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close this bookCERES No. 072 (FAO Ceres, 1979, 50 p.)
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View the documentInstruments for consumer protection: the Indian experience
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Instruments for consumer protection: the Indian experience

On a global basis, the available food supplies at present should suffice the dietary needs of everyone if the food were equitably distributed. However, on a per caput basis, there is an unequal distribution of food among countries and some are chronically deficit in their food supplies. In the developed countries as a whole, the per caput food production was maintained at 1.4 percent during the past fifteen years; in the developing countries, it was less than 1 percent even though growth of total food production was 3.1 percent. But the longterm average growth rates are no consolation to consumers who suffer serious hardships during lean years when food production fails to meet the needs. There are also some countries, such as India, which have comfortable food reserves yet where millions of consumers are unable to have enough food because of their low purchasing power. Therefore, an all-out effort to increase food production in the poor and food-deficit countries is a must but making food available at within-thereach price is of greater importance if two thirds of the world's food consumers dependent on cereals and cereals alone are to be protected effectively.

Two square meals

In the continuing struggle by governments to feed the ever-growing populations and free them from hunger and malnutrition, the interests of individual consumers can often be forgotten. Dependence on many persons in different locations to produce, store, and process food places the consumer far from the origin of his food. Consumers expect agriculture and the food industry to put on the retail market an abundant supply of every kind of food. They also expect the food to be nutritious, of appetizing appearance, flavour, colour and texture. They expect it to be clean, safe, unadulterated and handled under sanitary conditions. They expect the food to be appropriately packed in the farm or factory. Every day a greater stress is being laid on the rights of the consumers - the right to safety, to quality, to information and to choice.

Besides these universal factors, there are equally important - and in certain developing countries even more basic - aspects that call for attention. These relate mainly to adequacy of food supplies, in terms of quantity, variety and weight; and reasonableness of food prices so that enough food can be procured within the purchasing power of the bulk of the population.

The first group of factors relating to quality, safety, wholesomeness, presentation, etc. has been the concern of national food control systems. FAO and, in some cases, WHO have been providing assistance to developing countries to update their food laws and strengthen their infrastructure for their implementation. With greater awareness of the problems of developing countries, it is hoped that such food control systems and monitoring programmes will be able to meet the needs of both the urban and rural consumers. The joint FAD/WHO Codex Alimentarius Commission has been preparing international standards for food and making recommendations on food hygiene, pesticides, etc. While the Codex has been instrumental in increasing awareness of the need for protecting the interests of the consumers with safe and wholesome food, the greater need is for the implementation of their standards at national level through effective food control systems. Unfortunately, Codex standards do not touch the bulk of the world population who live mostly in rural areas and still hanker for two square meals based mainly on primary foods.

The need for a national food policy is well recognized everywhere. The policy should ensure that the population gets adequate food to meet the nutritional requirements of each individual.

Various components of such a policy would be:

· fair prices of basic food commodities such as food grains to ensure that the food can be procured within the purchasing power of the bulk of the population;

· an effective system of rationing to promote fair distribution and protect weaker sections of society;

· ensuring quality, safety, and wholesomeness of food, preventing commercial fraud and providing adequate and correct consumer information;

· ensuring weights and measures.

In terms of implementation this would call for a system of procurement of foods and maintaining food supplies - procurement, storage, buffer stocks, save wastage of food; an adequate food distribution system to cover the weaker sections of the society - rationing, quality control; price control; and food control.

In India, food policy was evolved mainly in the context of a deteriorating food situation due to shortages in supply and excessive demand during and after the Second World War. In such a situation, there was a strong need to protect the interests of consumers by regulating food-grain prices. The instrument of food-grain pricing policy in India consists of supplementing or augmenting the grains available in the open market with supplies at fixed and reasonable prices from the public distribution system operating through a chain of fair price shops spread throughout the country. The total number of fair price shops functioning in the country until the end of 1977 was about 243 000. Consistent with the federal political system prevailing in India, central as well as state food reserves are maintained to meet the requirements of the public distribution system. These reserves are created and replenished by procurement through government agencies at fixed prices announced by the Government. In periods of shortage, procurement is effected through a levy system and restrictions on movement of food grains from surplus to deficit areas are imposed in order to maximize the procurement.

Mopping up all surplus

To build a food supply system, the government must first have a stock of food, either through internal procurement or imports. There are five main systems of procurement.

The intensive procurement system aims at mopping up all surplus food grains at a fixed price by assessing the surplus of each producer and under taking the feeding of all non-producers and underproducers, whether in towns or in rural areas. On the price side, it ensures that, from the village on, all grain passes through government controlled agencies at government-dictated prices. The system is ambitious and can only work well where there is a settled and efficient revenue and executive administration.

The levy-cum-monopoly system is identical with the first except that it is not aimed at taking the whole surplus of each producer. It limits itself to taking a substantial part of the surplus directly from the producer by compulsion at fixed prices. The balance of the surplus left with the producer is collected by prohibiting, except in small quantities within the village, all sales of grains to anybody other than the government. The monopoly is thus in government hands. It controls prices through the custody of stocks at all stages beyond the village; it permits no commerce in grain to the trade; it eliminates substantially the possibility of hoarding or withholding stocks by the producer. This system also requires a high standard of efficiency, particularly of the revenue staff.

In the levy system, the government takes a fixed quantity directly from the producer at a fixed price and recognizes that a balance is left with the producer. Usually, this balance is left to find its own market at its own price. The government may, however, and does when it considers necessary, interfere with it by movement restrictions and the like. On the distribution side, commitments are limited to feeding those towns and vulnerable sections of the populations that, in the government's opinion, require attention. Distribution may take the form of rationing in towns and fair price shops, with or without ration cards in villages. In fact, within the supplies thus purchased, the government may set up any system of distribution that it wishes. This is usually aimed not only at feeding people, but also at depressing the price level by distribution at a controlled price. It is in regard to prices, however, that the system meets with difficulties. It admits a free market price; when this is very much higher than the procurement price, the levy becomes extremely difficult to enforce, and larger sections of the population begin demanding supplies from the government's limited resources at a time when it is finding it most difficult to collect these.

Without coercion

The principle behind the trade levy is identical with that of the levy on the producer, but its application takes place at a stage where the supplies are already with the trader. Under this system there is no interference by the government with the normal marketing process; it takes, however, a fixed proportion of the supplies passing through each trader's hands at a fixed price. For the balance, the trader is allowed to do as he wishes. The trade functions freely, subject to payment of levy. On the distribution side, the government may take up such commitments as it wishes; none is necessarily and directly involved in the scheme. With regard to prices, there is a free market at all stages. The government endeavours, however, to influence the price level by distributing at fixed prices part of the supplies it has taken over. The system can function only when there is a substantial surplus.

Under a monopoly system, the producer is left alone but the government allows no transactions in grain, outside the village, except to itself at a fixed price. Anything that comes out of the village has to be sold to the government at a fixed price. Concerning distribution, the complete monopoly implies supplies by or through governments to all deficit areas, which means in effect all towns. Rationing of towns strengthens the monopoly, as it removes a temptation and inducement to the cultivator to evade its provisions. In rural areas, the system means intermittent aid to deficit villages to the extent of their deficit. Price control at all stages of distribution is automatic since all transactions, outside the village, are either through government or under government supervision. While this system works well, the secret of success is efficient distribution. The monopoly procurement system aims at getting the whole marketable surplus of food grains into government hands, without coercion of the producer. The scheme assumes that it is possible to get the marketable surplus from the producer without coercion if conditions are created to achieve this end, and the most important part of the scheme is the technique necessary to create such conditions.

The demand is cut off

On the negative or prohibitionary side, the principle to achieve this end is isolation, which means in effect isolating each village; the surplus of individual producers, or as much of it as is not sold in the village, has no option but to fall into government hands. The method of isolation is by a ban on movement from village to village and on sales and purchases between village and outsiders. On the positive side, the necessary conditions are created by guaranteeing a fixed controlled price to the cultivator, offering marketing facilities by setting up procurement centres near his village and immediate payment for the grain delivered. The second positive measure to create the necessary conditions is effective distribution by the government at fixed controlled prices. If this is put through, the producer finds that the demand for his grain is cut off, not only by legal prohibition but by effective supply to the persons demanding grain. Isolation becomes not merely a matter of law but almost a matter of fact.

In periods of plenty, procurement is only by way of price support. Farmers are assured of minimum reasonable prices for their entire produce offered for sale in order to provide a guarantee that the prices will not be allowed to fall below remunerative levels. While in the short range this may appear to subserve the interest of the farmers only, in the ultimate analysis minimum price support policy protects the interests of the consumers as it maximizes agricultural production and ensures better availability of food in the country. However, situations did arise in the past decades when prices of some important agricultural commodities tended to decline to uneconomic levels, which necessitated the government's intervention to lend support through the market to accord some protection to the cultivators. Such policy measures were undertaken more for meeting the situations that arose at particular times rather than as an instrument of a long-term policy oriented toward definite purposes and goals.

To maintain a public distribution system, it is imperative that sizeable buffer stocks be maintained continuously by the government. This is the classic method of price support for agricultural products. It operates by building up stocks and supplies and running them down when supplies are scarce, thus raising prices in times of plenty and lowering them in times of scarcity. In the developing countries, the buffer stock system has been used mainly as a short-term mechanism for price stabilization or for providing a flow to price rather than for raising them over a long period of time. In India, for example, government purchases are made at assembly points when prices tend to fall below the support level. In most Latin American and African countries, purchases are made intermittently through marketing boards or other autonomous bodies. The system in Sri Lanka is somewhat different from that of other developing countries. The guaranteed minimum price for paddy is well above the free market level, and is maintained by regular government purchases through cooperatives.

Buffer stocks can be of two uses. One is short term where the buffer stock is employed for dealing with sharp intra-seasonal fluctuations in prices. The other is for the long term where the buffer stock is drawn upon to even out inter-seasonal fluctuations in prices and particularly to meet situations of shortfall in production caused by adverse weather and other natural calamities. It is relevant to point out that, at the initial stages, the size of buffer stocks may not be large. It might, therefore, be appropriate to confine its use to reducing abnormal inter-seasonal fluctuations in prices. The task of levelling intra-seasonal fluctuations would be left to the usual operational stocks. The optimum size of buffer stocks for a vast country like India can be very large. One realizes that the buffer stock is meant to offset the shortfall in supplies during the bad years which are bound to occur every now and then.

A single pool

In deciding about the ultimate size of the buffer stock, consideration has to be given to a number of factors such as the expected level of production and fluctuations wherein finance is involved, the storage capacity, etc. Inoperative buffer stocks pose difficult problems of operation unless they can be limited in size and used primarily in smoothing out short-term variations in supply. When there is a deficit, large imports have to be made along with releases from buffer stocks. On the other hand, when there is a surplus, excess supplies have to be lifted for the market and exported if they are greater than that absorbed in the buffer stock. Regulation of the foreign trade, therefore, is almost always necessary.

Another problem is that of deterioration and wastage in storage. The problem of turnover assumes great importance in this context. The grain can be saved from deterioration if buffer stocks and operational stocks (used for current consumption) are treated as a single pool. It is important in this context to build up storage in which grain could be kept for two to three years so that actual turnover of the buffer stock is reduced. Scientific storage and preservation methods, including sound storage structures, would go a long way to solving this problem. Thus, at all costs proper storage facilities must be provided to maintain the quality of food grains. There is also the problem of finances incurred both for undertaking buffer stock operations and construction of additional storage capacity.

Another problem relates to the pricing policy for the releases from the buffer stock. If the objective is to meet only the emergent situations developing from shortfalls in production, obviously the releases will have to be made only in these years when prices would rise to an abnormally high level. This level or the tolerance limit will be determined in the light of the general economic conditions in the country and the trend of food grains in the free market. The next question is that of the price at which and the manner in which such releases should be made. There are two alternatives in this regard. One is that grain from the public stock may be sold through the fair price shops at the same price at which grain from the operational stocks is sold. This price will obviously be lower than the tolerance limit indicated above. The implication of this proposal is that the demand of the public at this price will be substantial and perhaps much more than can be met with the help of the buffer stock. The second alternative is that the stocks from the buffer may be sold on the open market at the prevailing prices. The former method will invariably involve losses to the government since the grain will generally have to be kept for more than one year and the handling charges will keep on increasing.

The absence of the free market

The main objective of buffer stock operations is to keep prices at a reasonable level. In these operations, some loss in quality and quantity is inevitable. This should be treated as a necessary price for the stabilization that is so essential for development. Attempts should be made to keep storage losses to the minimum and the quality of the food grains needs to be properly maintained.

In normal circumstances, the distribution of food grains like other commodities takes place through the mechanism of the free market. The essence of the market mechanism is the market price and its function is to equate the consumer demand to the supplies forthcoming. For given supplies, market prices are determined so that all supplies are taken and no more are demanded. Therefore, to clear larger supplies, the market price has to be lower, while to restrict demand for more supplies, the market price must be higher. The food-grain market governed by this law functions satisfactorily up to a point but not invariably. In particular, when total supplies are barely adequate or are in fact short of the minimum needs of the people, the free market in food grains is known to lead to extreme force of maldistribution and eventually to a breakdown. Then recourse to alternative systems of distribution, especially rationing, becomes unavoidable.

It is customary to classify systems of distribution other than through the free market into several categories such as statutory rationing, non-statutory rationing, informal rationing, modified rationing, controlled distribution, release through the quota shops, fair price shops and the like. However, the crucial difference is the one between statutory rationing on the one hand and all other forms on the other. Statutory rationing is distinguished by the complete absence of the free market and consequent statutory obligations on the part of the government to supply each person at a given price, giving a more or less adequate quantum of food grains. All other forms of distribution are characterized by the existence of a free market and hence do not imply any statutory obligation on the part of the government as under statutory rationing.

Broadly, there are three types of systems of distribution, i.e., free market, rationing (statutory rationing), and fair price distribution, covering all sorts of distribution on public account alongside the free market. Government distribution of food grains has often been resorted to in the past to relieve acute distress during drought, famine, floods and other natural calamities, and also to prevent prices from rising exorbitantly because of the speculative activities of the trade. In India, distribution of food grains on government account is undertaken by the State governments out of the quantities received by them from the central reserve and the quantities procured by them within the state. Such distribution is undertaken mainly through rationing shops in statutorily rationed areas and fair price shops in informally rationed areas. Apart from such distribution, food grains are also issued from the central godowns to meet certain fixed commitments such as those of roller flour mills, defence services and also directly to the fair price shops in certain states on the basis of permits issued by the State government. The system of public distribution in the country has been flexible and it has been contracted or expanded according to the needs of the situation.