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Wheat: Back to Imports?

Back to Imports? From a situation in 2002 when wheat stocks in government godowns were overflowing, it has taken less than five years for holdings to decline to dangerously low levels. On April 1, 2002, stocks were 26 million tonnes (mt), nearly six times the minimum buffer of 4.1 mt. On April 1, 2006, they were a mere 1.9 mt, less than half the minimum required. If the accumulation in 2002 was an unpardonable crime, the extremely small holdings today are indication of poor management. In an attempt to rid itself of the food mountain, in 2002 the government of the day increased allocations to the public distribution system (PDS), announced new schemes like the Antyodaya and Annapurna and, most unfortunately, dumped wheat in the market or offered it for exports at less than the economic cost. As much as 10.7 mt and 8.1 mt of wheat were sold in this manner in 2002-03 and 2003-04, respectively. In contrast, the so-called welfare schemes (food for work, mid-day meals and the like) were provided only 4.4 mt and 5.3 mt in those two years. Of course, with the introduction of employment guarantee and the expansion of the mid-day meal scheme, the requirements of the welfare programmes are now increasing.

WHEAT

Back to Imports?

F
rom a situation in 2002 when wheat stocks in government godowns were overflowing, it has taken less than five years for holdings to decline to dangerously low levels. On April 1, 2002, stocks were 26 million tonnes (mt), nearly six times the minimum buffer of 4.1 mt. On April 1, 2006, they were a mere 1.9 mt, less than half the minimum required. If the accumulation in 2002 was an unpardonable crime, the extremely small holdings today are indication of poor management. In an attempt to rid itself of the food mountain, in 2002 the government of the day increased allocations to the public distribution system (PDS), announced new schemes like the Antyodaya and Annapurna and, most unfortunately, dumped wheat in the market or offered it for exports at less than the economic cost. As much as 10.7 mt and 8.1 mt of wheat were sold in this manner in 2002-03 and 2003-04, respectively. In contrast, the so-called welfare schemes (food for work, mid-day meals and the like) were provided only 4.4 mt and 5.3 mt in those two years. Of course, with the introduction of employment guarantee and the expansion of the mid-day meal scheme, the requirements of the welfare programmes are now increasing.

Cereal stocks cannot be held forever and it would be wrong to blame the current problems entirely on the disposal of holdings in the past. Where there is a connection between the past and present though is that the huge stocks of the late 1990s and early 2000s bred an attitude of indifference towards procurement and a discounting of the importance of holding adequate quantities of cereals. Official wheat purchases have steadily declined from a high of 20.6 mt in 2001-02 to just

14.8 mt in 2005-06. Procurement levels are in part dependent on production and unfortunately the wheat harvest has been largely stagnant since the early 2000s. After touching a peak of 72.8 mt in 2001-02, the annual wheat harvest has hovered around 72 mt. Production in 2005-06 was initially projected at 75 mt, but is now expected to be only 72 mt.

While procurement has steadily declined, offtake has fluctuated between 16 mt and 17 mt a year. It is reasonable to expect the requirements of the PDS and all welfare schemes for wheat to add up to around 17 mt annually. It is the gap of about 3-4 mt between procurement and requirements that the government has now had to confront. Media reports from the mandis of Punjab and Haryana indicate that procurement by the Food Corporation of India (FCI), which began on April 1, is running substantially below even the low levels of last year. Farmers were either holding back stocks expecting prices to rise further or were selling to processing companies, which were offering more than the procurement price of Rs 650 a quintal.

The centre then had no choice but to, one, increase the purchase price by offering a “bonus” of Rs 50 a quintal and, two, arrange for more imports. Following the decision in January to import a small amount of 50,000 tonnes, the government has now decided to buy as much as 3,00,000 tonnes from the global market. With the world wheat harvest expected to be large in 2006, international prices are now fortunately low and stable, so imports will not be overly expensive. The two decisions should help the country tide over the immediate problem of inadequate stocks to feed the PDS (though the first reports are that the bonus has not enthused farmers to sell to the FCI), but there is a larger issue that we need to think about. This is if the developments over the past year are a one-off phenomenon or mark the beginning of a new trend in which India becomes a regular major buyer in the world market. Until recently, it was the fashion to call for diversification away from cereals and grow high value non-food crops. A movement away from cereals may be warranted where the wrong crops are cultivated in certain agro-climatic regions (for example, paddy in Punjab and Haryana). But as the wheat problem of 2006 shows, we cannot claim to have become “permanently” self-reliant in food production. If food security is a critical matter – as it should be because post-independence India’s history has shown food to be a powerful political weapon – then there is no question that production has to be raised so that the country does not have to increasingly turn to imports to meet domestic requirements. EPW

Economic and Political Weekly April 29, 2006

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