Explained: Behind low wheat procurement

News: From an all-time high last year, procurement of wheat is set to hit a 15-year low this season, falling below existing stocks for the first time. What has led to this, and will it impact availability?

What are the reasons for the fall in procurement?

There are two main reasons:

1) Rise in Export demand: Supply disruptions from the Russia-Ukraine war – the two countries account for over 28% of global wheat exports – have led to skyrocketing prices and a further increase in demand for Indian grain.

2) Lower production: A sudden spike in temperatures from the second half of March — when the crop was in grain-filling stage, with the kernels still accumulating starch, protein and other dry matter — has taken a toll on yields.

In most wheat-growing areas — barring Madhya Pradesh, where the crop is harvest-ready by mid-March — farmers have reported a 15-20% decline in per-acre yields.

Thus, a smaller crop, in combination with export demand, has resulted in open market prices of wheat crossing the MSP in many parts of India.

What are the key requirement areas for procured wheat?

Requirements:

– A minimum operational stock-cum-strategic reserve has to be maintained

– Annual wheat requirement for the public distribution system, midday meals and other regular welfare schemes, is around 26 mt.

– The last two years have also witnessed substantial offtake under the Pradhan Mantri Garib Kalyan Anna Yojana scheme (10.3 mt in 2020-21 and 19.9 mt in 2021-22) and open market sales to flour mills (2.5 mt and 7.1 mt, respectively).

• There’s clearly not enough wheat for these, which explains the Centre’s recent decision to slash allocation under the PMGKAY.

What is likely to happen now?

Simply put, one can expect a rerun of what happened in 2006-07 and 2007-08. That period, too, saw a worldwide agri-commodity price boom and production shortfalls, causing reduced procurement and depletion of stocks.

However, the relatively tight supplies in wheat this time is compensated for by the comfortable public stocks of rice. At over 55 mt as on April 1, these were more than four times the required buffer of 13.6 mt.

And a good monsoon should further augment availability from the ensuing kharif crop and tide over the shortages in wheat.

Source: This post is based on the article “Explained: Behind low wheat procurement” published in The Indian Express on 10th May 22.