The Hindu Business Line : Wheat import, at whose cost?

In February, the Union Agriculture Minister, Mr Sharad Pawar, made a categorical statement that “if the current weather persists and wheat output exceeds 72.5 million tonnes, I will allow exports”. The just released data from the Directorate of Wheat Research, Karnal, shows that wheat production for 2006-07 is 74.9 million tonnes from 28.5 million hectares — a productivity of 2.6 tonnes per ha.

For an average, this is not a bad figure. Yet, New Delhi is preparing to import 5.30 lakh tonnes from eight suppliers, who have quoted a price-range between $385 and $434 a tonne, cost and freight. Besides leaving a big hole in our national kitty, this act decision has been taken with total impunity.

Huge drain on national exchequer

In June, the State Trading Corporation imported 5.11 lakh tonnes at a weighted average price of $325.6 a tonne, $120.28 above the price at which 55 lakh tonnes were imported during the whole of 2006-07. At the current exchange rate, this was about Rs 5,000 more than what was paid earlier for a tonne. Most importantly, it will be $180 more a tonne, assuming that it is finally decided to accept the lowest tender at $385 a tonne, than what New Delhi would have had to pay, had the decision to import been taken in June. At the current exchange rate, this is Rs 7,400 more per tonne. A loss of about Rs 400 crore, for having deferred the decision to import from June to now. Who is accountable for this huge loss?

In May, when Mr Ajmer Singh Lakhowal, Chairman of the Punjab State Marketing Board and leader of the Bharath Kisan Union, prevented Punjab’s wheat farmers from selling their produce to New Delhi at a minimum support price (MSP) of Rs 850 a quintal, which was considered “largesse”it looked as though Mr Lakhowal was holding the nation to ransom on wheat procurement. Mr Lakhowal argued that if the farmers waited until July, they could get at least Rs 1,140 a quintal (100 kg make a quintal and 10 quintals, a tonne). Now the government will end up paying about Rs 1,600 a quintal to foreign suppliers, 100 per cent more than it promised Indian farmers.

grim global supply scenario

The unfolding tight global wheat position was apparent even as early as May. Two years of poor global production and growing demand have wheat buyers scrambling for the golden grain, which has culminated in US wheat futures setting all-time record highs.

December Chicago Board of Trade wheat set an all-time high of $7.67 a bushel (the US measure equalling about 36.4 kg) at the beginning of the last week of August, which eventually closed at $7.65. The impetus for the move was strong export sales from the US Department of Agriculture (USDA), which reported sales of 1.05 million tonnes (mt) for the week ended August 16.

Canada also lowered its estimate for the wheat crop to 20.322 mt from 20.265 mt in 2006-07, due to hot and dry weather in July. Because of last year’s production woes, wheat futures have already traded at historic highs, but the current rally began in May and it was very clearly known to New Delhi. Supply bull markets are one thing, but this rally is also demand-led.

With the spreading drought in Russia and Ukraine, and erratic weather in the US, global wheat suppliers jacked up wheat prices to a 11-year high on the Chicago Board of Trade over the past one month, leading India to spend a lot more on the commodity. But the emerging tightening position of global supply was known to New Delhi much earlier, yet no proper planning was done.

India on a losing turf

New Delhi often proclaims that it is the subsidy given by the US and the European Union that is throttling Indian agriculture. Yet, what has been done to safeguard the interests of wheat farmers? India has clearly emerged a net wheat importer and global suppliers are taking advantage of the country’s critical food situation. Food managers do not seem to learn from past mistakes. Even shippers are jacking up freight rates to harvest a windfall.

Can imports such as this go on for ever? According to the UN, food prices will rise in the next 10 years, twice as much, as sugarcane, maize and oilseed rape are grown for bio-fuel and people in developing countries such as India, China and Brazil start to switch to more of meat-based diets.

The move to agro-fuels, which can only marginally reduce global warming and reduce the US/EU dependence on fossil fuels, is being led by the US, Brazil, China and Europe. In 2006, more than a third of the maize crop went for ethanol production, a 48 per cent increase over 2005. China and Brazil grew the crop on more than 20 million hectares. The UN study says that this area could double in the next decade.

The India-China comparison

Despite China’s policy not to reduce its total cultivable land under grains (69 per cent), its thirst for new energy sources will trigger the shift. When that happens, it will have far-reaching consequences on the food front, because land once meant for grain crops will be taken away for bio-fuel crops. If India also gets tempted to take this path, it would be suicidal. While higher food prices are profitable for big farmers, they would threaten the economies of food-importing countries. This is where India needs to be vigilant.

Higher food prices will also mean additional investment for livestock farmers, who must buy feed. A rush to energy crops is bound to propel industrial agriculture, while sustainable food production will fall. How should the country meet the emerging situation?

There is no gain saying that India is “self sufficient” in food. The rate of food production has plummeted to 1.6 per cent per annum in the 1990s compared to the population surge at 1.9 per cent per annum, setting in motion the “Malthusian Phenomenon” where population increase overtakes food production. This is happening in India right now.

Unlike in China, India has been unable to bring out any spectacular wheat or rice varieties. The wheat import simply illustrates the supply-demand mismatch. Most of the funds earmarked for agricultural research is used to pay salaries. It will be suicidal if India’s farm policy is not “grain centric”. The payout on wheat import could have been put to better use.

(The author, a former National Science Foundation Professor, Royal Society, Belgium, can be contacted at nair_kpp@yahoo.com)