More wheat in private hands

The decision to import wheat reflects the government's failure to procure enough wheat after the last harvest.

IMPORTING grain is always an emotive issue. In India it brings to memory the humiliating terms under which the country imported wheat from the United States 40 years ago. Moreover, grain imports are seen as going against the interest of Indian farmers.

The government's decision to import wheat must be seen in terms of what it has or has not done to ensure food security. The balance sheet of the government's actions on this front would seem to indicate that the decision to import 3.5 million tonnes of wheat is like trying to lock the stable after the horses have bolted. The criticism against the government is that its failure to procure wheat has allowed private trade to make unprecedented purchases in the major wheat-growing areas in northern India.

Reports from Punjab, Haryana and Madhya Pradesh indicate that the Food Corporation of India (FCI) and State government agencies have stepped back from procurement operations and large private and multinational corporations, among them Cargill (the biggest global grain trader), Continental, Reliance, ITC and Hindustan Lever, have bought significant quantities of wheat. There have also been reports that the Australian Wheat Board made purchases. In Khanna (Punjab), which has the counttry's largest grain mandi, farmers reportedly sold wheat directly to the food-processing conglomerates. The government's failure to procure grain means that it failed to arrest the decline in public stocks, which dwindled dramatically during the past year.

Union Minister for Agriculture Sharad Pawar defended his decision to import 3.5 million tonnes of wheat. He said the entry of private trade benefited farmers because they got a better price and the imported wheat would help build a buffer stock. He said there would be no further import of wheat.

In February, well before the rabi harvest, the major wheat-growing season, the government decided to import five lakh tonnes of wheat. This was ostensibly to cater to the needs of the southern States, where wheat is not the major cereal for consumption. In April, even as the harvest was on, the government decided to import an additional three million tonnes of wheat.

Well before these developments, there were indications that the stocks with the government were running dangerously low. On April 1, the FCI had a wheat stock of 1.8 million tonnes against a buffer stock norm of four million tonnes prescribed for that date. On January 1, the FCI held 6.2 million tonnes of wheat against the prescribed 8.4 million tonnes, a shortfall of about 25 per cent. Things were not as bad last July when the government held 14.45 million tonnes, marginally above the prescribed 14.3 million tonnes.

How did the situation come to such a pass, especially when wheat production is likely to be 71-73 million tonnes in the current year, marginally above last year's output?

Over the years there has been pressure on the government to liberalise "marketing operations" in agriculture. Shorn of sophistry, the primary demand has been on allowing private trade a free hand. Of course, private trade realised that it could not have a free run without the withdrawal of the public procurement agencies. In the last few years Indian wheat output has remained more or less stagnant, at 70-72 million tonnes, falling from a peak level of 76 million tonnes in 2000-01. However, the government has been procuring a falling proportion of the output (see chart). Between 2001-02 and 2005-06 there was a 10 percentage-point decline in procurement relative to the Indian wheat crop.

Even as the current crisis was brewing, between February and April the FCI sold seven lakh tonnes of wheat in "open market operations", essentially sales to private trade. In effect, it would appear that the government worsened the problem.

In a recent interview to a television channel, M.S. Swaminathan, the eminent agricultural scientist who also chairs the National Commission on Farmers, said that private traders, by paying a little more than the government-stipulated support price, mopped up the produce from farmers. In Uttar Pradesh, for instance, government agencies procured only 39,000 tonnes of wheat, instead of the 2.5 million tonnes they were supposed to purchase from farmers. He suggested that a "code of ethics" be laid down for private trade dealing in food crops so that they did not take undue advantage.

Two months ago, Swaminathan described the decision to import wheat as a "wake-up call". He told Frontline that the government ought to pay more if necessary, to procure more because it was a matter of food security. The government, he said, had a "fundamental obligation to maintain an adequate [foodgrain] reserve and cannot take any chances in this matter. In a predominantly agricultural country like India, food security should primarily come from home-grown food."

Swaminathan advocates a flexible Minimum Support Price (MSP) mechanism "so that the government is able to procure what it requires" in order to further its responsibility of providing food security.

Swaminathan believes that the government, in order to meet its commitment to maintain the Public Distribution System (PDS), and in order to keep basic foodgrain prices at an affordable level, must occupy the "commanding heights of a food security management system, which needs to be established quickly".

He points out that this can be achieved only if it has enough grain stocks. "The government must do whatever it takes to reach those commanding heights," he said.

The government's critics have contested the argument that the entry of private trade has benefited farmers. First, as Swaminathan has pointed out, a large section of the rural work force is a net buyer of foodgrains. He told Frontline that the "distinction between producers and consumers" was a fallacious one because in India "the largest segment of consumers are also producers". About 65 crore out of the 110 crore people in the country are farmers, and a significant proportion of them are marginal and small farmers. Moreover, 10-15 crores are landless agricultural workers. These sections are at significant risk if grain prices escalate. The lack of adequate stocks with the government significantly increases the risk. Private trade may have paid more than the Rs.700-a-quintal MSP announced by the government, but that is still far lower than the price paid for the imported wheat (reported to be about Rs.800 a quintal).

The consequences are grim not just for the rural workforce. Since foodgrains are a basic wage good, they imply an increase in the cost of living of the industrial working class too. M. Raghavan, who teaches at the K.M.C.T. School of Business in Kozhikode and who has researched foodgrain procurement policy in India, told Frontline that the recent developments were "only the culmination of a process that was initiated by the government in 1997 when the Targeted Public Distribution System was launched". He said this was part of a "comprehensive proposal given by the World Bank, which included targeting the PDS, closing down the FCI, and giving larger space for private players in grain trade".

If government stocks are not replenished fairly quickly, the risk could escalate sharply for several reasons. First, expectations of an increase in prices play an important part in fuelling inflation. Moreover, private trade, which is by now fully aware that the government has inadequate stocks and has also procured less in the last harvest, would like to leverage its strength in the market. This is further aggravated by reports of a poor response from international traders to the government's tender for grain imports. Imports may take time. Meanwhile, private traders could make windfall profits.

In the context of the United Nations Food and Agriculture Organisation's latest forecast that the global output of wheat will decline by 20 million tonnes, Raghavan said it was possible that both India and China may need to import more wheat. He said: "Whenever India and China jointly or separately enter the world market for any of the essential commodities like grain or petrol, the suppliers withdraw for a while and sometimes collude for bidding up the tender. This is what we witness in the case of wheat this time."

Reports from Punjab, which normally provides more than half of all wheat that is procured by public agencies, indicate that private players have made significant inroads in buying the recently harvested rabi crop.

Lehmber Singh Taggar, general secretary of the Punjab unit of the All-India Kisan Sabha, told Frontline that in all only 80 lakh tonnes of wheat had been procured in the registered official markets in the State by private traders and government agencies. This is at least 12 lakh tonnes lesser than the levels in 2004-05. He estimates that about 15 per cent of the entire procurement would have been by private traders. However, he points out that reports from his organisation indicate that a large portion of the output may have been procured by private trade outside the official markets.

He explains: "About 30-35 years ago, before the advent of the public procurement policy, which resulted in the government becoming the major buyer of foodgrain surpluses in Punjab, private traders used to buy grain from peasants but asked them to keep it with themselves. The farmers, who needed money desperately, would sell grain cheap to these traders. The traders would collect the grain when prices increased, making a killing. They could do this without having to manage the inventory. This is exactly what seems to have happened in Punjab this year."

Lehmber Singh said the MSP mechanism, which ensured remunerative prices to peasants, the public procurement of foodgrains, and the PDS were the cornerstones of the food security system in India. These have been "dismantled systematically". "Thirty years ago we fought a bitter battle to get these in place. Now they are being destroyed. The wheat imports have to be placed in this context if one is to comprehend what is happening in the countryside," he said.