A concerted effort is on to trigger wheat inflation. The narrative is that adequate wheat is not available, so import is necessary at zero duty. Last week, the Ministry of Agriculture stated that the production of wheat is estimated at a record 112.95 million tonnes (mt) — 2.37 mt higher than last year. On June 13, the Food Ministry issued a clarification that the government will not lower the import duty. The demand for allowing wheat import at zero duty to prevent food inflation should be examined in-depth .

Though the estimated production is higher than last year, the Centre asked private traders to stay away from wholesale markets to facilitate procurement by Food Corporation of India. Despite record output and government intervention, FCI has been able to procure only 26.20 mt of wheat — short of the normal level by 7.5 mt. On average, Uttar Pradesh produces 34 mt of wheat, whereas it contributes 3 mt to the FCI’s procurement for buffer stocks.

Central pool

This year, Uttar Pradesh and Rajasthan have contributed negligible quantities to the Central pool. FCI has been able to meet the rice procurement target in a drought year whereas it has lagged in achieving the wheat procurement target. The reason may be that the government was keen that farmers should benefit from the higher open market price. The lower procurement of the foodgrain by FCI could also be construed as “efficient food security planning”. The government requires only 18.6 mt for the various welfare schemes, and it has ample stocks to meet the buffer norms.

The bonus of ₹125 per quintal offered by Madhya Pradesh and Rajasthan and higher mandi taxes imposed by Punjab and Haryana make procurement unattractive to the private players from these States. Therefore, private players prefer to undertake large-scale wheat procurement from Uttar Pradesh. In the current season, most of the wheat produced in Uttar Pradesh has been procured by private players. The government must identify the location of 85.8 mt of wheat available in the country. The mandatory stock declaration order could provide enough insight into the supply and demand situation. The solution to bringing down inflation lies there.

On the other hand, the import of wheat can be related to a few important global developments. China has imposed a new provincial “food security” law in line with “self-sufficiency”. In addition, it has approved a gene-edited wheat variety to enhance resistance to diseases. China has not been purchasing wheat from the global market over the last two months. Turkey has banned the import of wheat for a brief period to protect its farmers. Therefore, wheat futures, including the Chicago Board of Trade (CBOT) futures, have dropped by 3 per cent in the last few sessions. The character of the global wheat trade is that 7-7.5 mt of wheat is always at mid-sea at any given point of time. It can be directed to any market that needs it. Over 75 per cent of this volume is controlled by top global grain corporations. The situation forces major global players to look for alternative markets. Will India become a victim of global design?

Once India allows the import of wheat at zero duty, global prices will surge and domestic prices will crash. Wheat farmers may reduce acreage, which could put our food security in jeopardy. A vicious cycle of import of wheat could begin by creating imperfect market conditions and price arbitrage. In such a scenario, imports will spiral and may continue for at least 3-4 years. Imported apple is the best example as it never vanishes from South Indian markets. Do we want such a situation in the country for wheat? Another example is the import of yellow peas from Canada. Such import dependence in the case of wheat will go against national interest in the current geopolitical context.

Higher prices fetched by farmers are a guarantee and an incentive on the food security front. Allowing wheat import at zero duty amounts to discarding such an incentive.

The writer is a global trade analyst and author of ‘Basmati Rice: The Natural History Geographical Indication’

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