Wheat export ban will hurt farmers

The sudden ban on wheat exports imposed by the Central Government from May 13 will be a big blow to wheat farmers who have received more than the minimum support price (MSP) for the crop after a long gap because of Ukraine-Russia war.

While the Centre cites food security and rising domestic inflation as the reasons for the ban, it is going to badly affect farmers’ income at least in the major wheat-growing States. What is the economics of wheat cultivation in India? Could there have been any alternatives to the export ban?

Wheat is an important foodgrain predominantly cultivated in the northern and western parts of India. The area under wheat has witnessed a significant increase since the introduction of the Green Revolution, from 12.57 million hectares (mha) in 1965-66 to 31.45 mha in 2019-20 — a two-and-a-half times jump. During this period, the area under paddy crop, which is another important foodgrain cultivated almost throughout the country, increased only from 35.47 mha to 43.78 mha, an increase of about 1.23 times.

Wheat is predominantly cultivated in Uttar Pradesh (UP), Madhya Pradesh (MP), Punjab, Haryana and Rajasthan. These five States together accounted for about 25.21 mha, which is about 80 per cent of India’s total wheat area. Among these States, MP saw a big revolution in wheat cultivation between 2000-01 and 2019-20, where the area under wheat doubled from 3.31 mha to 6.55 mha. Better climate and a relatively good procurement system with MSP have helped the farmers in these States grow the wheat crop over time.

Because of the significant increase in crop productivity, from 827 kg/ha in 1965-66 to 3,421 kg/ha in 2019-20, the gross wheat production rose from 10.4 million tonnes (mt) to 107.59 mt during this period.

Economics of wheat cultivation

Although the production of wheat has increased substantially overtime, evidence is not very clear on whether the farmers made any appreciable profit from its cultivation. The Cost of Cultivation (CoC) survey, published by the Commission for Agricultural Costs and Prices (CACP) for major growing States from 1970-71 onwards, not only show poor income from wheat cultivation but also a wide fluctuation in it over time.

For instance, in Uttar Pradesh, which accounts for over 30 per cent of India’s wheat area, the C2 cost per hectare (in current prices) increased from ₹1,409 in 1971-72 to ₹65,201 in 2018-19 and the value of output increased from ₹1,621 to ₹67,949, showing no big difference between the cost of cultivation and the value of output (see Chart). C2 includes, besides input costs, the imputed cost of family labour and rent of owned land, as also the imputed interest on owned capital.

Similarly, in Rajasthan, the C2 cost increased from ₹2,358 to ₹74,231 and the value of output increased from ₹3,217 to ₹74,308 during the same period, leaving no margin at all for wheat farmers. The trend is somewhat better in other major wheat growing States such as Punjab, Haryana and MP, where the farmers were able to reap relatively better profit over time.

If one considers the time-series data from 1970-71 to 2018-19 for the analysis, the income picture of wheat cultivation looks somewhat bleak. The wheat farmers have incurred losses for a large number of years in terms of C2 cost, particularly in UP and MP. In UP, for which CoC data is available for 42 years, farmers incurred losses in 18 of those years, MP’s farmers in 13 out of 44 years, Punjab’s farmers incurred losses in seven out of 48 years, Haryana’s farmers in seven out of 45 years, and Rajasthan farmers in two out of 37 years.

Why do farmers incur losses? There are two important reasons for this as far as wheat cultivation is concerned. First, the cost of cultivation has skyrocketed due to increase in input prices, which do not allow the farmers to reap profits despite increased productivity over time.

Second, despite a substantial increase in the level of procurement over time, a vast majority of the farmers still rely on open markets for selling their wheat crop, where prices rule below the MSP most of the time. For instance, CACP data for the rabi marketing season 2020-21 shows that the market prices were ruling above MSP only in 14 days out of 120 days in MP, 19 days out of 113 days in Rajasthan, and 44 days out of 120 days in UP (see Table).

These suggest that the farmers seldom get prices that are more than MSP from the market in normal circumstances.

The way forward

The wheat export ban has been imposed with a preemptive notion that the food security of the country will be affected otherwise. There is no strong evidence to support that the country’s food security will be at risk if an export ban is not imposed on the wheat crop.

The production of wheat is expected to be around 106 mt, which is not significantly less than the initial production estimate of about 111 mt. The state agency could not reach the revised wheat procurement target of 19.5 mt not mainly because of less production. Farmers are holding back their crops expecting that the market price of wheat will go up further because of the ongoing Ukraine-Russia war. Is this unusual? Every diligent producer will try to maximise profit, which is what is really happening now.

After a long time, the wheat farmers were able to get a windfall of about ₹300 per quintal over the MSP of ₹2,015. Now, the export ban will bring down the market price, which will hurt the farmers, particularly in those States where the procurement system is poor. Therefore, instead of imposing a complete ban, the export of wheat could have been reduced gradually by fixing certain conditions to combat speculative activities.

Alternatively, the minimum export price of wheat could have been fixed at a higher level keeping in view farmers’ income security. Now that wheat export is banned , the MSP for wheat crop may be revised in consonance with the world market price to compensate for the potential losses of wheat growers. The policymakers must also recognise that without providing income security to farmers, achieving food security will be difficult.

The writer is Senior Professor and Head, Department of Economics and Rural Development, Alagappa University, Karaikudi, Tamil Nadu. The views are personal

COMMENT NOW