Lessons for today from India’s 2006 wheat crisis

News: India faced a wheat crisis in 2006. The present article lists out the reasons that caused it and lessons that can be learnt.

The author is this article was appointed as the Secretary of Food and Public Distribution during that time.

What was the situation in 2006 and the reasons behind it?

– Centre decides to liquidate its excess stock: The central pool had been carrying large stocks and there was wide criticism that these were being held for no good reason and costing the taxpayer huge sums of money. The government had, after due consideration, decided to liquidate some stocks with the FCI for export.

– Procurement begins to go down: Coincidentally, procurement had started going down from a high of 20.6 MMT to 15.8 MMT in 2003-04, to 14.8 MMT in 2005-06. This trend and the resultant depletion of stocks went “unnoticed”.

Procurement in 2006-07 (April-March) at 9.23 MMT was far below the requirement.

The buffer stocks were drawn down by 2 MMT.

Hence, the stock position at the end of a poor procurement season had put the government in a tight spot.

What were the reasons behind the 2006 food crisis?

The thought that India has a food surplus and can feed its people and “the world” resulted in the unintended depletion of public stocks.

The reduction in public stocks without reviewing the production and stock position every quarter was ill-planned.

Overlooking the drop in production almost every alternate year, particularly in 2000-01, 02-03, and 04-05 followed by 05-06 proved costly.

Not estimating the impact of climate change (high temperatures) on production — grain formation and grain size/weight — turned out to be critical.

– The Department of Food, overconfident about procuring large quantities, believing that the crop size estimated by the Ministry of Agriculture is above 75 MMT, went about disposing of old stocks. By the time the third advance estimates came by end of May (there were no drones or satellite imagery in those days), the damage was done.

No data about private stocks: The government depended on only production and public stock data to take policy decisions, ignoring the importance of private stocks in the market.

What can India do to avoid such errors?

Set up systems to get reliable and timely estimates of crops. The second advance estimates come in mid-February and the third in mid/ late May. Food management requires a better picture by early March (same for kharif).

The National Crop Forecasting system including “FASAL soft” will have to be reset.

The much-hyped Drone-Artificial Intelligence- Blockchain technologies should be deployed to do a simple thing: Prepare a correct estimate of the crop well in time, for the government to plan and act ahead of any crisis.

Reliable price data has always been a missing link in policy planning. Mandatory reporting of price (not just the APMC price data) of all large (limits can be defined) transactions are a must. Price movement is an important indicator of the supply-demand mismatch.

The government should be aware of the quantum of private stocks, preferably in anonymised, aggregated formats. This needs legal backing. A provision to mandate the submission of anonymised stock data from all warehouses should be put in place.

The futures market remains grossly under-utilised. A vibrant futures market can help plan better. A futures market should be allowed to function without knee-jerk interventions from the government.

A robust system (drones, satellites, ground data) to monitor weather conditions like temperature, moisture stress, etc needs to be put in place immediately with a focus on key crops and major growing regions.

With the expertise available in the country today, algorithms can be built to assess the impact of weather and pest events on crop size and quality. The government needs this information more than anyone else.

Source: This post is based on the article “Lessons for today from India’s 2006 wheat crisis” published in The Indian Express on 19th May 22.