The crisis created by the Russia-Ukraine war has disrupted global wheat supplies, opening an opportunity for India to increase its wheat exports to meet the global demand. However, Punjab and Haryana, the two major contributors of wheat to the central pool, are seeing a dip in yield and procurement.
Both states are likely to miss their procurement targets, with multiple factors -- including heat waves -- affecting the yield thus reducing the arrival of wheat at mandis in the two states. The situation may be even worse for Uttar Pradesh as the sowing season there stretches till late December, thus the crops are more vulnerable to the early onset of summer and heat waves.
Apart from extreme weather affecting the crop yield, several farmers are holding their crop back in hope of further spike in international prices to get better returns than the MSP. Private players too are picking more wheat than expected from mandis, further pushing up the prices and impacting procurement by Central government agencies.
Why is there a global demand?
The Russia-Ukraine conflict has blocked wheat imports from the region and disrupted global wheat supplies. Over 30 percent of the world’s wheat is produced by this region. Agri traders and futures traders globally have already hoarded wheat.
The uncertainty over supplies has pushed many countries towards a food crisis; and without alternative supplies, many of these countries may experience major challenges. India has huge scope in filling this gap as it is the second largest wheat producer after China.
How can India export wheat despite low procurement?
According to a Times of India report, the government estimates suggest that around 30 lakh tonnes of surplus wheat have been contracted for exports, with around a third to be shipped by the end of the month.
There is an opportunity to step up the flow of consignments before June, when monsoon starts. Meanwhile, the government does not see any shortage in the domestic market despite the low yield. It began the season this year with a stock of 1.9 crore tonnes, which was more than two-and-a-half times the buffer norms of 74 lakh tonnes for this time of the year.
However, World Trade Organization (WTO) rules may hinder India’s plans to export grains from the buffer stock. The WTO rules make it difficult to export grains if these have been procured from producers at a fixed price (minimum support price, in India’s case), instead of market rates. This however, does not impact exports by private traders who buy grains from farmers at market price.
Recently, PM Modi offered to supply grains to other countries that are facing a food shortage should WTO norms allow it, in his talks with US President Joe Biden, as per a Financial Express report.
Role of private players
Amid the rising global demand, activity of private players has increased in the wheat market of India. Procurement data from Madhya Pradesh, Gujarat and Rajasthan show that a large chunk of wheat has been purchased by private players at rates above the minimum support price (MSP). According to a Times of India report, the prices offered in MP have been around Rs 2,740 per quintal compared to the MSP of Rs 2,015. In Rajasthan farmers are getting Rs 2,680 per quintal for their wheat and in Gujarat too the price is close to Rs 2,700. This saw farmers reaping good profits and resulted in a dip in government procurement of wheat.
What may happen next?
As a result of dipping procurement and increasing purchases from private traders, the Centre may look to prioritise domestic procurement at a time when farmers are not keen on taking their crops to the government. This may be done by restricting wheat exports. However, it would be the worst thing to do as India is currently talking about “feeding the world,” and announcing a ban on exports will reflect poorly.
Also, if this happens, selling prices by farmers will immediately crash as private players will not be able to buy and export, forcing farmers to move towards government procurement. But in anticipation of such a move, farmers are already selling off their crops even faster. This should reduce the prices, but the willingness of traders to buy up as much good quality wheat as possible before supplies are cut off, has kept the prices high.
On the other hand, the government may reduce the priority on exports less. Despite the scope of Indian wheat and demand in the global market, the government may refrain from pushing too much as exports will happen through the private trade in the natural course.