Zero-duty wheat imports: A recipe for disaster for farmers

Instead of succumbing to pressure from flour mills, the government should focus on cracking down on speculation and boosting domestic production. This can involve raising MSPs (Minimum Support Prices) for farmers, implementing the Swaminathan Commission's recommendations for guaranteed prices, and expanding the network of APMC mandis

The argument that wheat stocks are the lowest in 16 years and therefore the need to import wheat and that too at zero duty defies logic.

While I can see screaming headlines in some major newspapers, and even some editorial comments, that are aimed more at creating panic; it will be suicidal to allow imports by doing away with the prevailing import duty of 40 per cent. Wheat production this year is anticipated at 112-million tonnes, about 0.2 million tonnes more than last year. In fact, Punjab has recorded its highest wheat productivity this year.

As far as the government’s purchase for stocks is concerned, against the target of 37.2 million tonnes, more than 26.4 million tonnes of wheat has already been procured. To say that the stocks are at the lowest in 16 years I think is an argument that is being flashed to create a sense of panic. That was at a time when mainline economists were decrying over-production resulting in overflowing wheat stocks leading to wastage in storage. The argument at that time was that since the country was over-laden with food stocks, it is time to reduce MSP or keep it static so that procurement comes down.

The same argument is now coming in handy to create a panic situation thereby necessitating imports. Sometimes I wonder how conveniently policy makers use the same official data to build justification for any argument they want to make at any particular time. All efforts now are on allowing duty-free import of wheat. Moreover, I find it amusing to see some newspapers even going to the extent of warning that retail wheat prices will zoom by approximately Rs 3 per kg in the next fortnight or so if the government is unable to make open market releases at a subsidised price for the trade. Knowing that any mention of rising food prices will invite swift reaction, powerful lobbies are building pressure for doing away with import duties. This is not the first time when the growing demand is to remove import tariffs, but perhaps an appropriate time. This is how lobbies work.

Let’s therefore make an effort to put the entire wheat imbroglio in perspective to understand the reasons for concern or why so much panic is being created.

The US Department for Agriculture (USDA) has already predicted that India will need to import wheat this year to meet the domestic demand. The USDA may have its own justification but going by the production figures, India has harvested 112 million tonnes of wheat to cater to a domestic demand of 105 million tonnes. That means there is no mismatch in supply demand situation. That means there is no shortfall in domestic production.

Against 5.8 million tonne stock in 2007-08, the availability now stands at 7.5 million tonnes on April 1. Interestingly, as I said earlier, the comparison is wrong. In 2007-08, after a wheat debacle in 2005-06 when India allowed the trading companies to purchase wheat directly from farmers bypassing the procurement system in the APMC mandis, India had resorted to importing 7.1 million tonnes of wheat in the next two years at prices that were double what was paid to farmers here. In the next few years, procurement steadily went up. In 2021-22, an all-time high of 43.34 million tonnes was procured. These were the years when food stocks had touched 100 million tonnes and there was a cry to clamp down on MSP increase so as to reduce procurement. Otherwise, procurement is undertaken to meet the requirements under the public distribution system (PDS) and other welfare schemes.

But the next year, in 2022-23, in the wake of Russia-Ukraine war, aggressive purchase by private companies in expectation of a higher export brought down procurement to 18.2 million tonnes. That was the time when India claimed to be on the path to become a global annadata. Mercifully, the exports were subsequently banned. Later, stock limits were also imposed.

The prices still continued to climb. Obviously, since there was no shortfall in production last year, the question that arises is why the retail prices are increasing when an export ban has been in place from May 13, 2022 and stock limits has also been imposed. In the previous year, price rise in wheat and atta prices is being witnessed despite an open market release of 10 million tonnes at prices lower than what is being paid to farmers. It means the flour mills association have been getting subsidised wheat in open sale programme and yet prices continue to rise.

It clearly shows there is more to rising prices than what meets the eye. Is the industry holding on to stocks expecting to make a higher profit in the months to come? After all, the additional 10 million tonnes of open market release is not a small quantity to stabilise prices.

Meanwhile, against the wheat procurement price of Rs 2,275 per quintal, market prices in an eNAM mandi in Rajasthan have touched Rs 5,740 per quintal. While this may be an isolated case, prices in some mandis in Maharashtra this year have been relatively high at Rs 2,500 to 3,000. But this still is not the general trend. Primarily it is the premier Sharbati variety that is fetching a higher price. One reason for the higher prices is because Rajasthan had made procurement at Rs 2,400 per quintal, which includes a bonus of Rs 125 per quintal.

Now coming back to the call for wheat import at zero duty, I see no reason why the government should succumb to pressure from the flour mill associations. After all, it is well known that most flour mills find it attractive to lift imported grain directly from the three ports. Given that the international wheat prices are hovering around Rs 21,000 per tonne (it is still lower for wheat coming from Russia), the flour mill industry will find the landing price unattractive if it comes with an import tariff of 40 per cent. Doing away with import tariff will make the wheat imports economically viable for the domestic flour mill industry.

It is therefore very clear that wheat procurement prices have nothing to do with the rise in retail prices of wheat as well as that of atta. Instead of buckling under pressure and opening the Indian market to zero duty import of wheat, my suggestion would be to crackdown on processing and trade in the immediate future. At the same time, effort should be to raise prices for farmers so as to encourage them to produce more. In the long run, policy focus should be to provide a guaranteed price for wheat as per the Swaminathan formula. This must be accompanied by expanding the network of APMC mandis across the country.

To begin with, the government should stand up to the electoral promise of procuring wheat in Rajasthan at Rs 2,700 per quintal. Instead of opening for wheat imports, the policy thrust should be raise the procurement price for the 2024-25 marketing season at least at Rajasthan level.

At the risk of reiterating what I have said earlier: policy makers must understand that importing food is like importing unemployment.

(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)