India’s decision to restrict wheat exports is disappointing but not a big surprise. Banning exports has been the government’s standard response to any shortage of agricultural commodities, depriving farmers of the benefits of global prices when these are high. Political economy favors the government to take tough measures to protect consumers – more and more vocal than producers – even if these measures go against the grain of economic meaning.
The government has banned new wheat export contracts by the private sector, leaving it still open for the government to export wheat through a government-to-government channel. India’s good neighbor depends on regular exports of wheat to Bangladesh and maintaining humanitarian aid to Afghanistan.
Why is there a shortage of wheat? There is no absolute deficiency. Wheat production this year was expected to be a record 111 million tonnes, but recurrent cycles of dry and hot weather since March have shrunk the growing kernels of wheat in most wheat-growing regions, except in Madhya Pradesh, where the crop Harvesting is by mid-March. As a result, the current wheat production is estimated at 97 million tonnes. Not that it’s a particularly pathetic production, especially since Indians don’t actually feed grain to animals to eat their meat later. However, the government has not been as successful in the procurement of wheat this year as before.
This is due to a massive increase of up to 45% in global wheat prices, as supplies from Russia, the largest exporter of wheat, and Ukraine, the fifth largest exporter, have failed this year because of the war. Private exporters of wheat are offering farmers a price much higher than the MSP at which the government procures their requirement, 2,015 per quintal.
Nevertheless, the government expects to procure 18.5 million tonnes. With an opening stock of 19 million tonnes accumulated from purchases in previous years, the government should order 37.5 million tonnes. The buffer stocking norm for April 1 is 7.5 million tonnes. This leaves the government with 30 million tonnes, which is enough to meet the needs of the public distribution system and regular welfare measures. However, pandemic relief through the Pradhan Mantri Garib Kalyan Yojana, under which 800 million people are entitled to 5 kg of rice/wheat and 1 kg of pulses per person per person, in addition to their regular supply under the Public Distribution System. The month for free, has seen considerable additional offtake of wheat and rice. Therefore, the scheme would require cutting the allocation unless the government wants to increase its purchases at a higher price or tell the potential buyer that as long as it is rice, it is welcome to the grain of his choice. Is.
Against the buffer stocking norm of 13.6 million tonnes of rice for April 1, the Food Corporation of India had 33.3 million tonnes of rice and 26.6 million tonnes of paddy (after milling, this would yield around 19 million tonnes of rice) as of April 1. May.
Does it make sense to ban food exports when its politically sensitive price increases globally and could trigger domestic shortages? As a desperate measure, yes, it does. Prices of not only wheat flour but breads and biscuits are at high risk, especially with a shortage of edible oils, after the shutdown of sunflower seed/oil supplies from Ukraine, a major supplier, and exports on palm oil. Ban Indonesia. Baked goods are made from wheat, edible oil and energy. The prices of all three things have risen sharply. So why not ban the export of wheat and at least fix a price?
As a strategic response, there is no point in banning the export of agricultural commodities. The market price at a premium to the MSP is a development that can be fully desired. This will allow the government to move away from open grain procurement and create a purchase price separate from the MSP. Such a strategy works best when the futures and options market for wheat and rice are working. But futures and options in cereals and many other commodities have been banned.
It is conceivable that the government could procure its minimum stocking norm, while contracting supply in the futures market, competing with private trade to secure enough grain to meet its welfare needs, and may demand delivery at destinations distributed in different parts of the States. This will allow the private sector to efficiently store and transport food stocks across the country so as to reduce the expenditure of Food Corporation of India on similar operations and spoilage and theft. In addition, allowing the market to function in agricultural commodities allows farmers to cultivate crops in short supply, diversifying away from grains.
But the enthusiasm the government has shown in pushing its agricultural laws through the legislature does not appear to seize the opportunity presented by global development to bring India’s Agriculture Act closer to it, instead primarily to be dependent on subsidies.