Go Ad-Free
    My Alerts
    Moneycontrol
    Moneycontrol PRO
    HomeNewsBusinessIs the fear of wheat shortage valid?

    Is the fear of wheat shortage valid?

    The government’s plan to export the grain, even when there has been a fall in yield from bad weather, had started speculation India could face a food security problem

    Asha Menon & Subhayan Chakraborty
    April 22, 2022 / 15:12 IST
    India has always struggled with storing its surplus grain and it has had record harvest for five consecutive years. (Photo by Vlad Deep; Pexels)
    The short answer is no.

    India is looking to aggressively promote wheat exports after the Russia-Ukraine war left countries urgently seeking alternative suppliers. Russia is the largest exporter of the grain and Ukraine is the sixth largest (going by 2021 numbers).

    In FY22, India exported a record 8.5 million tonnes (mt). In the current fiscal, the country has a target of 10 mt.

    But a heat wave has swept through the bigger wheat-producing states, reducing yields of a crop that had already borne the brunt of excess rains in January. “Yield losses could be anywhere between 10 and 15 percent depending on the time of sowing,” said Ajay Jakhar, chairman of Krishak Samaj, based on conversations he had with farmers in different states. Jakhar had sown his crop early, which means it would have matured earlier and seen less damage from the heat wave, and yet he saw a 10 percent fall in yield. All these factors combined have led to speculation that the country may face a shortage in the grain which could increase inflation–wheat prices are trading 5-7 percent over minimum support price (MSP). Experts Moneycontrol spoke to say that nothing could be further from the truth. 

    “We believe India’s food inflation in general will be largely insulated from the consequences of the European conflict,” said Rahul Bajoria, managing director and chief India economist at Barclays. “India’s food production has increased dramatically over the past decade, and is more than sufficient to meet both the domestic demand and incremental exports… since exports as a proportion of total production will be minimal, it isn’t unlikely to have any major impact on domestic food prices.”

    Also read: Wheat inflation becoming hard to stomach for Indian households

    If domestic concerns do arise from greater exports, the former is unlikely to be compromised to favour the latter, according to him.

    Going by Pranay Shukla, associate director at S&P Global Market Intelligence, the country can still expect a record harvest in wheat at 110 mt for FY23. "Indian wheat production is expected to be at record levels in anticipation that good weather conditions are expected to prevail while harvesting during April/May," said Shukla.

    Wheat numbers 2204_001

    Sources inside the ministries of commerce and agriculture too said that there is no concern about food security. While the commerce ministry seems upbeat about the export opportunity, the agriculture one expressed concern about the yield loss. Neither expected any export restrictions to be placed.

    Embarrassment of riches“There is so much grain, we don’t know where to keep it,” said agriculture economist Dr Ashok Gulati who is an Infosys chair professor for agriculture at India Council for Research on International Economic Relations and former chairman of Commission for Agricultural Costs and Prices.India has always struggled with storing its surplus grain and it has had record harvest for five consecutive years. Though central government’s wheat procurement has fallen to 6.9 mt (much smaller than 10.2 mt last April) warehouses have reserves much higher than the prescribed limit of 7.46 mt.   In April 2021, after subtracting domestic consumption and exports from production and reserves (at the beginning of the year) the end of the year reserves were at 27.8 mt; in FY22 at 21 mt; and in FY23 expected to be 14 mt.

    Wheat numbers 2204_002 (1)

    “Are we mad (to feel the need to stock more),” asked Gulati. “The economic cost of keeping excess stock for FCI (Food Corporation of India) as of April 1 was Rs 1.85 lakh crore… that (taxpayers’ money) is to maintain dead stock.”Despite lower procurement, the government will “easily be able to carry out its PDS (public distribution system) welfare schemes, given the healthy stocks of previous years,” said Bajoria.Jakhar too doesn’t see a food security problem from rising exports and the yield drop but inflation could result from them. “There won’t be a shortage in grain and I don’t think there will be export restrictions placed… the government is on safe ground (as far as food security is concerned),” he said.“Only if you mess up with the first (in managing the grain supply) would you need the second (export restrictions) and I don’t think the government will do anything that will make the second necessary,” he said.The chief drawback from the yield loss he sees is India not being able to meet international expectations, of filling a larger portion of the supply gap created by the Russia-Ukraine war.Farmers gain, after a long wait

    The export plan is good for farmers and for the country, said Gulati, and Jakhar agrees with him. “Let the farmer avail of this opportunity and let India play a larger, more global role… the farmers are getting good prices after 8 to 10 years and if prices fall below MSP, everything will be on the government’s head to procure everything and keep for two to three years, which we have been doing anyway,” said Gulati.

    “I would say the target of 10 mt for wheat exports is too conservative… the government should be aiming for more,” he added.

    The price rise from this isn’t going to be long lasting, as far as Gulati can see. It will last only till the geopolitical tensions last and after that Indian wheat–supported by the MSP system–will return to being uncompetitive in global markets. “Today wheat is trading at $350 and $400 per tonne. When it falls below $300 per tonne, the country’s wheat will become unviable again for exports,” he said.

    Gulati sees no reason to worry about inflation. “800 million people in this country get free food in rice and wheat, so they are protected. As for the rest… if people can buy cars in lakhs, they can definitely afford Rs 2-3 more to buy wheat,” he said.

    Also read: Why are wheat prices rising despite record harvest?

    If there is any blowup in food prices this summer, it could have larger consequences. “Low food inflation has been one of the main reasons behind lower headline inflation in India over the past five years,” said Bajoria. “India’s MPC (monetary price committee) has been slightly ‘lucky’ to have favourable food prices helping it keep price inflation dynamics in check. Any sharp blowup in food prices this summer could pose upside risks to inflation – and constrain support provided by the central bank,” he added. Barclays is expecting Consumer Price Index (CPI) to average 5.8 percent in FY23, factoring in higher food and energy rates.
    Asha Menon
    Subhayan Chakraborty
    Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.
    first published: Apr 22, 2022 03:12 pm

    Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

    Subscribe to Tech Newsletters

    • On Saturdays

      Find the best of Al News in one place, specially curated for you every weekend.

    • Daily-Weekdays

      Stay on top of the latest tech trends and biggest startup news.

    Advisory Alert: It has come to our attention that certain individuals are representing themselves as affiliates of Moneycontrol and soliciting funds on the false promise of assured returns on their investments. We wish to reiterate that Moneycontrol does not solicit funds from investors and neither does it promise any assured returns. In case you are approached by anyone making such claims, please write to us at grievanceofficer@nw18.com or call on 02268882347