New Delhi finds itself in an embarrassing quandary over massive accumulation of wheat stocks and is running out of ideas for quick liquidation of the cereal in public warehouses.

As of April 1, the government was holding 27 million tonnes (mt) of wheat stocks, over three times the minimum stock norm. The ongoing harvest and procurement (possibly 35 mt) is sure to add to the burden. The risk of a collapse in wheat prices cannot be ruled out.

Desperate consultations with the user industry have not yielded any effective solutions. Various strategies, including export, food-aid, open-market sale and so on, are being debated. Export is not feasible without subsidy; but any monetary support to export will soon attract WTO complaint by competitors. Even with subsidy, export volumes may be limited to less than one million tonnes, which is minuscule in relation to the inventory size.

Is India heading towards a wheat glut?

Clearly, in the short term, nothing substantial is expected to materialise, while the only certainty is that the stored material will continue to incur huge carrying costs (warehouse rent, interest) and be subject to deterioration of quality, damage and pilferage.

Advance signals

Awash with wheat, the world market is not ready for the Indian cereal. The London-based International Grains Council has projected global wheat production for 2021-22 at a record 790 million tonnes (last year 773 mt). With consumption (778 mt) set to trail production for the second year in a row (756 mt), world wheat stocks are expected to hit a new record of 304 mt.

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Indian wheat is currently outpriced in the export market. If domestic rates fall well below the procurement price of ₹1,975 a quintal towards ₹1,800 a quintal or if the rupee were to steeply depreciate, say, towards 77 to a dollar, there might be some export parity. But quality issues may continue to haunt Indian wheat.

To be sure, the current wheat glut was not unexpected at all. As far back as January this year, BusinessLine had warned of an emerging wheat glut (see Is India heading towards a wheat glut?, January 7 ) . But the policymakers failed to read advance signals and were perhaps busy with other, more pressing engagements. An industry representative tersely remarked, “We can take the horse to the pond, but cannot make it drink”.

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The Agriculture Ministry’s second advance estimate in February placing wheat production at 109 mt is a clear overestimation by at least 10 per cent. Yet, even a 100 mt wheat crop is large for our country that is struggling to cope with the adverse economic consequences of the pandemic, with loss of jobs and incomes.

Third successive year

This is the third successive year of large wheat harvest, far beyond what the country needs in terms of actual consumption plus buffer stocks. With a few hundred million people living below the poverty line (360 million according to the United Nations) and suffering acute malnutrition, it is unthinkable that massive mountains of food grains continue to be accumulated with no takers in sight.

It appears New Delhi is averse to distribution of free ration like it did from April to November 2020 during the national lockdown but may be left with little choice eventually. Ironically, we claim to have reached food self-sufficiency without meeting the genuine food needs of people.

The author is a policy commentator and agribusiness specialist. Views are personal