Wheat Export Ban: Will the Move Bring Price Relief to Consumers?

(The ban on wheat exports announced by the Central government recently has divided public opinion. The Quint brings to you expert views on the step’s implications for both farmers and consumers. This is the View. You may like to read the Counterview by Deepanshu Mohan here.)

The ban on wheat exports imposed on 13 May is meant to aid the government’s procurement effort and force the offloading of private stocks to tamp down prices, which have been buoyed by reduced domestic production and high international prices.

Opposition parties, pro-market economists, commentators and farmer union leaders have criticised the move for denting India’s credibility as a reliable supplier and for making farmers share with taxpayers the burden of subsidising poor consumers.

But farmers may have to see this as payback time because the government’s open-ended procurement policy and restriction on imports had propped up domestic wheat prices for 19 quarters, starting from the first quarter of 2016.

Farmers have a case for seeking a bonus over the minimum support price (MSP) of Rs 2,015 a quintal because of yield losses they suffered, particularly in Punjab, Haryana and Western Uttar Pradesh, on account of high temperatures in March during the grain filling stage.

Farmers' Prospects Dimmed?

Jagtar Brar of Mehma Sarja village in Bhatinda sold his wheat output from 30 acres in Goniana regulated market to the government at MSP. Being an environmentally-conscious farmer keen on conserving groundwater, he had planted rice after the onset of the monsoon in Punjab. That delayed wheat-sowing. March heat reduced his yield by about a quarter. Against last year’s yield of 21 quintals an acre, he got 16 quintals this time. He should have been compensated for the loss of about Rs 3 lakh he suffered. Brar, however, was not in favour of exports at the cost of domestic availability as it would hurt the poor.

Should farmers chafe at being unable to profit from the market opportunity arising from choked Ukrainian wheat supplies and reduced production in other wheat-growing nations due to adverse weather? Consumers may say it’s time farmers returned the favour. They had paid higher than world prices for several of the past years. The government’s open-ended procurement of wheat (and rice) and the impounding of vast quantities of grain in Food Corporation of India’s (FCI) warehouses had lifted domestic prices. There was a 25 per cent duty on wheat as well. This was reduced to 10 per cent in December 2016 and to zero in December that year to cool down prices, which have risen owing to lower domestic production. A 10 per cent duty was imposed in March 2017. It was doubled in November that year. In May 2018, the duty was raised to 30 per cent and further to 40 per cent in April 2019.

The import of high-quality wheat for blending and processing was halted in 2019. That gave domestic producers of durum wheat a premium of 20-25 per cent over common wheat, the United States Department of Agriculture said in a report.

Modi's Bombast

Pro-market commentators say if the government had not given rice and wheat free or at the low rates of Rs 3 and Rs 2 per kg to two-thirds of the population, prices would have risen and farmers would have had an incentive to increase production. But given high unemployment and an increase in poverty, more people would have eaten less without a highly subsidised mass feeding programme.

The National Family Health Surveys 4 and 5 conducted between 2015-16 and 2019-21, respectively, show an increase in anaemia in children and adults (though conversely, there is a reduction in the percentage of children who are stunted, wasted or underweight).

The food secretary says that sentiments were driving prices. Big farmers, traders and exporters were accumulating stocks expecting higher international prices. The average retail price of wheat per kg on 9 May at Rs 29.49 was 19 per cent higher than the price on that date a year ago. The price of wheat flour had risen by 14 per cent between the two dates. In the south zone, wheat flour prices had risen 33 per cent between May this year and last. “In several areas, inflation is imported,” the food secretary said, alluding to commodities like palm oil, whose export Indonesia banned in April. Indeed, global wheat prices are soaring. Argentinian soft red winter wheat per ton is quoting at $476, sharply up from a 52-week low of $247, according to the International Grain Council.

The ban is a climbdown for a government that had declared record wheat production of 111 million tonnes despite reports of crop damage. It had said India would export 10 million tonnes of wheat this year, against 7.2 million tonnes last year. About 4.5 million tonnes have been contracted for exports, of which 1.46 million tonnes have left the shores. The Prime Minister, while addressing a political rally in Gujarat, had said that he had told US President Joe Biden in a telephonic conversation that India could feed the world.

The bombast has come unstuck. The Agriculture Ministry has revised the production target to 105 million tonnes. It is likely that it expects production to be lower still.

The Drop in Procurement

More worrisome than the drop in production for the government is the contraction of procurement. So far this year, 18 million tonnes have been procured — less than half of 43 million tonnes last year. The procurement window has been extended by four weeks, but the amount flowing into FCI’s warehouses for distribution through ration shops is likely to remain less than half of last year’s inflow. The government has ‘saved’ about 11 million tonnes of wheat from its stock, by substituting rice in its allotment of subsidised grain to some states.

Farmers like Sunil Kumar Verma, of Kakerkheda village in Ichhawar tehsil of Madhya Pradesh’s Sehore district, have profited from the rise in prices. Verma says he sold his produce of about 150 quintals at Rs 2,400 a quintal – 19 per cent higher than the government’s minimum support price (MSP) of Rs 2,015 per quintal.

He sold some quantity at a lower price as it was shrivelled and fit for making dalia, not atta. But his onion and garlic crop has taken a hit because of the high temperature. It’s a write-off, he says.

Pritam Singh of Urlana Khurd village in Panipat district’s Madlauda tehsil viewed the export ban negatively. He had stocked wheat hoping that prices would rise further. Singh is a progressive farmer, who is a fellow of the Indian Agricultural Research Institute (IARI) and is a reputed supplier of quality wheat seed.

No Party Has Shown the Appetite for Comprehensive Reforms

Ideally, the government should have bought wheat from farmers at market prices. That would have compensated them for the loss caused by a drop in yield. But that would have raised its food subsidy bill. By blocking exports, the government intends to force down prices to aid its procurement effort.

“The ban has a consumer bias,” says Anil Jaysing Ghanvat, former President of the Shetkari Sanghatana, a Maharashtra-based pro-market farmers union. He was also a member of the committee appointed by the Supreme Court to review the three controversial farm laws that the government had withdrawn last November after a year-long agitation by farmers.

Ideally, the grain trade should be free. Imports and exports should happen without friction. Restrictions should be imposed only to deal with extraordinary events. Trade-distorting input subsidies should be removed and replaced with annual income support for farmers of a certain amount per acre. The subsidy for feeding the poor must be borne entirely by taxpayers. The reform will have to be gradual and calibrated. No major political party has shown the appetite for it.

(Vivian Fernandes is a senior journalist and runs a website called Smart Indian Agriculture. He tweets @VVNFernandes. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)