Declining wheat inventories: Grain of the matter

Source: The post is based on an article “Grain of the matter” published in the Business Standard on 17^th July 2022.

Syllabus: GS3 – Public Distribution System – Objectives, Functioning, Limitations, Revamping; Issues of Buffer Stocks and Food Security; ; Major Crops – Cropping Patterns in various parts of the country,

Relevance: Buffer stock and related issues

News: There has been a sharp decline in the government’s wheat inventories to 28.5 million tonnes this year. This is the lowest since 2008.

Reasons for sharp decline of inventories

About 1.8mn tonnes of wheat was sent to about a dozen countries, including Bangladesh and Afghanistan, even after the imposition of the ban on wheat exports.

Why should the declining inventories be not a matter of concern?

The inventory is still about a million tonnes higher than the stocks needed to be held as buffer and strategic reserves for food security purposes.

Besides, there is no dearth of wheat in the market despite record exports and liberal shipments to other countries on humanitarian grounds.

The prices of wheat in the open market, too, have remained fairly stable. It is another indication of the comfortable supply position.

What are the reasons for the depletion of wheat holdings?

The intense heat in March 2022 caused the grains to shrivel and ripen prematurely without attaining full mass. Therefore, there was a fall in crop output. For example, Wheat output, anticipated originally to be over 109 million tonnes, fell to 106.4 million tonnes.

The government’s procurement of wheat dipped by a huge 60% due to lower market arrivals. It happened because private traders, and notably exporters, purchased wheat at rates higher than the minimum support prices (MSPs).

Why is the reduction in the government’s grain stockholding a welcome development?

From the economic standpoint, this would help bring down the cost the Food Corporation of India (FCI) incurs on holding surplus food stocks.

Way Forward

Instead of wheat, the government can help the countries facing acute food insecurity through rice export.

(1) The government can prune the inventories of rice, which, at present, are estimated at more than double the requirement of the public distribution system (PDS) and food-based welfare programmes. The government can sell stock of rice in the domestic market. The private traders can export.

(2) The World Trade Organization (WTO) rules disallows exports from the public food stocks. Therefore, India can plea to WTO to waive this restriction in view of the current global food crisis.

The cropping patterns should be diversified from the paddy crop to other crops, especially oilseeds, for which the country is still heavily dependent on imports.

Some states, including Punjab and Haryana, have already begun offering cash incentives to farmers to replace paddy with other crops. There is scope for similar moves in many other states as well.