareness and interest in warehouses. Steps should be taken to encourage them so that it can act as an incentive to private investors to invest in warehousing businesses. Required technological and financial support needs to be provided.”

Technology also plays a crucial role in warehousing systems. The introduction of advanced information and communication technologies (ICT) assisted systems provide assurance for safe, long duration storage of food grains. The PDS should take appropriate measures to shorten the length of the supply chain and efficiently manage procurement, warehousing, processing, transportation and distribution using advanced ICT.

Quality Of Grains

Quality of grains has a direct bearing on the longevity of storage. According to Parsad, “There were three species of wheat used last crop season: T. aestivum, T. durum and T. dicoccum. Of the three, durum has higher potential for long term storage, is export-quality, and is resistant to Karnal bunt, a fungal disease that reduces the lifespan of the wheat. However, this variety of grains is mostly available in central India and in Punjab. Good quality wheat can be produced in dry areas of Rajasthan, Madhya Pradesh and Maharashtra.”

But durum is quickly picked up by the food processing companies as the main ingredient in the manufacture of pasta, noodles, white bread, etc. The reason attributed to this is that since its hard quality wheat, it’s ideal for storing for longer than the designated one year.

However, the lack of education to farmers and a sheer ignorance on their part to ignore modern production methods also has an effect on the quality of grains. There is a tendency among farmers to procure seeds from FCI and other government agencies at minimum support price. With wheat and paddy being the staple of diet of people in the country, farmers across various states are required to produce a certain quantity of the grains. The assured protection offered through the use of procurement prices presses farmers to diversify from pulses to wheat and paddy. Rajaguru clarifies, “This tendency to move from pulses to other grains makes them liable to compromise on the quality of the seeds. So it makes room for contamination. Sometimes, grains are mixed after harvesting. This is one of the prime reasons for quick rotting.”

Packing of grains in poor quality jute can hasten the rotting of grains. Grains travel across several states and loading and unloading at regular intervals subject the bags to wear and tear. Rajaguru adds, “Research indicates the highest incidence of grains’ rotting is when it is stored in bulk quantity. Food grains stored in airtight silo bags in small quantities well protect the grains from pests, diseases and adverse climatic conditions.”

Seeds Of Corruption

Beneficiaries of grains under the PDS are mainly two categories – Below Poverty Line (BPL) and the poorest of the poor who fall under the Antyyodaya Anna Yojna (AAY). A third category of people under the Above Poverty Line (APL) has also been included, though they are liable to receive grains for a slightly higher price. Colored cards are allotted to beneficiaries seeking to accrue the benefits of the PDS.

Identification of right beneficiaries for the PDS can offer huge benefits with little intervention of channel members. But most of the times the grains do not reach the fair price shops. The lack of supply chain security systems provides enough room for an unholy nexus between warehouse managers, transporters and fair price shop owners, thus restraining the rights of real PDS beneficiaries. Theoretically, a good supply chain also promises efficient money flow from the end consumers to producers.

Unfortunately, the PDS supply chain supports the flow of corrupted money along the channel members. An agro-economist remarks on a recent article that highlights the PDS officials’ demand to fair price shop owners to forfeit `15,000 per month for regular supply. The fair price shop owners are forced to forward the burden to consumers by denying product supply to consumers and/ or reduced quantity. Transporters and other PDS supply chain members are not infrequently involved in selling the products in the black market.

While most people falling under APL may not exact any of the facilities, there is little change in the buying patterns of tier II cities and the villages.  Singh says, “Food grains may be rotting, but officials will not put more grains on the market. Officials are worried that prices may fall. So there’s a tendency to hoard, which are then put on the market when the prices are high.”

For Want Of Equitable distribution

The entire system of PDS hinges on the theory of equitable distribution of grains to the poor. The government and the Supreme Court of India have chalked out schemes, such as food coupons, Food Security Bill, Unique Identification Authority of India, etc.

The food coupons scheme will offer direct subsidy to the poor, who can avail of this to buy the quota of grains allotted for a family. However, there were glitches such as an assurance that all BPL and AAY would receive the coupons. To overcome any chance of this, the UPA government has awarded HCL and its consortia the contract to implement the food coupons scheme by linking it with the UIDAI. This is expected to take 16-18 months over four phases. There are suggestions that HCL should also consider the inclusion of census information and data. The food coupon system will be a tool that will facilitate food security. The caveat here is that if correct identification of the poor does not happen at the village level, it renders the scheme worthless.

Meanwhile, the Food Security Bill is still in the draft stage, and is being looked at by the National Advisory Council (NAC) comprising a special panel of educationists, NGOs, among others. The bill, if passed in the Parliament, would entitle poor families to receive 35 kgs of grains every month.

In all the solutions suggested and being followed, a most constructive one that would work in the long-term is linking the PDS with the UIDAI. Data of the poor can be collected from the village Panchayat for those who will live in villages. The tier II cities might face problems, as it comprises mainly migrants. But they could be given one identity. Rajaguru says, “The UIDAI will bring in transparency, because the government will have captured data of 90 percent of the population through the Census. That will help them design all kinds of policies around the 90 percent. The entire FCI concept will go for a toss, because the poor can buy based on the UIDAI.”

As the UIDAI commissioned system expects to capture data on each and every citizen’s biometric, tax, demographic and personal information details, the proposed time limit for the accomplishment of project seems rational. Many countries introduced such a kind of systems decades ago. Considering the vast Indian population, their living patterns and social circumstances, the proposed project is a challenging one.

Meanwhile, the grains continue to rot.