Wheat imports: Subverting procurement, cheating farmers
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COMMENTS 
Instead of doling out Rs 6,000 crore to corporations to import 50 lakh tonnes of wheat this year, the government could have offered farmers a minimum support price even higher than they are currently getting from private companies. Is there a hidden agenda?
For the second year running, India is importing wheat. Last year, the government justified imports on account of low production. This year, it is doing so in the name of higher prices for farmers.
In order to meet buffer stock requirements, the government has decided to import up to 50 lakh tonnes of wheat this year. Thanks to the government's policies, India has been reduced from a wheat-surplus nation to the world's largest importer of wheat.
Alarm bells began ringing in early March when, despite predictions of a bumper wheat harvest in India, US Wheat Associates -- a trade body funded by the federal government and US wheat producers -- stated that India would import up to 30 lakh tonnes of wheat this year. Not only has the government followed this diktat, it has revised the estimate by an additional 20 lakh tonnes as a small 'favour' to multinational grain corporations.
The rush to import wheat right now is questionable. With 18 lakh more hectares under wheat, production has increased by 40 lakh tonnes. Since the peak wheat procurement season is in the second half of May, there is still time for the government to meet its procurement target of 151 lakh tonnes.
On May 1, 2007, India's food secretary claimed stocks were adequate to last until January 2008. On May 5, Food and Agriculture Minister Sharad Pawar announced: "Last year, the buffer stock position was only 2 million tones; this time it is 4.5 million tonnes. That is why I am quite comfortable about the buffer stock."
The minister justified the move to import wheat by adding: "However, I want to build up stocks for next year." This, when the amount of wheat produced is enough to meet the country's requirements and there is no shortage in buffer stocks. Although the next season's wheat is yet to be planted, the government is already apprehensive about a bad crop next year!
"If the farmer is getting a better price, as agriculture minister I am the happiest person. However, as a food minister, if I face any problem, I will import," Pawar said. He was referring to farmers getting better prices by selling to private companies, thereby leaving little for the government to pick up.
This is a replay of the 2006 argument when the Food Corporation of India (FCI) failed miserably to meet its procurement targets. By offering a lower price to farmers, the government made out a case for imports, which translated to a windfall of Rs 5,100 crore to grain corporations like the Australian Wheat Board, Glencore, Toepfer, Cargill, etc.
This year, procurement is worse than it was last year. By the end of April, even half the procurement target had not been met and a shortfall of 25 lakh tonnes by the end of the procurement season is likely. This is because the Minimum Support Price (MSP) of Rs 850 per quintal offered by the government is much lower than the prevailing market rate of over Rs 1,000. Naturally, a bulk of the wheat is being cornered by the private sector. This year, grain corporations stand to gain much more than they did in 2006.
Inadequate rainfall in Europe, Australia and South Africa has affected wheat production and depressed world wheat stocks to their lowest in the last 25 years. Wheat from the Ukraine and Russia will hit markets only by August, while Pakistan is still a small exporter. Major wheat exporter Argentina has banned wheat exports in order to control domestic prices.
The only players left are the US and Canada, where wheat prices are already up by $ 40 per tonne over last year. Given the global supply crunch, the announcement of imports by India will push prices through the roof, as happened last year. While last year India paid around $ 207 per tonne of wheat (approximately Rs 930 per quintal), the cost this year is likely to be upwards of $ 300 per tonne (or Rs 1,200 per quintal at the current exchange rate), a rich bonus for corporations.
Instead of doling out Rs 6,000 crore to corporations for the import of 50 lakh tonnes of wheat, a hike in the MSP would have fetched farmers an even higher price than they are currently getting from private companies, and would also have helped the FCI meet its procurement targets. But then, that never was the intent. By paying a premium to grain corporations and denying a fair price to our farmers, the government has sent a clear message to farmers: they should no longer expect a guaranteed price for what they produce.
Notwithstanding the government's claims, in reality, a case is being built for dismantling the price support and procurement mechanism that's designed to protect farmers from price volatility, and the poor from starvation. Economic Survey 2005-06 states: "The market for farm output continues to depend heavily on expensive government procurement and distribution systems. A shift from the current MSP and public procurement system and developing alternative product markets are essential for crop diversification and broad-based agricultural development."
The government is following this dictum. By deliberately offering a lower MSP and importing at higher costs, the system is being covertly scrapped. The Agriculture Produce Marketing Committee Act has been amended to allow private agencies to directly procure foodgrain from farmers. The amended Essential Commodities Act allows storage and movement of foodgrain. Agricultural commodities can be traded in futures markets involving speculation. Little wonder that multinational grain firms are cornering a bulk of the foodgrain being produced across India.
There's more. As part of the larger game plan to shut down the FCI, the government is toying with the idea of issuing food stamps to Below the Poverty Line (BPL) families, thereby reducing the food subsidy bill. There is another proposal to replace the Public Distribution System (PDS) with direct cash payments to poor families. To reduce storage costs, the government is considering playing in the futures market during months when it needs foodgrain to run the PDS -- there would be no need for an MSP in such a case. The warehousing system is also being privatised. The recommendations of consultancy firm McKinsey, hired by the food ministry, are already being implemented: the FCI's capital costs have been reduced, the workforce slashed, minimum buffer stocks for rice lowered, and private companies engaged in procurement.
From all this it is clear that instead of fixing problems at the FCI, the government has decided to blame the FCI and close it down.
That there are major problems with the FCI's functioning is undeniable. However, doing away with it would amount to dismantling another safety net for farmers and the poor who depend on the PDS. This, of course, suits the government. After all, food subsidy for the poor will cost the exchequer Rs 23,986 crore during 2006-07.
The Indian State has a history of subverting procurement and price support mechanisms. In 2002, dairy cooperatives were on the verge of being wiped out, courtesy dumping by developed countries, facilitated by the State. In the case of cotton, the Maharashtra government subverted the monopoly cotton procurement scheme and, today, the price being paid to cotton farmers is a fraction of what they were earlier. Similarly Marketfed in Kerala, which procures pepper from farmers, is facing subversion. The cases of cardamom, coconut, cashew -- in fact almost all agri-commodities -- have a common thread running through them: deliberate subversion of procurement, and manipulation of the support price.
The government's intentions are clear -- deny farmers a higher price for their produce and dismantle the price support and procurement machinery. While farmers may, at present, be getting a higher price by selling wheat to private players, the euphoria is unlikely to last long. In the absence of an MSP and procurement by the government, chances of a concentration of agri-business corporations are high. Once this cartel takes over, it will dictate prices to the farmer. With imports being made the norm, the future of the Indian wheat farmer looks bleak. It's time to play a requiem for India's great wheat revolution.
(Bhaskar Goswami is associated with the New Delhi-based Forum for Biotechnology and Food Security)
InfoChange News & Features, May 2007