Granaries clocked record wheat stocks of 23 million tons (mt) at the end of a hectic 2008 procurement season. However, unplanned disposal and poor offtake led to carryover wheat stocks estimated to be 10 mt above the buffer requirement of 4 mt as on April 1, 2009. With the parliamentary elections set to coincide with a peak estimated bumper wheat harvest (78 mt), higher MSP and current deflationary economic conditions would leave the parastatals with no option of procuring anything less than the previous year. It leaves the government with no choice but to dispose of the excess 10 mt to make room for storage of the new arrivals and avoid losses arising out of over-stored grains.
What are the options before the government to make this transition smooth, without ruffling too many feathers at this sensitive time? Wheat exports, had they not been banned, could have provided for a much smoother passage for the excess stocks without affecting the domestic markets. Given the compulsions of the situation, even if the ban were to be removed, the news of India?s arrival as a seller and the amount of wheat put up for sale would send the global wheat prices reeling down. With such high price sensitivity of India?s decision, a minimum of 25% price fall in the international markets is possible. Taking into account the international prices and the domestic cost of procurement and storage, along with the shipping and other costs, it would entail at least Rs 1,890-4,450 crore as subsidies for exports to empty the granaries to welcome the new arrivals. This subsidy burden would have reduced marginally had political relations with Pakistan been better as the country, currently, is a net buyer in the international markets and would have created a win-win situation for both the countries. With the deteriorating fiscal conditions and the increasing burden on the exchequer to revive the demand in the economy, it would not be a wise option unless there are no alternatives.
What are the other alternatives? Building more capacity to store the new arrivals or storing the existing grains under more scientific conditions to increase their shelf life would only be temporary options which any long-term policy would not target, given our buffer stock requirements. However, it is time to divert a portion of wheat towards processing and production of processed/fortified wheat products to increase value addition and reduce wastage. Such value additions taken up in rural areas with appropriate technology would help boost rural incomes, besides increasing investment and employment in these areas. Such products could in turn be sold at lower costs compared with high-cost processed wheat products (pasta, noodles, and biscuits) which have so far been accessible to the middle and high income class. These, if fortified with essential nutrients, could be used in the government-sponsored nutrition programs targeting the vulnerable sections of the society. It would not only increase value additions, especially in the rural areas, but also promote consumption of value-added wheat products on a long-term basis.
With an estimated dip in domestic maize production, higher maize prices, and increasing consumption of livestock products, it would not be unwise to work with the feed industry to divert about 2-3 mt for conversion into livestock feed wherever wheat is substitutable for maize. Another option in the current scenario of over dependence on fossil fuels would be to develop technology for producing renewable fuels using flexi-feedstock, one of which can well be wheat. Experiments undertaken in Canada had already shown that production of ethanol from wheat as feedstock is ?technically feasible?. However, there is not a word on its ?economic viability?.
Though these may all be solutions to the current situation, on a longer term basis, it is time to focus on revamping the price support policy without compromising on its basic purpose of ?food security?, especially for the economically vulnerable sections of population, and reforming the value chain to reduce wastages and costs to make it win-win for both producers and consumers.
?The author is chief economist, MCX. These are his personal views