How India plans to meet global demand despite falling yields from Punjab, Haryana and Up
The crisis created by the Russian-Ukrainian war has disrupted the world’s wheat supply, providing India with an opportunity to increase its wheat exports to meet world demand. However, Punjab and Haryana, the two main contributors of wheat to the central pool, are seeing lower yields and purchases.
Both states are at risk of missing their supply targets, with multiple factors – including heat waves – affecting yield, reducing the arrival of wheat to Mandis in both states. The situation could be even worse for Uttar Pradesh as the planting season extends until the end of December, so crops are more vulnerable to the early onset of summer and heat waves.
Apart from extreme weather conditions affecting crop yield, several farmers are holding back their harvest in the hope of another spike in international prices to get better yields than MSP. Private players are also picking more wheat than expected on the mandis, further driving up prices and impacting purchases by central government agencies.
Why is there a global demand?
The Russian-Ukrainian conflict has blocked wheat imports from the region and disrupted global wheat supplies. More than 30 percent of the world’s wheat is produced by this region. Agricultural traders and futures traders around the world have already stockpiled wheat.
Uncertainty over supplies has pushed many countries into a food crisis; and without alternative supplies, many of these countries could face major challenges. India has huge leeway to bridge this gap as it is the second largest wheat producer after China.
How can India export wheat despite weak purchases?
According to a Times of India report, government estimates suggest that around 30 lakh tonnes of surplus wheat has been contracted for export, with around a third to be shipped by the end of the month.
It is possible to speed up the flow of shipments before June, when the monsoon begins. Meanwhile, the government sees no shortage in the domestic market despite the low yield. It started the season this year with a stockpile of 1.9 crore tonnes, more than two and a half times the buffer standards of 74 lakh tonnes for this time of year.
However, World Trade Organization (WTO) rules could hamper India’s plans to export grain from the buffer stock. WTO rules make it difficult to export grain if it has been purchased from producers at a fixed price (minimum support price, in the case of India), instead of market prices. However, this has no impact on the exports of private traders who buy grain from farmers at the market price.
Recently, Prime Minister Modi offered to provide grain to other countries facing food shortages if WTO standards allowed, during his talks with US President Joe Biden, according to a Financial Express report.
Amid rising global demand, private player activity has increased in India’s wheat market. Data on purchases from Madhya Pradesh, Gujarat and Rajasthan show that a large share of wheat was purchased by private actors at rates above the minimum support price (MSP). According to a report by Times of India, the prices offered in MP were around Rs 2,740 per quintal compared to the MSP of Rs 2,015. In Rajasthan, farmers receive Rs 2,680 per quintal for their wheat and in Gujarat too , the price is close to 2,700 rupees. This allowed farmers to reap good profits and led to a decline in government purchases of wheat.
Due to declining purchases and increased purchases from private traders, the Center may seek to prioritize domestic purchases at a time when farmers are unwilling to take their crops to the government. This can be done by restricting wheat exports. However, that would be the worst thing to do as India is currently talking about “feeding the world”, and announcing an export ban will be frowned upon.
Moreover, if this happens, farmers’ selling prices will immediately collapse because private actors will not be able to buy and export, forcing farmers to turn to public markets. But in anticipation of such a decision, farmers are already selling their crops even faster. This should depress prices, but the willingness of traders to buy as much good quality wheat as possible before supplies are cut off has kept prices high.
On the other hand, the government can reduce the priority to exports less. Despite the magnitude of Indian wheat and the demand in the world market, the government can refrain from pushing too much as exports will be through private trade in the natural course.
(Edited by : Shoma Bhattacharjee)