Food Procurement and Distribution – PDS & NFSA, Shanta Kumar Committee, FCI restructuring, Buffer stock, etc.

The message from the government’s wheat export ban

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Challenges facing wheat economy in India

Context

The ban on the export of wheat was not unexpected. The rather ambivalent approach to agriculture comes out clearly with this move.

Understanding how this ban has come about

  • We are not comfortable with market forces operating in agriculture.
  • Nor are we quite sure whether we want the farmer to get a better price or the consumer to pay less.
  • Governments spend a lot of money in the form of subsidies to ensure farmers are enthused to produce more wheat.
  • The Centre keeps increasing the MSP for this purpose and states often pay a bonus for procurement.
  • There are political reasons too as the farmer lobby needs to be placated.
  •  There are political reasons too as the farmer lobby needs to be placated.
  • We have been taking credit for the production of wheat and every year we set a new record.
  • This year, the Ministry announced that wheat production will touch a record of 111 million tonnes, which has recently been revised downwards.
  • With the war, conditions have changed. Russia and Ukraine are large producers of wheat and their supply to world markets has been cut off due to sanctions and supply chain disruptions.
  • With supplies interrupted, there is an opportunity for other surplus nations to step in.
  • But the disruption has caused world prices to rise significantly.

Opportunity for India

  • The World Bank data indicates that the price of US (soft red winter) wheat has gone up from $328/tonne in December to $672/tonne while US (hard red winter) wheat is up from $377 to $496/tonne.
  • Countries that produce abundant wheat now have a chance to leverage this opportunity to export.
  • However, in case of India it does appear that production will be lower than expected.
  • Low wheat stock: The government has also not been able to procure wheat as farmers are no longer selling at MSP (which is at Rs 2,015/quintal) as they are getting higher prices in mandis.
  • As of May 10, procurement was just 18 million tonnes against 43 million tonnes last year.
  • This is a significant fall.
  • But stocks with the Centre and other state agencies are 30.3 million tonnes, way above the buffer norms of 27.6 million tonnes.
  • The ban on wheat exports is because of this.

Two constraints on the wheat economy

  • In 2007 and again in 2021, the government banned futures trading in wheat on grounds that it led to speculative pressure on prices even though the quantity traded and the open interest were minuscule.
  • At that time, it was a decline in expected output which triggered this action.
  • It does look like the wheat economy will continue to operate within two constraints that have become barriers to commercialisation.
  • MSP and government procurement: The first is MSP and government procurement, which feeds into the public distribution system.
  • Arhatiya system: The second is the arhatiya system of trading where middlemen have come in the way of any reform.

Suggestions

  • Abolish MSP and procurement system: The MSP and procurement system needs to be dismantled.
  • Cash transfers: As the government has successfully expanded both the Aadhaar and Jan Dhan programmes, there should be simple cash transfers to beneficiaries.
  • Buffer stocks can be held to ease distress during a crisis, but government involvement should stop there.
  • Procuring unlimited quantities of wheat and keeping huge stocks has distorted the wheat matrix.
  • The mandi system too needs to be revisited and alternatives have to be made available so that farmers can choose the point of sale.

Conclusion

We have been talking about being a part of global supply chains to augment value addition and accelerate growth. But when it comes to agriculture it is a blow-hot blow-cold approach. This not only affects our credibility but also sends confusing signals to producers as to what is the best way out for them.

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