Will India Export Wheat This Year?
With an expected production of 82 MT wheat in this current year, and strategic reserves of over 17 MT (more than double the target of 8.2 MT), the chances of allowing wheat exports from the country appear to be quite bright. In fact, unless a decision in favour of wheat exports is taken, the country would be saddled with high inventory of ‘aged stock’, and procurement agencies would find it difficult to meet their targets, which have been enhanced this year on account of higher production. The procurement target for this year has been set at 26.2 MT, which is substantially higher than last year’s target of 22.5 MT. Meanwhile, wheat continued to slide in both futures and in spot markets on account of fresh arrivals. It is therefore important to place issues relating to wheat production, consumption and trade in a global perspective.
A LONG RANGE PERSPECTIVE
India is the world’s second-largest producer of wheat and is catching up with China, which produces 110 MT of wheat. The other major wheat-producing countries are USA and Russia with about 55 MT each. Together these four countries account for nearly half the global production of wheat, which is in the range of 600-650 MT per annum, though for the coming year,(2011-12) the International Grains Council is expecting production to touch 670 -675 MT. India’s annual consumption is about 76 MT, and as mentioned in an earlier article, India keeps 8-8.5 MT in strategic reserve. The lead procurement agency is the Food Corporation of India which buys wheat at MSP between March and May every year. China’s consumption is about 100 MT, and Russia’s domestic requirement is about 35 MT. Thus India is also among the leading ‘potential exporters’ of wheat. However, the export potential can be realised only if India sends out a clear signal that barring a drought year, 5 per cent of the production can be earmarked for exports. This will encourage the larger aggregators to establish procurement centres in some of the main production areas. To ensure that domestic prices do not touch the roof, there are instruments like the Minimum Export Price, which can be implemented.
THE LOGIC OF EXPORT BAN
For the record, wheat exports were banned in February 2007 to protect the domestic consumers against global inflation in food commodities. Even though the ban was lifted briefly for about ten days in July 2009, it was re-imposed on account of the erratic rainfall pattern in that year. It was not lifted in 2010 as the government expected the off take in PDS to show a substantial increase on account of the programmes of several state governments to supply wheat to the BPL families at Rs 3/per kg. However, the demand has not been as high as the initial expectations and the warehouses continue to burst at the seams.
THE PROCUREMENT SEASON 2011-12
The arrivals in the mandies of Gujarat and MP where procurement operations have commenced are not as high as could have been expected after a bumper harvest. It is possible that farmers and intermediaries may be holding their stocks in anticipation of an announcement regarding ‘exports’. However if this trend continues in Punjab and Haryana, there would be real concern, as these states contribute to the maximum share in the central kitty. Both states have a 21 per cent share in the total production of wheat, but their share in the procurement is much higher because of the involvement of the state governments in the process. Meanwhile, Punjab has raised the purchase tax on wheat from 4 per cent to 5 per cent, which will mean an additional burden of Rs 100 crore on the procurement agencies and aggregators. As it is, this keeps the private trade away from these mandies. The problem is that other states may follow suit because the gains from this tax are immediate, while the distortion that it creates, (including diversion to the informal channel) have long-term consequences.
MSP AND MARKET PRICES
While the MSP for wheat for the current season has been pegged at Rs 1120 per quintal, the prevailing quotes are higher. The main markets at Karnal and Delhi are offering wheat at Rs 1195 per quintal, lower than Rs 1250 per quintal last week. However, as the procurement operations pick up, the prices are likely to hover around MSP. There are two other factors in this scenario: the success of the procurement operations in UP and the decision with regard to exports. While UP has set up over 4000 procurement centres, the system is not as well calibrated as that in Punjab and Haryana, and the number of warehouses is limited. Therefore, even when it produces a third of the country’s wheat, its contribution to the central pool is less than ten per cent.
IF EXPORTS ARE LIFTED?
The market sentiment is quite favourable towards the lifting of the export ban. From the farmers’ point of view, it will ease the pressure on prices, and private trade will have to match the MSP prices. It is true that the domestic consumer has to be protected, but then the most vulnerable sections are to be covered under the PDS. As in the case of onion exports, an NOC fee, or cess at 1 per cent of the export order could be kept for creating a fund to support an MIS for the PDS operations. The country has to think of long-term solutions and strategic options on wheat, as we are now a global agripower, and our policies have an impact not just on our domestic prices, but also on global food security issues. India has to take the lead, and play a confident and pro-active role by focusing not just on enhanced production, but also on improved warehousing, logistics and a willingness to participate in the global market as a lead player!
By Sanjeev Chopra
(The author is Joint Secretary, Ministry of Agriculture, Government of India. The views expressed are personal)