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Wheat Imports: Food Security or Politics?

While the government may have defended its decision to import wheat in the interests of ensuring food security, this is belied by existing ground realities and in policy contradictions. Imports have been sanctioned, for instance, while private traders procure domestic output for export. More importantly, India's history of wheat imports has been guided more by political considerations than by food security concerns.

WHEAT IMPORTS

Food Security or Politics?

While the government may have defended its decision to import wheat in the interests of ensuring food security, this is belied by existing ground realities and in policy contradictions. Imports have been sanctioned, for instance, while private traders procure domestic output for export. More importantly, India’s history of wheat imports has been guided more by political considerations

than by food security concerns.

M RAGHAVAN

A
fter a gap of six years, the government has again resumed largescale imports of wheat. In early February, when there was hardly a month and a half for the rabi harvest to commence, the government allowed dutyfree import of five lakh tonnes of wheat for open market sales in the southern states, especially Kerala and Karnataka, where wheat prices were ruling high. Then, on April 21, when the current wheat harvest was in full swing, the government announced that it would import another 30 lakh tonnes of wheat, citing low procurement and falling stocks as reasons. Simultaneously, it has extended Rs 50 as bonus amount over the minimum support price fixed at Rs 650 per quintal for the season. The reports are that imports contracted in February have started arriving in the southern ports and the latest imports will be available in western and eastern regions between July and October this year.1

The carry-over stock of wheat with the central pool was estimated at 62 lakh tonnes in January this year, as against the buffer stock norm of 84 lakh tonnes required on that date. The stock has further dwindled to 18 lakh tonnes in the beginning of April, when the stipulated requirement was 40 lakh tonnes (Table 1). Considering current rabi procurement trends, it is certain that the Food Corporation of India (FCI) will not hit its target of 16 million tonnes. One of the official reviews showed that, by the first week of May, there had been a shortfall in procurement to the tune of 4.5 million tonnes. At this rate, it is difficult to maintain the targeted public distribution system and other employment generation and welfare schemes. According to the government, therefore, the only way out is to make good the shortfall by imports from abroad.

Several observers have expressed scepticism about the explanations given by the government for the largest ever wheat import in a single year so far. First, to say that it was eager to bring down wheat

Economic and Political Weekly May 27, 2006 prices in Kerala and Karnataka is unconvincing. Wheat is not a staple in the south. Kerala is a rice eating state and in Karnataka, rice and ragi are the main cereals of the common people.

Second, wheat prices in southern states are generally higher than in the major wheat producing states of Punjab, Haryana and Uttar Pradesh. For example, in February, when the government first announced the decision to import wheat, the wholesale price of “dara” variety of wheat in Hapur was quoted at Rs 957 per quintal. Compared to this, in the southern markets, like Bangalore and Chennai, the prices were in the range of Rs 1,100-Rs 1,200 per quintal. The difference between these two rates might be somewhat larger than what is attributable to transport charges plus the usual seller’s margin. Such differences, however, are not unprecedented. Moreover, according to the union food and agriculture minister’s own admission, prices of wheat in all major markets in the country had by then started declining in anticipation of the new arrivals.

Third, had the government been concerned with buffer stocks, it should have exercised caution while dealing with whatever was available in the central pool. In February when the decision was taken for the initial lot of imports from abroad, the government was aware that wheat stocks with the FCI was already abysmally low. At least then, the government could have prevented a further frittering away of the stocks. On the other hand, the FCI continued with the release of wheat under the open market sales scheme. It was reported that, between February and April, the FCI sold out seven lakh tonnes of wheat to private traders.

Finally, the argument that the government was compelled to go in for massive imports because of a fall in wheat output and that this therefore constrained the FCI in meeting its procurement target fixed for the season is not factually appealing. It is true that between February and March, which is the crucial crop-maturing period, inclement weather conditions prevailed in major wheat producing areas, particularly in the Malwa belt of Punjab, which affected the size of the harvest. However, in contrast to the 74-75 million tonnes anticipated on the eve of the harvest, reports are that the government now expects the crop size to be around 71 to 73 million tonnes. Considering that the wheat output has been stagnant at 72 million tonnes in the last two years, this is not a substantial change. Furthermore, wheat arrivals in most of the major primary markets have not been perceptibly lower than during the same period in the preceding season. The fact is that these arrivals were cornered in large quantities by flour-mill owners and multinational operators like Cargill India, Continental and ITC (with the consent of the government) at lower than the prevailing market price. As these operators are known to have contracted most of their purchases outside the registered mandis, it is difficult to estimate the exact extent of the arrivals, which are most likely to be larger than last year’s.

That apart, the experience in recent years shows that wheat procurement is not exceptionally sensitive to the volume of production. There were several instances in the past when the procurement and production of wheat have moved in opposite directions (Table 2). On the other hand, another argument is that wheat procurement is relatively more sensitive to prices. Estimates made by the Planning Commission have revealed that the elasticity of procurement with respect to the MSP is as high as 1.38 for wheat.2 In the changed circumstances, however, it is more plausible to believe that even a hike in MSP effected now with a bonus is unlikely to work (about which later).

The creation and maintenance of food stocks within economically manageable limits is not an easy task. During the initial years of state intervention in the market for foodgrains, the accumulation and depletion of stocks were more or less predictably associated with the size of the crop. A better harvest could bring in sizeable stocks in one season. If one or two bad harvests followed, these stocks vanished, throwing all calculations of buffer stocking into disarray. There has been a perceptible change in this pattern especially since the 1990s. As a result of normal monsoons occurring at a stretch for several years since the late 1980s, coupled with the practice of announcing a bonus, over and above the otherwise large hikes in MSP, and the inability of the private traders to undertake direct purchases due to heavy statutory local levies in major producing states, the pace of stock accumulation with the FCI was much faster. Therefore, despite occasional shortfalls, the stock of foodgrains with the public agencies have been above the requirements for domestic distribution. On an average, total cereal stocks, which accounted for 125 per cent of the public distribution in the 1980s, increased to 175 per cent in the 1990s and to 300 per cent in the first half of the present decade.

Policy ContradictionsPolicy ContradictionsPolicy ContradictionsPolicy ContradictionsPolicy Contradictions

Massive increases in food stocks created more problems than it solved. The subsequent steps initiated by the government would indicate that it was keen to get rid of these stocks somehow and, at the same time, prevent its recurrence in future. While taking actions with this end in view, the government repeatedly asserted, as quoted below, that these were not intended to dilute the food security measures, nor the price support policy per se: “though the government was committed to safeguarding the interests of the farming community, it was equally interested in economising on wastage, reducing storage cost, bringing down food credit and thereby the interest cost and above all cutting down the rising food subsidy bill”.3

Instead of resorting to productive utilisation, therefore, the government allowed the FCI to release surplus stocks to private exporters at, or below, the BPL issue prices under the nomenclature, “transport subsidy” to escape action by the WTO. Thus, exports of wheat from the country registered four and a half fold increase in the first five years of this decade to

Table 1: Wheat – Stocks with the FCITable 1: Wheat – Stocks with the FCITable 1: Wheat – Stocks with the FCITable 1: Wheat – Stocks with the FCITable 1: Wheat – Stocks with the FCI

(Million tonnes)

On the Opening Day of
April July October January
Stipulated 4.00 14.30 11.60 8.40
2000-01 13.19 27.76 26.85 25.04
2001-02 21.50 38.92 36.83 32.42
2002-03 26.04 41.07 35.64 28.83
2003-04 15.65 24.19 18.43 12.69
2004-05 6.93 19.15 14.22 8.93
2005-06 4.07 14.45 10.29 6.20
2006-07 1.80

Table 2 : Wheat – Output, Price SupportTable 2 : Wheat – Output, Price SupportTable 2 : Wheat – Output, Price SupportTable 2 : Wheat – Output, Price SupportTable 2 : Wheat – Output, Price Support
and Tradeand Tradeand Tradeand Tradeand Trade

Year MSP Output Procure-Import Export (Rs/qtl) ment (In million tonnes)

1998-99 510 66.34 12.65 1.81 1999-2000 550 71.29 14.14 1.37 2000-01 580 76.37 16.35 -1.11 2001-02 610 69.68 20.63 -2.65 2002-03 620 72.77 19.05 -3.68 2003-04 620 65.80 15.80 -4.07 2004-05 630 72.10 16.80 -1.71 2005-06 640 72.00 14.79 -na 2006-07* 700 -na 3.50 na

* The MSP includes the bonus of Rs 50 per quintal, and the exports include tenders.

Economic and Political Weekly May 27, 2006

132.2 lakh tonnes, as compared with 29.7 lakh tonnes reported in the corresponding period of the 1990s. According to the Commission for Agricultural Costs and Prices, in this process, the FCI incurred hefty losses, which could have been avoided at least in part, had these quantities been exported directly on government account.4 The wheat stocks, which had reached an all-time high of 411 lakh tonnes in July 2002 (against the stipulated level of 143 lakh tonnes), were thus liquidated in great hurry so that in five out of six quarters since the last year it has been lying below the stipulated level.

Another line of action that the government pursued was to prevent further accumulation of stocks, without diluting the price support to the rich farmers, by what is called the “decentralised” system of procurement. As many as 11 states are presently participating in this scheme. Some of them are chronically food deficit states like Kerala, whereas surplus states like Punjab, Haryana and Andhra Pradesh have refused to take the bait. Though this continues on very small scale even now, the “decentralised” procurement scheme has failed to bail out the government from its predicament. Therefore, as a last resort, it decided to invite private traders to procure foodgrains directly from the farmers at lower than the MSP prevailing in the season. The wheat industry and trade has been buying in the last few seasons, substantial quantities of foodgrains, mainly from outside the registered mandis, without paying the MSP as well as the local taxes. It is because of this that, irrespective of the size of the crop and the level of the MSP, the volume of procurement has been steadily declining. The wheat procurement to the central pool, which had increased to 20.6 million tonnes in 2001-02, declined steadily to 14.8 million tonnes in 2005-06 and, in all probability, may not cross 12 million tonnes in 2006-07 season.

The current rabi marketing season has opened with a clearly discernible difference. The stocks of wheat with the FCI having been almost wiped out, the private players noted that the government was considerably handicapped in controlling its prices through the usual open market sales route. They were also aware that, with the public distribution system almost defunct, people depended on private traders for their cereals. These were the sure signs that prices would go up in the latter part of the season and then they could make a killing. The major private players are reported to have purchased large quantities of wheat this time, not only from outside but also from within the registered mandis, paying the pre-bonus MSP and local taxes.

The above policy shifts, which enabled the FCI to get rid of the existing buffer stocks and prevent further accumulation through support purchases, have occurred before the present government came to power. It would have been appropriate for the latter to reverse these measures and correct the distortions that existing policies have caused to the price support and food security policy. On the contrary, the government found it very convenient as a means to reduce the subsidy bill and permitted these to continue as in the past. While declaring the decision to import wheat, the government has stated that it is doing so because in its perception “the food security is of supreme importance and we have to protect the consumers”.5 This concern is of course unexceptionable. But there is difficulty to understand the rationale of the way the government acted:

(i) why should it go for imports from abroad to augment the supplies and stocks, and at the same time leave the domestic output for private traders to procure and export out of the country? (ii) what was the hurry in rushing for imports in the midst of the procurement season, instead of waiting for, say, up to close of the peak marketing season in June? and (iii) why has, this time, it decided to short-circuit the process without going to the Cabinet Committee on Economic Affairs, which is the competent authority for the approval of foodgrains imports?

These are not questions to be dismissed as puerile. We have a history of wheat imports guided more by political considerations than by food security concerns. The most prominent example is the PL-480 imports of wheat, contracted originally in 1955 for a period of five years but continued well into the “wheat revolution” of the 1960s and beyond. The agreement had to be terminated in 1971 after widespread public criticism against it. If politics will over-rule food security, the present wheat import programme need not necessarily end up here. In that case, the repercussions could be far-reaching. While commenting on the government’s decision to import wheat from abroad, M S Swaminathan, chairman, National Commission of Agriculture has stated that it is a “wake-up” call for the nation.6 To him, the decision to import wheat is the outcome of complacency that has implications for both food and national security. Swaminathan has cautioned the government to take adequate safeguards against dangerous plant diseases intruding into the country with the imported grain and destroying the wheat crop. The imported wheat containing stem rusts such as “UG99” is creating havoc to the crop in African countries.

The farmers, agitated against the decision to import wheat, can at least be consoled in that the government is not permitting the imported grain to enter the major producing regions, presumably heeding the above advice. It has decided, as noted at the outset, to supply the imported quantities only to southern, eastern and western regions. By any chance, if the imported wheat is diseasestricken, this decision would plug the possibility of its mixing with their crop and destroying it. However, if imports are going to continue in the coming years, there is still cause for worry. The consuming regions will depend up on imports. Where will they go to dispose of their surplus produce?

m

Email: raghavan_m2005@rediffmail.com

NotesNotesNotesNotesNotes

1 See, The Hindu, Bangalore, May 10, 2006. 2 Report of the Working Group on Public

Distribution System and Food Security for the

Tenth Five-Year Plan (2002-2007), Government

of India, Planning Commission, New Delhi,

November 2001. 3 Adopted from the Economic Survey 2003-04,

chapter 5. 4 Reports of the Commission for Agricultural

Costs and Prices for the Crops Grown during

2004-05 Season, Ministry of Agriculture,

Government of India, New Delhi, 2005. 5 See, The Economic Times, New Delhi, April 22,

2006. 6 See, The Press Trust of India, New Delhi, April

12, 2006.

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Economic and Political Weekly May 27, 2006

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