As per the news reports in October 2020, India’s production of wheat this year remained around 107.59 million tonnes (mt). Some 38.99 mt or 36 per cent of this crop was bought by the Food Corporation of India (FCI) and State government agencies in April-June, when the country was entirely locked down. This is particularly notable as much of the government relief to those who were worst hit by the Covid-related economic dislocations was in the form of free grain.
In 2019-20 (April-March), foodgrain offtake from public warehouses, for distribution through fair price shops and under various welfare schemes, totalled 62.19 mt. This fiscal, the allocation is up more than half, at 94.63 mt, including 60.17 mt under the National Food Security Act (NFSA), and an additional 32.91 mt Covid-special allocation, especially under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)-an extra 5 kg/month from April to November free of cost.
These allocations are, no doubt, well-intentioned, but the cheap/free wheat and rice is also being diverted to the open market instead of going to the intended beneficiaries. For example, some millers are purchasing wheat for ? 1,900-2,000 per quintal delivered at their doorsteps, which is lower than the official minimum support price (MSP) of ? 1,925/quintal payable to farmers, though they bought it for ? 2,400-2,500 in 2019. Moreover, this is for a crop which is largely grown north of the Vindhyas and has to be carted some distance for reaching mills in south-Mysore, Dindigul or Kozhikode.
Possible Reasons
There could be three possible reasons for this decrease in price.
- Nearly 85 per cent of the government’s 38.99 mt wheat procurement was from just Punjab, Haryana, and Madhya Pradesh, that might have allowed grain from Uttar Pradesh, Bihar, etc., to be available at lower than MSP rate. However, it did not happen so in 2019, when prices ruled 25 per cent higher.
- Roughly 80 per cent of India’s wheat goes to stone chakki mills that grind the kernels into whole flour or atta. The balance is processed by roller flour mills, which remove the bran (brown outer layer) and grind only the endosperm (white part), first into coarser sooji and further to maida, which is used in eateries and sweetshops like for making naan, paratha, rumali roti, samosa, kachori, and gulab jamun. These food items were shut during the lockdown. However, superfine maida is also used in bread, biscuits, cookies, and noodles, which have an increased consumption at homes.
- Leakage is one of the more plausible reasons, which is bound to happen with 94.63 mt of grain, being offered virtually free. Therefore, the diverted quantities inevitably depress rates in the open market.
Hardships Faced by Farmers
Presently, wheat is getting delivered to southern mills from central India at sub-` 20/kg by trucks, rail rakes, and even sea route. About 12,000-15,000 containers (each of 25-27 tonnes), loaded in barges/vessels from Mundra and Kandla in Gujarat, arrive every month at ports like Tuticorin, Kochi, and Mangalore. A lot of it may well originally have been PMGKAY/NFSA grain. As per Department of Consumer Affairs, the all-India average retail price of wheat itself has fallen from ? 30 to ? 20 per kg in the last one year!
However, FCI has fixed the minimum price of its wheat for open market sales to bulk consumers at ? 2,135/quintal, excluding rail freight and road transport cost, from Ludhiana or Bhopal to the FCI depots of the destination states.
Export of Rice
As for rice, the market distortions are even worse. The government agencies procured 51.65 mt or 43.6 per cent of the country’s 118.43 mt production in 2019-20. This year, export of rice is projected at 14 mt, surpassing the previous all-time-high of 12.7 mt achieved in 2017-18. Indian exporters are currently exporting basmati rice at US$ 700-800 per tonne. But the growth is coming from non-basmati due to a combination of Covid-induced panic buying and drought in Thailand, which caused a surge in global demand. Parboiled rice with 5 per cent broken grains from India is going at US$ 370 per tonne, below the US$ 450 from Thailand. Even white rice with 25 per cent brokens from India is quoting at US $ 330-335, compared to the US$ 370-380 per tonne prices from Vietnam, Myanmar, and Thailand. But if last year’s paddy was procured at the MSP of ` 1,815/quintal, the equivalent price of milled rice would be over ` 27 per kg, even without accounting for commission fees, local levies, transport, bagging, warehousing, and other port-handling charges. Therefore, it cannot be exported at less than US$ 400-410 per tonne.
There is a huge gap between FCI’s own ‘economic cost’ of ` 37.5/kg for rice and the ` 0-3/kg rates under PMGKAY/NFSA which is being exploited.
Courtesy: Indian Express