WITH the current year also expected to result in a bumper wheat harvest, India is gearing up to tackle the problems caused by such record production.

Last week the government decided to allow private firms to export an additional five million tonnes of wheat from state-owned warehouses.

But as it happens with many of the government’s decisions relating to agricultural policies, the moves are ham-handed, delayed and cause more problems than resolving existing ones. The government pays high minimum support price to farmers in a few affluent states, procures more foodgrains than is needed and triggers off a price spiral as producers do not sell wheat to private trade.

And with over-flowing granaries and criminal waste of cereals, the government has to tackle the problem of managing such foodgrain. Finally, often when it decides to export grains, global prices, by that time, would have plunged, defeating the very purpose of selling them in overseas markets.

Last year India suffered because of such muddled decision-making by the government. But the authorities do not appear to have learnt a lesson. This year too will see bumper grain harvests, record procurement and overflowing granaries.

Wheat production this year is expected to add up to 92.3 million tonnes, slightly lower than last year’s record production of 94.9 million tonnes. But in a move defying all logic, the government has decided to procure 44 million tones of the crop in the new year, as against 38.1 million tonnes last year. This at a time when the government already holds about 30.8 million tonnes of wheat (and an equally large quantity of rice) in the granaries of state-owned corporations, almost three times the minimum norms.

A group of ministers last week decided to allow the export of an additional five million tonnes of wheat, but traders and exporters will have to sell only wheat from the 2011-12 harvest, said K.V. Thomas, the food minister. This is being done to ensure additional space for the new harvest expected from next month.

According to the minister, the floor price for bidders would be Rs14,800 (about $270) a tonne plus taxes. But the government is resorting to exports at a time there’s a glut in wheat supplies globally and prices have come down significantly. Like India, which is the second-largest wheat producer in the world, other major producers including Australia, Argentina and the US are expecting record harvests this year. The Food and Agriculture Organisation has predicted global wheat production would go up by 4.3 per cent to 690 million tonnes this year.Many traders are wary of taking up the proposal, as they fear that the final cost would work out to nearly $315 a tonne, at a time when wheat is available at around $260. Recent Indian exports to the Middle East and Africa are also happening at rates of around $300 a tonne.

Last year, the government allowed state-owned agencies to export 4.5 million tonnes of wheat and about half the quantity has already been sold in the international markets at prices ranging from $295 to $330 a tonne.

Consequently, the price of wheat has started falling even before India’s latest decision to allow an additional five million tonnes for export.

***** SO far in the current fiscal, India has already exported more than four million tonnes of wheat, according to Thomas. About half of this had been stored in government warehouses, which however, continue to overflow with foodgrains. In fiscal 2011, India had exported about 750,000 tonnes of wheat.

Last September, the government allowed wheat exports under the open general licence to tackle the problem of excess production. In June, it had started exports of wheat stocked in government warehouses.

But exporting wheat in a tough market, with declining prices, does not appear attractive to traders, especially when the necessary infrastructure is also not there. Transporting it by railway wagons to ports is also a formidable challenge, both because of a shortage of wagon capacity and the high costs of transportation.

Similarly, the infrastructure at many Indian ports is appalling, which leads to congestion in the ports. This causes further delays and erratic delivery schedules. President of All India Grains Exporters Association, D.P. Singh, feels that with congested ports it is difficult to ship wheat in large quantities.

Even state-owned agencies have not been able to fulfill their commitments and exports have slowed because of the poor railway and ports infrastructure. The situation can only worsen with additional quantities earmarked for exports now.

But the government is desperate to clear the wheat from its warehouses as the holding cost is crippling its finances. According to estimates, the government has wheat stocks of about Rs360 billion and total grains stock (including rice) of Rs600 billion.After the current harvest, food stockpiles are expected to soar to 100 million tonnes at its warehouses, and the cost of carrying such huge inventories will add up to Rs600 a billion a year.

***** NOT surprisingly, the government has got itself in such a mess because of its promise of high procurement prices to farmers, incentivising them to grow more wheat. In states such as Punjab, agricultural and environmental scientists have deplored the excessive focus on wheat, and the refusal of farmers to diversify to other crops.

Water levels in Punjab have plummeted to low levels and the quality of ground water too has deteriorated. But since the government offers a high minimum support price (MSP) and buys everything that they produce, farmers are only too eager to focus on wheat.And since the MSP is high, consumers also inevitably pay a high price for wheat. Private traders are starved for wheat, resulting in higher prices for the grain in the open market.

The government’s food subsidies bill is also soaring and is expected to worsen once the Food Security bill becomes law. Finance minister, P. Chidambaram, in his recent budget speech assured parliament that the law would be enacted soon.

The bill envisages supply of food grains at extremely low prices to nearly 70 per cent of the population, resulting in huge costs to the government. Food subsidies will exceed Rs1 trillion, adding to the fiscal deficit.

Unfortunately, there is virtually no room for saner policies relating to agriculture as all political parties in India are backing such moves: higher MSP for farmers, starving the open market of crops, and also introducing subsidies on the sale of food grains. The lack of prudent farm policies is, however, having a disastrous impact on the economy.