India’s Wheat Conundrum

Occurrence of distinct humid summers and winter seasons makes India a suitable producer for both tropical food-grain crop paddy and temperate food-grain crop wheat. Plains of North, North western and central India are major wheat producing regions of India. Since the onset of Green Revolution and introduction of High Yield Hybrid Dwarf varieties, India has not only become self-sufficient for domestic consumption but also emerged as a major exporter of wheat.

In fact India has consistently maintained position among first two producers in the world but due to high domestic demand India does not figure in the top 10 exporters. It is the countries with temperate climate and low population, mainly in Northern hemisphere (except Australia and Argentina) which dominate world wheat exports. More than domestic consumption, it is the rigidity in Public Stockholding for food security purpose which undermines wheat export potential of India. Although fears behind such huge stock piling are not completely unfounded, India imported wheat under PL480 scheme from USA and even after inception of Green Revolution as late as mid 1970s has requested USA for additional supplies.

But Wheat Stock in Central Pool peaks as high as 327 Lakh MT in harvesting season of May-June and declines over the coming months but never goes below 164 Lakh MT(as of 2018). In this decade, despite record production years, domestic production remained close to domestic demand of around 95-97 Million Tonnes, thus has to be compensated at times by imports. Domestic demand has also risen in recent years and despite record production for consecutive years and India has turned into a net importer of wheat in 2016-17 and continued importing in 2017-18, may import this year as well, mostly quality wheat for south India millers, who may find imports more economical than buying from the domestic market as prices may go up after the marketing season is over in August this year. But here we should consider two major factors.

First India’s food grain stock capacity both in qualitative and quantitative terms is much lower than its domestic stock accumulated through Public Procurement through Minimum Support Price mechanism. So Indian Public Stock which has faced chronic issue of overstocking due to slow off take and production surge also faces challenges of wastage due to poor storage facilities. For example in 2012, godowns were overflowing with a record 82 million tonnes of rice and wheat, against the storing capacity of only 64 million tonnes and Government made desperate attempts to offload at least 6.6 million tonnes lying open in unscientific way before onset of monsoon. Government invited representatives of 17 countries to deal with it.

Second, occasional import by India are of high quality wheat. So both import and export restriction imposed by Government (generally to deal with production slump and surge) can’t be said to have desired policy impact, rather it hampers incomes of Indian farmers because they are unable to export moderate quality wheat to neighbouring tropical and drier countries where we have advantage in terms of CIF. But Government continues to occasionally resort to such measures to deal with issues on hand, which even once lifted continue to hamper wheat trade from India. For example government had lifted ban on wheat exports in September 2011 but the shipments had not been picked up till mid-2012. Similarly in November 2017, the Centre hiked the import duty of wheat to 20 per cent from existing 10 per cent, in order to discourage imports as the prospects of a good output looked up.

Thus we reach the conclusion(which might be contrary to popular opinion and conventional wisdom) that to boost India’s wheat export to the world in general and  United Kingdom and Bangladesh in particular we need reforms at two levels. First Food Security Guarantee (which is now a legal right) and Farm Income Support should increasingly rely more on direct benefit transfer and less on price control. Second, regulation of international trade in wheat should be governed by market forces rather than by frequent tariff and import control interventions. Instead government should focus on making Indian wheat produce cost and quality competitive.

(This article is part of a study conducted at Indian Institute of Foreign Trade. Full Study will be published in upcoming issues.)

Pradeep

Pradeep

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