On April 15, Union Minister of Commerce and Industry Piyush Goyal announced that Egypt, the world’s largest wheat importer, is looking to source 1 million tonnes of wheat from India this year. The Russian invasion of Ukraine has disrupted global supply chains – Russia ranks third in the world in wheat production and Ukraine is eighth. India is trying to capitalize on increased global demand, sending business delegations to major wheat-importing countries.
In 2021-22, India saw a record wheat export of 6.6 million tonnes, which is three times more than in 2020-21. But as India looks to increase exports further, both domestic and global risks are on the horizon.
Supply side disruptions due to high fertilizer prices and inclement weather could impact future domestic supplies. Even though India is the world’s second largest producer of wheat, its production mostly meets domestic consumption and supports a buffer stock to ensure food security.
On the international front, India runs the risk of violating World Trade Organization (WTO) norms, which restrict heavily subsidized Indian wheat exports. Wheat is the staple cereal for most of the population of India. Its production is heavily subsidized through open procurement at Minimum Support Price (MSP) and distribution through Public Distribution System (PDS). However, India maintains reserves in excess of its domestic requirement, which it can potentially export. So far, it has been a modest exporter. In 2020, India was ranked 36th in the world in wheat exports, comprising less than 0.1% of the total export volume.
production hazard
In the last three years, India has witnessed record wheat production, which is more than 100 million tonnes. In 2021-22 too, the agriculture ministry has projected a record production of 111 million tonnes (MT). Successive years of good monsoons due to record procurement and surplus availability of agricultural workers have encouraged bumper production during the pandemic years.
However, favorable conditions are not likely to persist. Wheat in India is sown between October and December, and harvested between February and May. The onset of summer in the northern plains in March has affected the wheat crop, and production is likely to be lower than expected. More clarity will emerge once the wheat harvesting and procurement pick up in May. Some analysts have already asked India to increase its reserves anticipating a future shortfall in production.
buffer low
The Government of India procures food grains with the twin objective of providing minimum price (in the form of MSP) to farmers and subsidized food grains to about 920 million people through PDS. As part of this exercise, the Food Corporation of India (FCI) maintains a central pool of food grains sufficient to meet the operational requirement and exigencies at any point of time.
Wheat storage norms are prescribed for each quarter in line with the wheat procurement cycle. The current norms are 7.46 MT on 1 April, 27.58 MT on 1 July, 20.52 MT on 1 October and 13.8 MT on 1 January. Wheat stocks in the central pool have exceeded the required norms in the last two years, but are currently at their lowest level since April 2019. This is due to a combination of higher disbursements for welfare schemes as a result of the pandemic, and less procurement.
export dynamics
Exports are a viable way to manage rising wheat stocks, which the FCI generally struggles to maintain. However, this has raised two concerns. First, increasing exports may jeopardize domestic availability. As on April 1, the FCI had 18.9 MT of buffer, which is 2.5 times the stocking norms. This may change if there is a decline in purchases.
Second, India may withdraw from its agreement with the World Trade Organization, which limits crop subsidies to 10% of the input price. In January, US senators asked the World Trade Organization to take action against India, as they consider MSP an implicit subsidy (more than 10%), which encourages overproduction. Increase in global demand means market prices are higher than MSP 2,015 per quintal, encouraging farmers to sell in the private market. As a result, there is expected to be a decline in purchases, and perhaps a test of food safety in the coming months.
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