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The wheat puzzle

Food and Agriculture Minister Sharad Pawar has ruled out fresh wheat imports, citing the availability of enough stocks to meet domestic demand. There are however nagging questions over some aspects of the food policy with the shortfall in domestic production coinciding with the hardening of international prices. Specifically, the government’s earlier decision to import 790,000 tonnes came in for criticism on the ground that the contracted price — on average, $3 90 a tonne — was too high. At roughly Rs.1,500 a quintal, the rate is 75 per cent higher than the minimum support price (MSP) of Rs.850 offered to domestic farmers. For its part, the government has sought to justify its decision by pointing to the inadequacy of wheat stocks. Globally, wheat prices touched record levels, what with a sharp decline in production in countries such as Argentina and Brazil. Contributing to the trend was the diversion of land for biofuel production in the United States and Brazil and, possibly also India’s entry into the market as an importer. The Government of India’s move came in the context of rising inflation — attributed partly to a surge in food prices — and as a part of its strategy to moderate inflationary expectations from the supply side.

According to the Reserve Bank of India’s annual report, the good news is that wheat production this year at 74.9 million tonnes is 5.5 million tonnes more than last year. On the procurement front, however, the Food Corporation of India could not reach the target of 15 million tonnes, although the 11 million tonnes it procured is nearly two million tonnes higher than last year’s figure. Hence it is clear that wheat imports were resorted to for making up the shortfall in procurement. There are several reasons why farmers shun the government and prefer private trade. In general, there has been a greater awareness among them of the movements in agricultural prices across the country and even worldwide. There is a strong case for revamping the MSP system and dovetailing it with a coherent food pricing policy. Ideally the MSP should be announced at the start of the sowing season and delinked from the procurement price, which should be fixed at harvest time after taking into account cost escalation in key inputs. Although the MSP has been progressively raised over the years, often by way of bonus over the base price, experience shows the rate remained well below that offered by private trade. As the National Commission on Farmers headed by Dr. M. S. Swaminathan has suggested, special incentives should be given to farmers who sell their products to the public distribution system.

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