A Case Study Report

On

Food Corporation of India

Submitted to:- Submitted by:-

Prof. R.K. Vijaya Sarathy Rupesh Kumar
Director, DSBS Bangalore Charu Chandra
Bajrang Agarwal
Bikash Prasad

Contents
1. Introduction
1.1 Objective
1.2 SWOT analysis
1.3 Organizational chart
2 . Functions of FCI
3 . Public Distribution System
4 . Issues
5 . Conclusion
6 . Bibliography

Introduction
Food Corporation of India (Hindi: भारतीय खाग निगम) was setup on 14th January
1965 under Food Corporation Act 1964 with authorized capital of almost $600
million to implement the national policy for price support operations,
procurement, storage, preservation, inter-state movement and distribution
operations.

It operates through 5 zonal offices and a regional office in Delhi. Each year, the
Food Corporation purchases roughly 15-20 per cent of India's wheat output and 12-
15 per cent of its rice output. The losses suffered by FCI are reimbursed by the
Union government, to avoid capital erosion, and thus declared as a subsidy in the
annual budget. In 2007, such food subsidies were met by government bonds worth
almost $8 billion.

1.1Objective

The food corporation of India was setup in order to fulfill following objectives of
the food policy:-

1. Effective price support operations for safeguarding the interests of the

farmers

2. Distribution of food grains throughout the country for Public Distribution

System

3. Maintaining satisfactory level of operational and buffer stocks of food grains

to ensure National Food Security

   
Since its inception in 1965, having handled various situations of plenty and
scarcity, FCI has successfully met the challenge of managing the complex task of
providing food security for the nation. A strong food security system which has
helped to sustain the high growth rate and maintain regular supply of wheat and
rice right through the year. The efficiency with which FCI tackled one of the worst
droughts of the century not only cemented its role as the premier organization in
charge of food security in India, but also brought it accolades from international
organizations.

Today it can take credit for having contributed a great deal in transforming India
from a chronically food deficit country to one that is self-sufficient

1.2 SWOT Analysis

Weakness
Strengths
1. High requirement of working
1. Round the year availability of
capital
materials
2. Inadequate automation with
2. Support from central
regard to information
government
management
3. Strong network of distribution
3. Corruption at all level
4. Excellent Storage Management
4. Leakage

Opportunities Threats

1. Vast Domestic market 1. Rapid development

2. Improvement in distribution 2. Shift in food habits
channel 3. Entry of Retail Sector
3. Diversify into nontraditional
commodities / activities.

1.3 organizational chart

Corporate Office

Zonal Offices [ 5 ]

Regional Offices [ 23 ]

District Offices [ 165 ]

Depots (incl. CAP) [ 1470]

With 1646 offices, FCI is one of the largest networked organizations in India

FUNCTIONS Of FCI

1. Procurement

Procurement is the acquisition of goods and/or services at the best possible total
cost of ownership, in the right quality and quantity, at the right time, in the right
place and from the right source for the direct benefit or use of corporations,
individuals, or even governments, generally via a contract, or it can be the same
way selection for human resource. Simple procurement may involve nothing more
than repeat purchasing. Complex procurement could involve finding long term
partners – or even 'co-destiny' suppliers that might fundamentally commit one
organization to another.

To nurture the Green Revolution, the Government of India introduced the scheme
of minimum assured price of food grains which are announced well before the
commencement of the crop seasons, after taking into account the cost of
production \ inter-crop price parity, market prices and other relevant factors.

 The Food Corporation of India along with other Government agencies

provides effective price assurance for wheat, paddy and coarse grains.

 FCI and the State Govt. agencies in consultation with the concerned State
Governments. establish large number of purchase centers throughout the
state to facilitate purchase of food grains

 Centers are selected in such a manner that the farmers are not required to
cover more than 10 kms.to bring their produce to the nearest purchase
centers of major procuring states.

 Price support purchases are organized in more than 12,000 centers for wheat
and also more than 12,000 centers for paddy every year in the immediate
post-harvest season.

 Such extensive and effective price support operations have resulted in

sustaining the income of farmers over a period and in providing the required
impetus for higher investment in agriculture for improved productivity.

 To name a few states about Rs. 41,000 million for paddy and 43,000
millions for wheat in Punjab and Rs. 45,000 millions for levy rice in Andhra
Pradesh is paid to the farmers/ millers during wheat / rice procurement
season.

 India today produces over 200 million tonnes of food grains as against a
mere 50 million tonnes in 1950.

 In the last two decades, food grain procurement by Government agencies

have witnessed a quantum jump from 4 million tonnes to over 25 million
tonnes per annum.

 Food grains are procured according to the Government - prescribed quality

standards.

 Each year, the Food Corporation purchases roughly 15-20% of India's wheat
production and 12-15% of its rice production.

 This helps to meet the commitments of the Public Distribution System and
for building pipeline and buffer stock.

The Deppt. of Food, GOI has recently formulated aforesaid policy for involving
Central Govt. Undertaking /State Govt. undertakings/for the Central Pool and
expanding the scope of MSP operations in the areas where FCI/State agencies
infrastructure for potential of procurement is weak and existing Govt. Agencies
(FCI and State Agencies) are not able to carry out MSP operations in such areas
where procurement exists to ensure that farmers are not denied the benefit of
MSP. 

2. Storage

Another facet of the corporation is manifold activities is to provision of scientific

Storage for the millions of tons of foodgrains procured by it. In order to provide
easy access in deficit, remote and inaccessible areas, the FCI has a network of
storage depots strategically located all over India. These depots include Silos,
Godowns and an Indigenous method developed by FCI, called Cover and Plinth
FCI has 24.18 million tonnes (owned & hired) of storage capacity in over 1451
godowns all over India.

In order to reduce storage and transit losses of foodgrains and to bring additional
resources through Private Sectors participations., Govt. of India had announced a
National Policy on Handling Storage and Transportation of Foodgrains in June,
2004 for Bulk and conventional godowns.In the Ist phase,after a series of
deliberations, it was approved that total capacity of lakhs MT  be created at the
identified based depots and feild depots through private sector participation on
Build-Own & Operate (BOO) Basis. RITES were appointed as consultants for
the project. A letter of acceptance of proposal of  the project in two circuits has
been awarded to M/s. Advani Exports Ltd. , the lowest bidder to complete the
Project in 3 years from the date of  execution of the service agreement. 

3. Preservation

The Food Corporation of India has an extensive and scientific  stock preservation
system. An on-going programme sees that both prophylactic and curative treatment
is done timely and adequately. Grain in storage is continuously scientifically
graded, fumigated and aerated by qualified trained and experienced personnel.

Food Corporation of India's testing laboratories spread across the country for
effective monitoring of quality of foodgrains providing quality assurance as per
PFA leading improved satisfaction level in producers (farmers) and customers
(consumers).

 The preservation of foodgrain starts, the minute it arrives in the godowns. The
bags themselves are kept on wooden crates/poly pallets to avoid moisture on
contact with the floor. Further till the bags are dispatched/issued, fumigation to
prevent infestation etc. of stocks is done on an average every 15 days with
MALATHION and once in three months with DELTAMETHRIN etc. on traces of
infestation, curative treatment is done with Al. PHOSPHIDE.

FCI's testing laboratories spread across the country (188) ensure that the stored
food grains retain their essential nutritional qualities as per FAQ.

4. Transportation

Ensuring accessibility to food in a country of India's size is a Herculean task. The

foodgrains are transported from the surplus States to the deficit States.

The foodgrain surplus is mainly confined to the Northern States, transportation

involves long distance throughout the country. Stocks procured in the markets and
purchase centers is first collected in the nearest depot and from there dispatched to
the recipient States within a limited time.

FCI moves about 250 Lakh tonnes of foodgrains over an average distance of 1500
Kms.

5. Distribution

The national objective of growth with social justice and progressive improvements
in the living standards of the population make it imperative to ensure that
foodgrain is made available at reasonable prices. Public Distribution of foodgrains
has always been an integral part of India’s overall food policy. It has been evolved
to reach the urban as well as the rural population in order to protect the consumers
from the fluctuating and escalating price syndrome. Continuous availability of
foodgrain is ensured through about 4.5 lakhs fair price shops spread throughout the
country.

TPDS

The Govt. of India introduced a scheme called Targeted Public Distribution

Scheme (TPDS) effective from June, 1997. The stocks are issued under this
scheme in the following two categories:-

1. Below Poverty Line (BPL): Determination of the families under this

category in various states is based on the recommendation of the
Planning Commission. A fixed quantity of 35 Kg. foodgrains per
family per month is issued under this category. The stocks are issued
at highly subsidized Price of Rs.4.15 per Kg. of wheat and Rs. 5.65
per Kg. of rice.

2. Above Poverty Line (APL) – Families which are not covered under
BPL are placed under this category. The stocks are issued at Central
Issue Price of Rs. 6.10 per Kg.  of wheat and Rs. 8.30 per Kg. of rice.
6.
With FCI With State Govt. /   Grand
Foodgrains
Agencies Total
Rice* 138.95 43.57 185.52
Wheat 101.28 212.78 314.06
Total 240.23 256.35 496.58
       
* Unmilled Paddy with FCI & State agencies also shown in terms of
Rice

Stock

The Central Pool stock are maintained by FCI and State Govts. and their agencies.
The total stock in Central Pool as on 31/07/2009 is 501.27(Figs. in Lakh MT).

Public Distribution System

PDS means distribution of essential commodities to a large number of people

through a network of FPS on a recurring basis. The commodities are Wheat,Rice,
Sugar, Kerosene . PDS evolved as a major instrument of the Government’s
economic policy for ensuring availability of foodgrains to the public at affordable
prices as well as for enhancing the food security for the poor. It is an important
constituent of the strategy for poverty eradication and is intended to serve as a
safety net for the poor whose number is more than 330 million and are nutritionally
at risk. PDS with a network of about 4.99 lakh Fair Price Shops (FPS) is perhaps
the largest distribution network of its type in the world.
PDS is operated under the joint responsibility of the Central and the State
Governments. The Central Government has taken the responsibility for
procurement, storage, transportation and bulk allocation of foodgrains, etc. The
responsibility for distributing the same to the consumers through the network of
Fair Price Shops (FPSs) rests with the State Governments. The operational
responsibilities including allocation within the State, identification of families
below poverty line, issue of ration cards, supervision and monitoring the
functioning of FPSs rest with the State Governments

Targeted Public Distribution System

In June 1997, the Government of India launched the Targeted Public Distribution
System (TPDS) with focus on the poor. Under the TPDS, States are required to
formulate and implement foolproof arrangements for identification of the poor for
deliver.y of food grains and for its distribution in a transparent and accountable
manner at the FPS level.

Under TDPS, BPL and APL were divided according to 13 parameters. In its tenth
five-year plan (2002-2007) survey, BPL for rural areas was based on the degree of
deprivation in respect of 13 parameters, with scores from 0-4: landholding, type of
house, clothing, food security, sanitation, consumer durables, literacy status, labor
force, means of livelihood, status of children, type of indebtedness, reasons for
migrations, etc.

The Planning Commission fixed an upper limit of 3.26 lakh for rural BPL families
on the basis of simple survey. Accordingly families having less than 15 marks out
of maximum 52 marks have been classified as BPL and their number works out to
3.18 lakh. The survey was carried out in 2002 and thereafter but could not be
finalised due to a stay issued by the Supreme Court of India. The stay was vacated
in February 2006 and this survey was finalised and adopted in September 2006.
This survey formed the basis for benefits under government of India schemes. The
state governments are free to adopt any criteria/survey for state-level schemes.[1]

In its tenth five-year plan BPL for urban areas was based on degree of deprivation
in respect of seven parameters: roof, floor, water, sanitation, education level, type
of employment, and status of children in a house. A total of 1.25 lakh upper
families were identified as BPL in urban area in 2004. It has been implemented
since then.
Issues

Question 1

FCI was set up to act as an apex organization for equitable distribution of food
grains to the lower end of society. However, it ended up with losses and incurred
huge inventory costs. What were the flaws in the operations of FCI? How could it
be improved to achieve its objectives effectively?

Answer

Food Corporation of India was setup on 14th January 1965 under Food
Corporation Act 1964 with authorized capital of almost $600 million to implement
the national policy for price support operations, procurement, storage, preservation,
inter-state movement and distribution operations. But there was many flaws in the
system, some of them are:-

1. Resistance from farmers to give wheat to FCI because of higher prices

offered by private trade. Farmers' expectations with regard to price
have to be met.

2. Low quality of foodgrains – A World Bank report (June 2000) states

that of FCI’s grain stocks is at least two years’ old, 30% between 2 to
4 years and some grain as old as 16 years.
3. Changes in Food Consumption Pattern. Dramatic changes in food
consumption patterns have taken place in India in the post Green
Revolution period. Between 1972-73 and 1993-94, the food basket
has become much more diversified, with the share of cereals seeing a
dramatic decline of ten percentage points in most regions. At the all-
India level, cereal consumption in the rural areas declined from 15.3
kg per capita per month in 1972-73, to 13.4 kg per capita per month in
1993-94.The corresponding decline in the urban areas was more
modest — from 11.3 kg to 10.6 kg over the same period. At the same
time, consumption of milk and meat products as well as vegetables
and fruits has increased. Such changes are a natural outcome of
economic development.
4. For APL there was low difference between the open market prices and
PDS prices.
5. The benefit of food subsidy was not accruing to the rural masses but
more to the farmers.
6. High procurement prices led to high PDS prices making it
unaffordable to poor, so this increased the cost of maintenance of
inventory.
7. The stock were damaged by rodents which contributed to the rotting
away of stocks and a large volume was also wasted during
transportation through mishandling.
8. Corruption at all levels ensured that a fair amount of food grains did
not reach the desired segment of the population.
9. Dealers sell their quota of grains to the rice dealers, because they got a
higher price for the rice than they earned as commission by selling it
to ration card holders.
Some of the measures that should be taken to achieve the objectives of FCI are as
follows:-

Restructuring of PDS

The following points need to be taken into consideration in order to make the
implementation of TPDS more effective:

Kerosene oil is also supplied through PDS and is intended for the poor but alarge
part is used in adultery with Diesel. Subsidies on this should be reduced.

The coverage of TPDS and food subsidy should be restricted to the BPL
population. For the APL population, which has the purchasing power to buy food,
the Government needs to only ensure the availability of food grains at a stable
price in the market. However, in the current situation, where the FCI has huge
surplus stocks of foodgrains, it may be necessary to continue supply of cereals
under PDS to the APL population at below economic cost as a temporary measure.

Ration cards should not be used by the administration as an identification card for
various purposes. That role should be assigned to multi-purpose identity cards.

Food Stamps and Food Credit Cards

Under the system of food stamps or food credit cards, the State Governments could
issue a subsidy entitlement card (SEC) instead of issuing ration cards. The SEC
should show, among other things, the number of members in a poor family and
their age and indicate their entitlement level for food stamps. Each family would
collect its monthly quota of food stamps from prescribed distribution centres on
showing their SEC. They could then use these food stamps at any food supply shop
to buy food grains (rice and wheat) at a price (Rs x) below the market price. The
retailer will then be reimbursed by the State Government. There would be less
corruption as FPS owners cannot lie that they have sold so and so much of items.

Decentralization of Operations
One possibility that could be considered is that based on the net consumer subsidy
spent on providing food through the PDS, the Central budget should make a
provision for a national food subsidy. This subsidy can be distributed among the
states according to a prescribed formula based on the latest available data and
updated poverty ratios. It would then be left to individual State Governments to
determine the quantum of food subsidy based on the contribution they get from the
Centre and their own contribution. The Centre could also agree to enhance the
quantum of its contribution to compensate for any increase in prices. The new
system will also result in a more equitable distribution of the benefits of food
subsidy among different states. However, it needs to be ensured that the food
subsidy distributed by the Centre is utilized for the purpose for which it is meant
and not diverted for other purposes.
Operation of Buffer Stocks and FCI

The high level of market prices of wheat now prevailing in India are primarily due
to the rise in procurement prices over the past three years and taxes and charges on
cereals imposed by state governments. The difference between the economic cost
of FCI and the market price also contributes to the higher price. Notwithstanding
the criticisms against FCI, it has to be admitted that it does play an important role
in the country’s food economy. The contribution of the FCI would be enhanced if
there were greater competition in food trade from other public, co-operative and
private organizations. While the provision of food subsidy is an important element
of the food security system in India, the food procurement and buffer stock
operations play an equally important role. Since agricultural production tends to
fluctuate due to climatic factors, it is necessary to maintain an adequate level of
buffer stock to ensure stability in food grain prices

Private Trade in Foodgrains

The FCI should gradually hand over its role of MSP-related procurement to private
trade. This requires a comprehensive reform of policies, rules and procedures to
strengthen the role of the modern private sector in the matter of storage,
distribution and processing of foodgrains. Various restrictions that inhibit private
initiatives in this regard need to be removed so that the private sector has an
incentive to make huge investment in grain handling operations and food
processing. There is urgent need to upgrade market infrastructure, cold storage
facilities, mandi facilities and roads, areas in which the private sector should be
encouraged to make productive investment.
Grain Bank Scheme

Grain banks were earlier launched in some ststes like Madhya Pradesh, under the
new scheme Grain banks can be set up in remote and isolated areas beyond the
reach of PDS and in regions where there is inadequate employment generation
such as in tribal and forest areas. In order to be successful, the grain bank scheme
has to be combined with a food for work programme, so as to ensure generation of
income, which is necessary in order to ensure repayment of borrowed grain by the
beneficiaries.

Question 2

FCI procured around 20 to 25 % of the productions of wheat and rice however,

despite having an adequate quantity of food grains, it was unable to cater to the
needy masses effectively. How was the public distribution system responsible for
this inefficiency? Suggest some measure to improve the PDS in India.

Answer

With a network of more than 400,000 Fair Price Shops (FPS), the Public
Distribution System (PDS) in India is perhaps the largest distribution machinery of
its type in the world. PDS is said to distribute each year commodities worth more
than Rs 15,000 crore to about 16 crore families. This huge network can play a
more meaningful role if only the system is able to translate into micro level a
macro level self-sufficiency by ensuring availability of food grains for the poor
households.
The problem facing the country today is not one of shortage of food grains but of
managing the surplus. Ironically, even as the go downs of the FCI are overflowing,
stray cases of starvation deaths are still being reported. A civilized society in the
21st century cannot allow this to happen. Therefore, while there is need to produce
adequate food grains domestically, supplementing with imports whenever required,
it is also necessary to look at the food grain distribution network. The Public
Distribution System (PDS) in the country facilitates the supply of food grains to
the poor at a subsidized price. However, doubts have been raised about the efficacy
and cost-effectiveness of the PDS, especially in the light of the growing food
subsidy and food stocks. The PDS needs to be restructured and there is a need to
explore the possibility of introducing innovative ideas such as smart cards, food
credit/debit cards, food stamps and decentralized procurement, to eliminate hunger
and make food available to the poor wherever they may be in cost-effective
manner. There are two aspects to the paradox of overflowing godowns and
vulnerable sections of society not consuming adequate food. One is the issue of
having enough purchasing power or income to buy food and the other is the access
to food in terms of physical availability of food.

Dealership and even membership of vigilance committees are seen as positions

where money can be made the procedure to appoint them is highly politicised, and
mostly clients of MLAs are appointed. Sub-district infrastructure to handle food
grains is poor. The Civil Supplies Corporation has no working capital to buy from
Food Corporation of India; vans are in poor condition or have no money for petrol,
staff does not receive salaries for months
On the whole, only Government staff, agents and retailers benefit from the
Scheme. Problems of lack of infrastructure and shortage of funds with Government
agencies are not unique to Bihar; most States suffer such handicaps except for a
few in 239 the West and the South. The Centre should ensure adequate
infrastructural capacities in districts and at block levels to plug leakage of scarce
resources which reportedly helps only contractors and corrupt government staff
and keeps the poor and the needy away. One study claimed that each fair price
dealer has to “maintain” on an average nine government functionaries. It is
significant that the allocation to poorer states like UP, Bihar and Assam got more
than doubled after the switch-over to TPDS, but the off take by the States was poor
and by actual BPL beneficiaries even poorer. The scheme has not made any impact
on nutrition levels in those States.

Recommendations

a. Items other than rice and wheat need to be excluded from the purview of TPDS.
Attempts to include more commodities under food subsidy cover should be
resisted.

b. Sugar supply through PDS draws well-to-do families to the system.

c. Coarse grains are basic commodities purchased by the poor. These grains in any
case are available to the poor at low prices. There seems no additional need to
supply them through PDS and bring them under the cover of food subsidy.
d. Kerosene oil is also a commodity supplied through PDS and is intended for the
poor. But there occurs large scale illicit diversion of this item and benefits meant
for the poor are cornered by others. Subsidized kerosene is used for adulteration
with diesel. Subsidy on kerosene should be gradually phased out and alternate
avenues of marketing it needs to be explored.

e. The coverage of TPDS and food subsidy should be restricted to the population
below poverty line. For others who have the purchasing power, it would do merely
to ensure availability of grains at stable price in the market -- no need for food
subsidy to this population.

f. Ration cards have tended to be used as ID cards to establish people’s identity.

Many get ration cards issued only for this purpose.

Conclusion

Despite the huge stock of food grains available in FCI godowns, stray cases of
hunger deaths are still being reported. The food distribution system, therefore,
needs to be reformed and made more efficient. The present system could be
replaced by a system of food stamps and eventually by a food credit card system.
The excess stocks of food grains that have accumulated with the Government is
partly a result of the high MSP which often exceeded the levels recommended by
the CACP. There is,
Therefore, a need to adhere to the recommendations of the CACP in this regard.
The MSP should encourage diversification of agricultural production.
Bibliography
WEB

www.wikipedia.com

www.fciweb.nic.in

www.fcinez.com

www.fixya.com

www.books.google.co.in

www.scribd.com

BOOKS

Sales Management/Still Cundiff Giovini

Principles of Marketing/Philip kotler/12th Edition