India began importing wheat earlier this year, the first time in six years, following a poor crop. Annual wheat consumption in the country is around 70 million, and the government was expecting a production of 74 million tonnes in financial year 2005-06. However, following poor rains in many wheat-growing regions, production was down at around 69 million tonnes.
In normal circumstances, the government would have relied on the huge stocks available in the warehouses of the Food Corporation of India (FCI), a state-controlled agency. In fact, the past few years had seen the warehouses overflowing with grains, and even though nearly a million tonnes are lost to rodents and other pests every year, the country did not feel the pinch.
About two years ago, when the United Progressive Alliance (UPA) government came to power, there were 19 million tonnes of wheat in the FCI warehouses. The following year saw the procurement of another 15 million tonnes of wheat, but there was huge outflow, both by way of exports and disbursal of subsidised wheat to the poor in 2005.
Lower wheat production resulted in a sharp fall in procurement, which fell to a little over nine million tonnes from the previous year’s figure of 15 million tonnes, and far lower than the targetted 16.2 million tonnes. By the beginning of this year, stocks had fallen precariously in FCI’s warehouses to below half the minimum buffer of four million tonnes, ringing alarm bells in the agriculture ministry.
With domestic price of wheat on the rise, the government in March decided to import wheat; it slashed import duty on wheat from 50 per cent (to five per cent for private traders and zero for government-controlled import agency, the State Trading Corporation), and began importing large quantities of the grain to boost the buffer stocks.
The government expects total imports of nearly six million tonnes, of which the state-owned agency would account for 5.5 million tonnes. Last week, the government scrapped import duty on wheat for even private traders. Federal Agriculture Minister Sharad Pawar said duty-free imports would be allowed till early next year.
BUT ever since India began importing wheat in March, global prices of the commodity have soared. Wheat prices have climbed by nearly 25 per cent this year, partly because of growing demand from India, and also following a significant fall in production in wheat growing countries including the US and Australia.
When the government decided to import wheat in March, international prices hovered around $190 a tonne (on a cost and freight basis). STC, the state-owned importer, has bought nearly four million tonnes of wheat, at rates ranging from $200 to $210 a tonne. But last week STC received eight bids for about 2.7 million tonnes of wheat (as against its requirement of 1.67 million tonnes) at prices ranging from $220 to a hefty $270 a tonne.
Traders attribute the hike in international prices to the government’s decision to scrap import duty even for private importers. Wheat futures in Chicago topped a six-week high. But at $220 a tonne, the imported wheat was dearer by at least $10 as compared to the price prevailing in Delhi.
Traders note that wheat prices have soared from $170 a tonne in March in India to over $225 at present in major trading centres. However, the October wheat futures on the National Commodities and Derivatives Exchange was around $210.
Agriculture Minister Pawar tried to soothe the markets by suggesting that this year’s good monsoon would result in better production, and hopefully lower the price of the commodity. The government would also encourage farmers to raise wheat in states like Maharashtra, Gujarat, West Bengal and Bihar, where it is not usually grown.
Consumer Affairs Secretary L. Mansingh notes that with wheat imports shooting sharply, (reaching nearly a million tonnes a month), the stock position will improve dramatically by the end of the year. The buffer stock is expected to double shortly.
Sharad Maru, president, Grain Rice and Oilseeds Merchants’ Association, points out that the move to scrap import duty would gradually result in a decline in wheat prices.
But other analysts fear that the spurt in imports would depress domestic prices of wheat, discouraging farmers from raising production. This would then lead to inevitable shortages next year, with a consequent fall in procurements, and continuing imports of wheat.
THIS year’s bountiful monsoon is, however, unlikely to boost agricultural production or dampen prices of food-grains and other agricultural commodities. Heavy rains in many states led to unprecedented floods, destroying standing crops and resulting in huge losses.
Though agriculture accounts for a mere 20 per cent of India’s gross domestic product (GDP), nearly 600 million people are dependant on it for their livelihood. While both the industrial and service sectors have been growing rapidly – at double digit rates – fuelling economic growth, the farm sector has performed miserably in recent years.
Thousands of farmers in states like Maharashtra, Andhra Pradesh, Karnataka and Kerala – all relatively well-off states – have committed suicide over the past one-year, unable to clear off huge debts. Over 200 farmers have taken their lives in Vidarbha, in Maharashtra, just a month after Prime Minister Manmohan Singh visited the backward region, and announced an $800 million relief package.
In August alone, over 100 cotton farmers committed suicide in Maharashtra, the highest in any given month in five years. According to Sharad Joshi, a farm leader in the state, every day three farmers take their lives in Maharashtra. Over 3,500 farmers have resorted to the drastic step in the four affected states over the last five years.
The agriculture sector grew by just 0.7 per cent in fiscal 2005 and 3.9 per cent in the financial year that ended in March. This year will see growth lag behind at under three per cent.
Heavy rains this year led to floods in states including Andhra Pradesh, Karnataka, Maharashtra, Gujarat, and Rajasthan, affecting a range of crops including sugar cane, pulses and oilseeds. But eastern states like West Bengal and Assam have suffered because of drought that has affected rice cultivation.
The price of most agricultural products — except sugar — have risen sharply across the country. Vegetable prices have soared by nearly 25 per cent, while the price of foodgrains and lentils have also gone up substantially. Lentil prices have doubled over the last 12 months.
The federal government has initiated measures to curb the stockpiling of foodgrains, warning traders not to hoard essential commodities.
But a dramatic improvement on the sugar front has emboldened the government to resume exports of the commodity from next month. India banned the export of sugar in July following a sharp escalation in prices. Exports had been banned till April next year.
However, there has been a major improvement on the price and supplies front, so the government has now decided to allow traders to export sugar from October, the start of the festive season in India, when domestic demand for the commodity soars. Traders are expected to export sugar to Pakistan and some European countries.