Wheat crisis In India

May 19, 2022

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In Context

Recently, India banned wheat exports with immediate effect as part of measures to control rising domestic prices.

Previous crisis

Procurement in 2006-07 (April-March) at 9.23 MMT was far below the requirement.
The buffer stocks were drawn down by 2 MMT, a cardinal error in food management.
The stock position at the end of a poor procurement season had put the government in a tight spot.
What led to this situation?
- The central pool had been carrying large stocks and there was wide criticism.
  - The government had, after due consideration, decided to liquidate some stocks with the FCI for export.
- The drawdown on public stocks without reviewing the production and stock position every quarter was ill-planned.
- Not estimating the impact of climate change (high temperatures) on production grain formation and grain size/weight turned out to be critical.
- No official data existed on India’s privately-held stocks of grains.
  - The government depended on only production and public stock data to make policy decisions, ignoring the importance of private stocks in the market.

Present Situation

India is the second-largest producer of wheat in the world, with China being the top producer and Russia the third-largest.
After five straight years of a bumper wheat output, India has had to revise downwards its estimated production.
- The revised crop size is reported as 102 mmt.

Why has wheat production dwindled?

Unprecedented heat waves across the north, west and central parts of the country have caused substantial loss to the yield this year.
- The “early summer” in states like Punjab, Haryana and Uttar Pradesh has also affected crop yields.
Lower output coupled with strong export demand then pushed local prices higher, often above the government’s fixed procurement price.
- That prompted farmers to sell wheat privately instead of to the state, whose purchases to run welfare schemes slumped due to tight supplies.

Challenges faced by

World
- Russia and Ukraine jointly account for about 30% of global wheat exports.
- Ukraine’s exports are severely hampered because the war has forced it to close its ports, while Russia’s exports have been hit by Western sanctions.
  - Asian importers are likely to be in deep trouble.
  - India was the Ukraine/Russia alternative, especially for feed wheat.
- India’s ban could drive global prices to new peaks given already tight supply, hitting poor consumers in Asia and Africa particularly hard.
- Agriculture ministers from the G7 industrialised nations immediately condemned India’s decision

The government wheat procurement has dipped, concerns are being raised about the stability of prices in the country and the availability of grain for internal consumption.
Farmers across north Indian states are facing a shortage of dry fodder due to the wheat crisis.

Way Ahead

Set up systems to get reliable and timely estimates of crops.
The National Crop Forecasting system including “FASAL soft” will have to be reset.
The much-hyped Drone-Artificial Intelligence- Blockchain technologies should be deployed to :
- Prepare a correct estimate of the crop well in time, for the government to plan and act ahead of any crisis.
Reliable price data has always been a missing link in policy planning.
- Mandatory reporting of price (not just the APMC price data) of all large (limits can be defined) transactions are a must.
The government should be aware of the quantum of private stocks, preferably in anonymised, aggregated formats.
- This needs legal backing. A provision to mandate the submission of anonymised stock data from all warehouses should be put in place.
A robust system (drones, satellites, ground data) to monitor weather conditions like temperature, moisture stress, etc needs to be put in place immediately with a focus on key crops and major growing regions.
The government has to ensure that the market price for the domestic consumer is not determined by private players .