In 2018-19, wheat procurement at 35.8 million tonnes (mt) was the second highest ever. It is estimated that by the end of kharif marketing season in September, rice procurement may also touch an all-time high of 45 mt. With such high procurement, one of the first difficult challenges the new government will face in May will be to manage the excessive stock of foodgrains (central pool stocks) with the FCI and State government agencies.

On April 1, the central pool is likely to have rice stocks of 28.4 mt and wheat stocks of 17.6 mt. Low temperatures and a rather prolonged winter this year are likely to result in higher productivity and wheat production may reach 102 mt, about 3 mt higher than the government’s second advance estimate of 99 mt.

In 2018-19, the open market prices of wheat have risen by about 10 per cent but with an attractive MSP of ₹1,860 per quintal and a bonus of ₹140 per quintal in Madhya Pradesh, we can expect wheat procurement to match last year’s level of about 36 mt.

The buffer norm for wheat for July 1 is 27.58 mt against which India is likely to have stock of 47.6 mt. The buffer norm for rice is 13.54 mt but the stock is estimated to touch 29.6 mt. Thus, the country will be saddled with 77.2 mt of wheat and rice stock against the buffer norm of only 41.1 mt.

Fortunately, 15 mt of covered storage capacity has been added since 2010 under Private Entrepreneurs Guarantee Scheme (PEG) of 2008. Without this, there would have been no godown space for rice procurement even in Punjab and Haryana.

On January 1, the FCI and the State sgencies together have 85.2 mt of storage capacity out of which 72.5 mt is covered but 12.7 mt is Covered and Plinth (CAP) storage. Punjab and Haryana alone have about 10 mt of CAP storage capacity. We should expect that this will be fully utilised for wheat storage.

Excess stocks pose a challenge for safe and scientific storage. They also cause enormous financial burden on the Union Budget as the FCI and the State agencies have to pay interest on borrowed capital which will have to be finally paid as food subsidy. The economic cost of excess stock (over the buffer norm) will be ₹1.07 lakh crore. The annual carrying cost of this stock is estimated to be ₹13,710 crore. On previous occasions, the government had used three instruments to reduce the stocks — sale under open market sale scheme for domestic consumption, ad-hoc additional allocation to States and export of wheat.

In 2012-13 and 2013-14, 29.5 lakh tonnes and 26.73 lakh tonnes of wheat was exported respectively from the Central pool stocks. Exports came down to 3.27 lakh tonnes in 2014-15. In the last three years, there was no export from central pool stocks, except 1.1 lakh tonnes of humanitarian aid to Afghanistan.

WTO pressure

The US, Canada, Australia and Japan have raised a number of questions in WTO about the financial incentives provided by the government for wheat exports.

Indian rice is exported from private stocks. In 2018-19 rice exports are likely to be about 12.75 mt. Despite the bulging stock of rice, the government will find it difficult to subsidise export as it will surely invite objection in WTO from other rice exporting countries including Thailand and Pakistan.

The economic cost of wheat in 2019-20 is estimated at ₹2,505.67 per quintal. Even if it is assumed that the transportation charges from storage point to port will be borne by government as subsidy, the FOB value wheat will come to $363.87 per tonne (at 1$=₹68.86).

On March 1, milling grade wheat was quoted at $209 for US soft red winter wheat, $231 for Russian and $221 for Australian wheat. This clearly shows that Indian wheat in the central pool stock cannot be exported without large subsidy by government. In 2012-13, MMTC, PEC and STC were engaged to export wheat and the FCI delivered the required rakes at ports. In this period also, the FOB price received in global tenders was higher than MSP but much lower than economic cost of wheat.

Under clause 9.1 of WTO’s Agreement on Agriculture, subsidies for export of agricultural goods can be provided for marketing cost and internal transport. This also includes handling, upgrading and other processing costs and the costs of international transport and freight.

If India decides to use this clause to subsidise wheat export from the central pool stocks, major wheat exporting countries like US and Australia are surely going to raise questions in WTO, especially in the light of the so-called peace clause which allowed India to maintain its procurement operations even if the ceiling of 10 per cent of value of production was breached.

Export of grains from central pool stocks is therefore an unlikely option.

Normal allocation of 5 kg foodgrain per person in PDS meets just about half the monthly requirement of a person.

PDS allocation

In the past, the Centre has made ad-hoc allocations of grains to State governments for distribution under PDS. Since these allocations are temporary, there is little awareness about them among ration card holders and it is feared that that they do not reach real beneficiaries.

Such ad-hoc allocations have not been independently evaluated for their effectiveness in reducing a poor family’s expenditure on foodgrains. Also, such ad-hoc allocations at highly subsidised rates of ₹2 for wheat and ₹3 for rice will further inflate food subsidy bill of ₹1,84,000 crore in 2019-20.

If export and additional ad-hoc allocations are not practical options before the government, the only alternative is to reduce excessive procurement of wheat and rice over the next five years.

The new government will do well to remove the dust from Shanta Kumar Committee Report of 2015. In water stressed regions of Punjab and Haryana, less water-guzzling crops like maize, pulses and oilseeds will have to be provided incentives similar to paddy. The Madhya Pradesh government should extend similar bonus to pulses and oilseeds as it does for wheat. Such interventions can gradually result in reducing excessive procurement of rice and wheat.

This will require imagination and boldness which will hopefully not be lacking in the new government.

The writer is a former Union Agriculture Secretary. He is now Visiting Senior Fellow, ICRIER.

Related Topics