On 15 April, Union minister for commerce and industry Piyush Goyal announced that Egypt, the largest wheat-importing nation in the world, was looking to source 1 million tonnes of wheat from India this year. The Russian invasion of Ukraine has disrupted global supply chains—Russia is ranked third in the world in wheat production and Ukraine eighth. India is looking to cash in on the increased global demand, with trade delegations being dispatched to major wheat-importing countries.
In 2021-22, India saw record wheat exports of 6.6 million tonnes, a more than three-fold increase over 2020-21. But even as India seeks to increase exports further, there are both domestic and global risks on the horizon.
Supply-side disruptions, arising from higher fertilizer prices and inclement weather, can affect future domestic supply. Even though India is the second-largest wheat producer in the world, its production mostly fulfils domestic consumption and goes towards supporting buffer stocks to ensure food security.
On the international front, India risks falling afoul of World Trade Organization (WTO) norms, which restrict exports of heavily-subsidized Indian wheat. Wheat is the staple cereal for a majority of India’s population. Its production is heavily subsidized through the open-ended procurement at the minimum support price (MSP), and distribution through the public distribution system (PDS). However, India maintains stockpiles in excess of its domestic requirement, which it can potentially export. So far, it has been a minor exporter. In 2020, India ranked 36th in the world on wheat exports, comprising less than 0.1% of the total quantity exported.
Production Threat
India has seen record wheat production, in excess of 100 million tonnes for each of the last three years. Even in 2021-22, the ministry of agriculture has forecast a record production of 111 million tonnes (MT). Successive years of good monsoons, backed by record procurement and surplus availability of farm labour, have incentivized bumper production through the pandemic years.
However, the favourable conditions are unlikely to persist. Wheat in India is sown between October and December, and harvested between February and May. The early onset of summer in the northern plains in March has affected the wheat crop, and the output is likely to be lower than the forecast. More clarity will emerge once harvesting and procurement of wheat gathers pace in May. Some analysts have already called for India to beef up its stockpiles in anticipation of a future shortfall in production.
Buffer Lows
The Indian government procures foodgrains with the twin objective of providing a floor price to farmers (in the form of MSP) and distributing subsidized foodgrains to about 920 million people through the PDS. As part of this exercise, the Food Corporation of India (FCI) maintains a central pool of foodgrains sufficient to meet the operational requirement and exigencies at any point of time.
Stocking norms for wheat are determined for each quarter, tailored to the wheat procurement cycle. The current norms are 7.46 MT as on 1 April, 27.58 MT on 1 July, 20.52 MT on 1 October and 13.8 MT on 1 January. Wheat stocks in the central pool have far exceeded the required norms over the past two years, but are currently at the lowest level since April 2019. This is due to a combination of greater disbursement for welfare schemes, as a result of the pandemic, and lower procurement.
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Export dynamics
Exports are a viable way to manage burgeoning wheat stocks, which the FCI normally struggles to maintain. However, this has led to two concerns. First, increasing exports might imperil domestic availability. As on 1 April, the FCI held 18.9 MT as buffer, which is over 2.5 times the stocking norms. This may change if procurement falls.
Second, India might renege on its agreement with the WTO, which mandates crop subsidies be restricted to 10% of input price. In January, US senators asked the WTO to act against India, since they consider the MSP an implicit subsidy (exceeding 10%), which encourages overproduction. Increased global demand means that market prices are higher than the MSP of ？2,015 per quintal, incentivizing farmers to sell in the private market. Consequently, procurement is expected to fall, and perhaps test food security in the coming months.
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Topics plain-facts