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Wheat Supply Crunch

Wheat crisis looming? Grim supply situation likely to hit Indian consumers

Print edition : Jun 17, 2022 T+T-

Wheat crisis looming? Grim supply situation likely to hit Indian consumers

Workers loading sacks of wheat from trucks to a freight train at Chawa Pail railway station in Khanna, Punjab. The lower quantum of crops reaching mandis has reduced employment opportunities for mandi workers and palledars (loaders and winnowers).

Workers loading sacks of wheat from trucks to a freight train at Chawa Pail railway station in Khanna, Punjab. The lower quantum of crops reaching mandis has reduced employment opportunities for mandi workers and palledars (loaders and winnowers). | Photo Credit: SAJJAD HUSSAIN/AFP

Given the grim situation surrounding wheat, the government is likely to further tighten the “targeting” of the public distribution system. Besides, the private market price of wheat is likely to rise. Both these factors are likely to have an adverse impact on consumers.

On May 14, India banned the export of wheat except where “letters of credit” have been issued or where counties have put in requests for supply of wheat “to meet their food security needs”. Despite the ban, there are strong indications that the country might still face a wheat crisis this year that is likely to span both production and distribution.

When it comes to production, wheat output by definition equals the product of the area under wheat cultivation and the yield of wheat. The initial government estimate of wheat production for the ongoing Rabi season was 111.32 million metric tonnes (MMT). This has now been revised to 105 MMT. Why?

Despite 2021-22 being a normal monsoon year, recurrent heat waves in March this year have led to a decline in the yield of many crops, especially wheat. During our fieldwork in a village in Punjab between March and April this year, we found that the yield of wheat in the village we surveyed had in 2021-22 decreased sharply, by 11 per cent to 25 per cent, from 20 to 22 quintals an acre in 2020-21. The excessive and unseasonal heat led to both early ripening and shrivelling of the wheat crop, thus reducing its yield.

Preliminary Crop Cutting Experiments (CCEs) conducted by the Punjab Agriculture Department also indicated a decline of 5-10 per cent in the yield of wheat. The experiment anticipated that the yield of wheat would decline further, which would be manifested during the final CCE results. The reasons for this anticipated decline include the thin initial sample besides possibly adverse district-level variations.

Area under wheat cultivation

As for the area under wheat cultivation, the weekly data report (of January 14, 2022) from the Ministry of Agriculture & Farmers’ Welfare shows two significant changes. First, the area under wheat cultivation declined by about 1.25 per cent from 34.07 million hectares in 2020-21 to 33.65 million hectares in 2021-22. This has been accompanied by a 24 per cent increase in the area under cultivation of rapeseed and mustard, from 7.3 million hectares in 2020-21 to 9.05 million hectares in 2021-22. Rapeseed cultivation has increased because of the recent rise in prices of imported oils. The Economic Survey of India 2020-21 indicated that the subgroup of “oils and fats” in the category “food and beverages” saw the largest share (30.9 per cent) in inflation from April to December 2021. The price of mustard and consequently of mustard oil also increased significantly in this period.

Given the grim situation surrounding wheat, the government is likely to further tighten the “targeting” of the public distribution system.
Given the grim situation surrounding wheat, the government is likely to further tighten the “targeting” of the public distribution system. | Photo Credit: SAJJAD HUSSAIN/AFP

It seems that many farmer households, in light of this price rise, have sought to cultivate mustard to meet their domestic requirements of oil. As a result, the area under cultivation of oilseeds, particularly mustard, has increased. Our survey also found that a majority of households also grew rapeseed for domestic consumption in the 2022 Rabi season. All this reduced the area under wheat cultivation in Punjab.

Distribution of wheat

Let us now look at distribution of wheat. The ongoing Russia-Ukraine crisis (both of which are significant exporters of wheat and oilseeds in the world market) has increased the private procurement of wheat in different parts of the country, possibly for export. In many parts of Punjab, Haryana, Rajasthan, and other States, private traders have been buying wheat at the farm-gate, paying the minimum support price (MSP) or slightly more. Some media reports have claimed that farmers have been hoarding wheat in anticipation of higher procurement prices, but this cannot hold true for the 86 per cent of farmers who have small and marginal holdings—they lack the economic wherewithal to hoard crops. Besides, they need to obtain inputs in a timely manner for the next sowing, which, given their straitened circumstances, requires them to sell their crop soon after harvesting. In our village survey, we found that even large farmers had sold their wheat crop to the Food Corporation of India (FCI) soon after harvest. Given that the majority of farmers seem to have sold their wheat output to either government or private traders soon after harvest, the recent arguments made by some writers that the export ban will affect farmers’ income negatively does not stand ground.

Some articles have also claimed that there has been an increase in farmers’ income because they have sold wheat above the MSP. This can be true only if their costs remained unchanged, but during the agricultural year of 2021-22, fertilizer prices increased (because of shortage). Further, the cost of harvesting and threshing also increased since the rents for the machines increased because of higher diesel prices. This disproportionately impacted small and marginal farmers. Any increase above the MSP was negated by these cost rises.

Given the fall in the output of wheat and the decline in profit margins because of higher input costs, one anticipates a sharp fall in the incomes of farming households, especially of small and marginal farmers. Added to this crisis is the reduced quantum of crops reaching mandis, which in turn has reduced employment opportunities for mandi workers and palledars (loaders and winnowers). Such jobs are a significant source of income for rural workers in Punjab, which has a relatively well-organised mandi system. These workers are paid between Rs.19 and Rs.24 for a quintal of wheat they handle at mandis. As it is, rural India saw a decline in employment because of the COVID-19 crisis, which increased the dependence on agriculture followed by a decline in rural wages. This will now be compounded by the rise in prices of foodgrains and oilseeds, which together spell grave consequences for food security.

Source: Food Corporation of India
Source: Food Corporation of India

Wheat and rice crops that are publicly procured are primarily used for distribution under various government schemes under the National Food Security Act (NFSA) and the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Despite this, according to the 2021 Global Hunger Index, India ranks 101 of 116 countries examined in this study because of the attenuation of the public distribution system in the name of “targeting”. Data from the FCI website points to three key factors in distribution and stock-holding. First, the FCI had a wheat stock in 2021-22 that was approximately 3.5 per cent higher than the required buffer stock of 7.46 MMT. Second, the actual distribution of foodgrains was about 8 per cent lower than the corresponding allocation under the NFSA in both 2020-21 and 2021-22. Third, a principal cause of reduced stock-holding of foodgrains has been because of open market sales rather than distribution under welfare schemes. The FCI seems to have sold wheat in the open market, which was then exported by private traders.

If we assume that the impact of annual population change on requirements of food distribution can be ignored, the country will require 36.51 MMT of wheat for various welfare schemes. Until April 28, 2022, the government has been able to procure about 15.69 MMT and anticipates that it will get approximately 19.5 MMT in the entire Rabi season. The government will thus have 38.5 MMT of wheat by the end of the Rabi procurement, which is merely 2 MMT more than what is required for various schemes in 2022-23. The government will thus not be able to maintain the required buffer stock of 7.46 MMT.

*Data for 2021-22 has been used, as there has not been much change in allotments in previous years for various schemes. The PMGKAY data for April to September 2022 is taken from FCI website.

Source: Food Corporation of India
*Data for 2021-22 has been used, as there has not been much change in allotments in previous years for various schemes. The PMGKAY data for April to September 2022 is taken from FCI website. Source: Food Corporation of India

Meanwhile, with the current shortfall in public procurement of wheat, the government has announced that it intends to distribute 5.5 MMT additional rice for the PMGKAY in place of wheat, but it has an export commitment of 4.3 MMT by July 2022, which will leave the country with a buffer stock of 2.7 MMT (well below the buffer stock norm).

Given the grim situation surrounding wheat, the government is likely to further tighten the “targeting” of the public distribution system. Besides, the private market price of wheat is likely to rise. Both these factors will have an adverse effect on consumers.

To avoid this predicament, the government must engage in an alternative set of policies. First, stock-holding limits of wheat and other foodgrains for private traders should be effectively administered. This will ensure that domestic food security is not compromised in the current year. Along with this, to secure the next harvest, the MSP must be raised adequately to compensate the farmer for higher input costs. This, however, will require a shift in the present neoliberal policy trajectory. Will the government make that shift?

Navpreet Kaur teaches economics at Janki Devi Memorial College, University of Delhi.