scorecardresearch
Tuesday, March 26, 2024
Support Our Journalism
HomeOpinionIndia's sweet spot in hoarding wheat looks shaky. Ukraine war means new...

India’s sweet spot in hoarding wheat looks shaky. Ukraine war means new concerns for Modi govt

Rising wholesale prices are signs that traders are estimating a lower crop size for wheat and buoyant exports. It can worsen with Indonesia's ban on palm oil.

Follow Us :
Text Size:

In early March this year, memes on wheat surfaced on social media. Women, with their jaws dropped, stared at a wheat farmer about to get rich. Usual sexism and elitism. But it was unusual because it centred around a grain that the world consumes in ginormous volumes every day without paying any attention to it. However, this is payback time for consumers who enjoyed years of cheap food. Wheat trade heated up with Russia’s invasion of Ukraine and international prices soared to new highs.

During this time, India was in a sweet spot. Was. The Ministry of Agriculture and Farmers Welfare estimated a record 111 million tonnes harvest of wheat in FY22. The estimate was released on 16 February, before the weather turned hot in March. The heatwave is now threatening to chip off anywhere between 10 to 15 per cent of the harvest due to shrivelling of the grains leading to lower yields. Production is also likely to be lower due to a shift in acreage from wheat to mustard. The food ministry, however, says the loss is negligible.

Are lower yields a cause of concern? It would not matter in a normal year. But higher global prices made Indian wheat competitive. The gap opened by Russia and Ukraine, which accounts for over a quarter of global wheat exports, was waiting to be filled up. The world turned to India, the second-largest producer of wheat after China. Interestingly, China, unlike India aspiring to ‘feed the world’, has been on a stocking spree. It’s not selling but hoarding wheat and a host of other crops since last year.

India is currently sitting over a staggering 19 million tonnes of wheat stock in addition to the current harvest. Exports are free and higher global prices have translated into a long- awaited premium for producers. Indian farmers are receiving anywhere between Rs 100 to 400 per quintal more than the Narendra Modi government-ordained Minimum Support Price or MSP. But many are also holding on to their harvest, expecting prices to move higher up to Rs 2,700 per quintal, a 25 per cent premium over MSP. Some traders are expecting prices to cross Rs 3,000.


Also read: Why India shouldn’t get carried away by wheat, rice export bonanza due to Ukraine war


Status of wheat at home

Trade is bullish. The market is tight. The result is climbing wholesale prices, an indicator that traders are estimating a lower crop size coupled with buoyant exports. Government purchase for its subsidised food security programme is likely to fall short of the target. Estimates range between 25 to 35 million tonnes of State purchase against a target of 43 million tonnes.

The sole concern is wheat availability for domestic consumption and its impact on prices. Wholesale wheat prices shot up by 14 per cent year-on-year in March 2022, fuelled by higher exports. By what extent prices will climb further depends on two factors: an accurate assessment of how much wheat is lost to heat and fertiliser shortages of last year, and the volume India exports through the year. There is no clarity yet on either.

But there are signals. A few tenant farmers have taken their own lives due to sharply lower-than-expected wheat yields in Punjab; farmer organisations in the state are now demanding compensation for production losses.

Private trade is mopping up good quality wheat from whichever state it is available. According to an industry insider, a trading company has booked 1,100 freight trains to transport wheat out of Madhya Pradesh. At 2,500 tons per train, that’s about 2.75 million tons of wheat, higher than what the Central government has procured from the state so far. And this is just one trading house purchasing in one state. In addition, farmers want to sell poor-quality shrivelled grains to government agencies while either storing or selling better-quality produce to private traders.

A fair assessment, at this point, is clouded by a lack of information on export contracts. For instance, the Central government comes to know only when the grain leaves the port, not beforehand. “If India ends up exporting 21 million tons of wheat (in 2022-23) as one company has said publicly, retail prices will shoot up. The real pain might be felt in 2023 as India runs down its stocks and global supplies continue to remain tight. It is possible India may have to import wheat next year,” said a senior official at an international commodity trading firm.

Ukraine, for instance, has so far planted only a fifth of its spring area due to the ongoing war. Besides, soaring energy and fertiliser prices will continue to put global food supplies at risk.

In an interview with The Economic Times, ITC, the largest wheat exporter and a business conglomerate, said that India is on course to export 21 million tonnes of wheat in FY 2022-23, about a fifth of its annual wheat harvest and thrice the volume of exports of the previous year. The Ministry of Commerce expects exports between 10 to 15 million tonnes.


Also read: Why Indians have to resign to the fact that food prices will stay high this year


Cereal inflation

A lower crop size and large volume of exports could make cereal price inflation, which, so far, has stayed benign, a cause of concern for both the Union government and India’s central bank, the Reserve Bank of India. Rising costs of fuel and fertilisers will add to these price pressures and demand from farmers for a higher MSP next season.

The upside risks to cereal inflation will come on top of already high cooking oil prices, which are likely to soar following an export ban by the world’s largest producer of palm oil—Indonesia. This is bound to affect the nutritional intake of poor households. About 800 million families in India depend on the food subsidy program, but the monthly allocation often falls short of requirements, forcing families to depend on purchases at market prices. It also remains to be seen if the Narendra Modi government will continue with the Pradhanmantri Garib Kalyan Yojana, its free foodgrains distribution scheme, which is on till September.

In reality, the wheat situation may not turn acute. Rising domestic prices of wheat and a procurement shortfall may prompt the government to resort to open market sales from its own stocks, bring in export controls, or impose stock limits on traders, cutting short its hopes of feeding the world. Any of these actions will indicate lower-than-expected availability of wheat for domestic consumption. The spotlight is unlikely to move away from wheat, and the internet will continue to amuse bread eaters with newer memes.

Sayantan Bera is a Delhi based journalist writing on food, farming and rural India. Views are personal.

(Edited by Humra Laeeq)

Subscribe to our channels on YouTube, Telegram & WhatsApp

Support Our Journalism

India needs fair, non-hyphenated and questioning journalism, packed with on-ground reporting. ThePrint – with exceptional reporters, columnists and editors – is doing just that.

Sustaining this needs support from wonderful readers like you.

Whether you live in India or overseas, you can take a paid subscription by clicking here.

Support Our Journalism

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular