Why India's wheat policy needs a steady hand

India needs a policy framework to build and maintain adequate wheat reserves, regardless of carryover costs. Higher procurement prices could also incentivize farmers to fill government reserves

Snake and ladder is an exciting board game that is liked by young and old. A puzzle game with a lot of exhilarating moments makes it gripping. But I didn’t know that even the policy makers like it.

As the wheat harvest season begins, the Centre has asked the private trade to stay away from mandis. The reason being that it wants to procure as much wheat as possible. Besides the Food Corporation of India (FCI) which normally oversees procurement operations, the National Agricultural Cooperative Marketing Federation of India (Nafed) and the National Co-operative Consumers’ Federation of India (NCCF) have also been for the first time asked to procure wheat directly from farmers.

Among the 40-odd trading companies who have been asked to stay away includes Cargill India, Louis Dreyfus Company, ITC and Hindustan Unilever Ltd. News reports say even Railways have been directed not to accept any private sector indent for moving wheat.

The aggressive marketing is essentially to mop up every grain that comes to the mandis so as to bolster the plummeting wheat stocks. Against last year’s procurement of 26.2 million tonnes, the Government plans to buy at least 30 million tonnes this year, which can even go higher to 33 million tonnes. Since the wheat export ban imposed in 2022 is already in place, the additional quantity that the Centre aims to purchase is only to ensure wheat prices don’t go beyond control. That is why Nafed and NCCF have been brought in to stabilize prices through the sale of Bharat Atta. Trade has also been directed not to exceed stock limits.

The policy shift from a comfortable position when India claimed to be emerging as the food provider for the world, and that was just two years back in 2022, to a sudden desperation in 2024 to procure as much wheat as possible so as to strengthen domestic reserves, appears to be more like the board game of snake and ladder. Why I say so is because only two years back policy makers were excited at the possibility of an impressive export potential that domestic wheat surplus stocks provided only to realize later that the changing weather patterns can spoil the party. Incidentally, only a few months before, in Feb-Mar 2022, a severe heat wave had hit the standing wheat crop, reducing production by an estimated 5 million tonnes, and yet policy makers were jubilant at the export potential.

The excitement was so high that the Government had even planned to send emissaries to nine countries to market India as an export destination for wheat that the world could look up to. It was at that time I had warned that the exuberance being exhibited can be short-lived if the weather again plays truant. My argument was that India could be importing wheat the next year if it goes by the advice of the agribusiness giants, which were keen to export as much as 21 million tonnes. Wise sense prevailed, and India not only stopped wheat exports in May 2022, but also brought in a ban on its export. Subsequently exports of wheat products were also restricted.

Two years before that, in 2020 wheat harvesting season, the Centre had asked bulk buyers, FPOs, cooperatives, processors and big retailers to purchase wheat directly from farmers. It asked States to allow direct buying outside the mandis even overlooking licensing or registration requirements. The idea was that such purchases will help decongest mandi yards overflowing with wheat stocks.

Within the past four years, it only shows there is a visible switch in policy approach.

Despite all these measures, wheat stocks had fallen to 9.43 million tonnes at the beginning of March this year. This is the lowest inventory in the past 18 years.

It was in 2005-06 that the then UPA Government had allowed private trade to buy directly from wheat farmers. This had resulted in a wheat shortage that made it difficult for the government to procure enough stocks for public distribution. Private trade had gone in for extensive purchases from farmers and refused to divulge how much stocks they were holding. As a result, the government was forced to import 7.1 million tonnes in the next two years at prices that were almost double the procurement price within the country. That is why I have always said that India cannot ignore the lesson from the wheat debacle of 2005-06.

In a span of almost two decades, India has swung from a dominant position when it allowed the private trade to purchase wheat directly from farmers, and now to a critical situation when it wants private companies to stay away from buying wheat. Putting the jigsaw together, it is quite apparent that instead of policy swings what the country needs is a policy framework that builds adequate inventory. At the time when wheat stocks exceed the buffer limit, there is no need to panic over the carryover costs and be swayed by the prevalent economic thinking (which goes with what the private sector calls for) that wants to allow unbridled exports. Imagine if the country had bowed to agribusiness industry pressure that wanted to take advantage of the reduced global supplies arising from Russia-Ukraine war, the resulting shortfall to meet the national requirement could have led to food insecurity.

Even now, the US Department of Agriculture estimates that India will need to import at least 2 million tonnes this year.

The USDA projections are based on expected wheat production this year, and the available buffer stocks. Given the food ration requirements under the National Food Security Act provisions, and also the additional supplies of wheat to 81.35-crore beneficiaries under the PM Garib Kalyan Yojna, the buffer stocking norms must undergo a change that can ensure adequate availability of food stocks at any given time. We must steadily build a food reserve keeping the food security needs of the country at least for the next five years and not bow down to economic lobbying that shouts at the cost overruns from storing surpluses.

In fact, my suggestion is that instead of such ad hoc decisions – quite similar to playing snake and ladder – wheat procurement could have been easily increased by announcing a higher price. Alert policy makers could have announced before the code of conduct came into place that wheat farmers will be given a price of Rs 2,700 per quintal (as promised in Rajasthan and Madhya Pradesh a few months back at the time of state elections) against the procurement price of Rs 2,275 per quintal. Farmers would fill the grain reserves to the brim.

Every country, more so a country with the largest population must ensure food security at any cost. We should learn to sustain food surpluses than standing with a begging bowl at any time in future.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)