There is intense private activity in the markets, and wheat is reportedly being bought at prices ‘slightly above MSP’. Government procurement, understandably, is slow and lower than expected.
FCI procurement fell below the required level, and India, to the surprise of many, was forced to import wheat for its own consumption.
By T Nanda Kumar
Rewind to 2006—temperatures in northwestern India stayed above normal during February and March. The ministry of agriculture, tasked with crop assessment, had not picked up the likely crop-loss on account of this abnormal rise in temperature. The wheat crop turned out to be 10% lower than the estimated 75 million metric tons (mmt). Just before March that year, the Food Corporation of India (FCI) had drawn down its stocks to ‘below buffer norms’ to meet the public distribution system (PDS) demand. Private trade had smartly assessed the temperature variation and had seen an opportunity for profitable wheat trade. The result? FCI procurement fell below the required level, and India, to the surprise of many, was forced to import wheat for its own consumption.
This year’s early estimate of wheat production was about 111 mmt. High temperatures are now expected to result in a 15% drop; some say it could even be 20%. There is intense private activity in the markets, and wheat is reportedly being bought at prices ‘slightly above MSP’. Government procurement, understandably, is slow and lower than expected. Add to this the conflict between Ukraine and Russia—the two account for 50 mmt of wheat exports in the global export market of 190 mmt. India has seen an opportunity to export and has done well by exporting about 7 mmt in 2021-22.
With a crop-size smaller than expected, and with an opportunity for exports, private trade is bullish. Policy experts are worried, and some are apprehensive that the government may impose restrictions on exports any time. Others are worried about runaway food inflation. Are these worries real? To understand the situation, some number crunching is in order.
FCI (central pool) had a closing stock of 19 mmt as of April 1, 2022, higher than the buffer norm of 7.4 mmt. Rice stocks, at 57.2 mmt, were far above the buffer norm of 13.6 mmt. The pre-Covid average allocation for all schemes, including the Food Security Act, is about 62 mmt (offtake is about 57 mmt). The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a special scheme for Covid times with an annual allocation of 41 mmt, comes with an extended expiry date of September 2022. Therefore, this year’s requirement would be about 20.5 mmt, and India needs 82 mmt for PDS and others in 2022-23. The year after, it reverts to 62 mmt. Assuming that the procurement of wheat to be lower, at 20 mmt, the reserves of rice and wheat, with some smart management, should see us through this year. A point to remember is that the lower procurement of 20 mmt in a production scenario of 90 mmt means that the private (including farmers’) stocks will be much higher than last year, even with 7-8 mmt exports.
Let us look at the issues—crop-size may not be as bad as speculated. The ministry of agriculture can make a quick assessment (using satellite imagery, drones, and ground-level data) to get a realistic picture. Will the crop-size go below 90 mmt? Probably not! Farmers are currently getting better prices. Will the Centre want to annoy them by banning wheat exports? However, will wheat prices rise to such levels to cause severe food inflation? A reasonable concern could be a lower procurement. The Centre may have to engage in open market sales to cool prices down, and, hence, there is a need for higher inventories.
Here, the Centre can do a few things. First, getting a quick assessment of the exact size of the crop is essential, as is using this information wisely. Second, it should recognise that global closing stocks of wheat (March 2022) are at 280 mmt and that Indian wheat cannot replace the high-protein red wheat in most markets. India has an export opportunity, but not large enough to cause major upsets. Other producing countries (like Argentina) may decide to draw down on domestic stocks and export more. Taking a pragmatic view that India will export about 7-8 mmt, at best 10 mmt, will be ideal. Third, allowing exports only in the private sector should help. If there are real worries about too much export, all incentives, direct or indirect, should be removed, and the temptation to release FCI stocks for exports should be eschewed. This will help India abide by WTO rules—in particular, the ‘peace clause’ of the Bali ministerial agreement. In addition, this will give the Centre the leeway to release wheat for open market sales. Fourth, the rice stocks should be used effectively, and the wheat-to-rice ratio in PDS allocations should be changed in favour of more rice. Fifth, more millets and nutri-cereals should be allocated to schemes like mid-day meals, ICDS, etc. This would be a great beginning in favour of nutrition and rainfed-area farmers. Sixth, even if PMGKAY has to be extended, it should be done only for the poorest Antyoday Anna Yojana category covering 90 million people, and not 800 million. Finally, markets, especially private stocks, should be watched closely. If required, anonymised stock reporting (over 1,000 tons) should be made mandatory, and market-mechanisms should be used to manage supply and demand.
The Centre has reasons to be cautious and careful, but there is no need for panic or abrupt measures at this stage. A watchful, nuanced approach best suits the situation.
The author is Former secretary, food & agriculture, Government of India