Indian monsoon (June to September) has ended with 5.6% deficit compared to long period average (LPA). It is only a notch lower than the normal rainfall, which is 96-104% of the LPA. Despite wide deviation in its temporal spread, especially in August, which was the driest since 1901, the area planted under paddy and sugarcane is higher by 1.9% and 7.64% respectively, compared to last year. But pulses area is significantly down by 4.2%, especially arhar (tur), by 4.9%. In the days to come, one will have to watch price inflation in tur, which was already raging at 32% in August. The only way out to tame tur price inflation seems a million tonne of imports from African countries and Myanmar.
In Delhi, as we brace for smoke coming from stubble burning of paddy fields during October-November, it is also time to plan for sowing of rabi crops. The ministry of agriculture and farmers welfare (MoA&FW) organised the Rabi Conference on September 26 under the leadership of Manoj Ahuja, secretary of MoA&FW. The secretary of the department of fertilisers and director-general of ICAR were also invited. They gave the assurance that there are ample fertilisers in the country to take care of the demand of rabi season. Since wheat is the main rabi crop and it is susceptible to heat wave in February/March, Himanshu Pathak, DG-ICAR, assured that they have released numerous heat-resistant varieties, which are likely to cover roughly 60% of wheat area, up from 45% last year. Overall, in the past nine years, India’s agri-research system released 2,200 varieties of different crops, out of which 1,800 are climate resilient. Going by these assurances, it seems rabi season may harvest another “record crop”.
It is against this backdrop I would like to lay down a few questions and suggestions so that MoA&FW can move from a highly “production-centric” approach to a “food systems” approach, a topic on which I delivered a key note address in the rabi conference.
Here are some of the questions to ponder for wheat in the last two years. Per MoA&FW, production of wheat in 2021-22 was 107 million tonnes (mt) and in 2022-23, it was 112.7mt. But the trade estimates for these two years are far lower, below 100 mt in 2021-22 and below 105mt in 2022-23. This huge gap in government and trade estimates creates inflationary market expectations.
We also know that in 2022, procurement of wheat plummeted to less than 19MT, a drop of more than 50% from previous year. As a result, retail prices of wheat came under pressure. The government put an export ban on wheat on May 13, 2022, also fearing that Russia-Ukraine war may escalate prices. Wheat inflation, that was less than 10% in May, climbed to 15.7% in August, when the government banned exports of wheat atta. The wheat inflation did not stop there. It kept going up and in December 2022, it climbed to 22% and further to 25% in January 2023.
The wholesale wheat prices in mandis were hovering around Rs 2,700/quintal, while the minimum support price (MSP) for the coming marketing season of wheat was Rs 2,125/quintal. The Food Corporation of India, fearing that it will not be able to procure enough for the public distribution system (PDS), started unloading its stocks at prices way below its economic cost. It was literally “dumping” to beat the market prices down to MSP. Offloading 3.4mt in February-March ensured it, and FCI was able to procure about 26mt of wheat. This success of FCI in procuring enough wheat for PDS by forcing market prices down to MSP cost the wheat farmers a loss of Rs 40,000 crore (for more details, see bit.ly/3F1WkHS). This is a transfer of resources from producers to consumers, a typical pro-consumer bias in the policy framework.
The question that I have is: when more than 800 milllion people are already getting free wheat or rice (5kg/person/month) under PDS, whom is the government trying to protect? The urban middle class at the cost of farmers? Is that a rational policy to incentivise farmers to produce more? Certainly not. This is what Ann Krueger, Maurice Schiff, and Alberto Valdes called “plundering of agriculture” in their classic work on Political Economy of Agricultural Prices (1992).
The story is not very different in case of rice, which faced export restrictions through a complete ban on non-basmati white rice exports and then export duties on parboiled rice, and minimum export prices on basmati rice. The whole effort has been to beat market prices down to MSP, even if it involves “dumping”. FCI’s economic cost of rice is around Rs 3,700/quintal, but it is selling rice at below Rs 3,000/quintal. If it was some other country dumping in India, the government would have taken the dispute to WTO. But what can farmers do when the FCI itself dumps its wheat and rice at way below their economic costs?
As we go further into the rabi season, not only we need better and accurate estimates of production but we also need to see what prices farmers get. At a time when technology can track each moving car, why can’t we monitor the progress of crops on weekly basis, if not daily? We need to upgrade our entire production estimation system from patwari-based to technology-based. It will help in settling crop insurance claims, and also give enough lead time to the government to import in time, if there is likely to be a shortfall.
Overall, my submission to MoA&FW is that we need better technology and better policies to ensure farmers get their due. Only then India can emerge as powerhouse in agriculture. Abrupt export bans/stocking limits are not the best way forward.
Ashok Gulati, distinguished professor, ICRIER. Views are personal