Home / Opinion / Views /  Wheat granaries are full, why are prices rising then?

The world is staring at one of its worst food crises in recent years. Russia's invasion of Ukraine has choked supplies from the two key grain producers. Unfavourable weather conditions have hit harvests in many countries. The resulting shortages have been worsened by precautionary export cuts by many countries including India, which on 13 May banned fresh contracts of wheat export by the private sector, leaving it open for the Centre to ship out the staple in government-to-government deals.

India isn't the only country to have announced an export ban. As many as 15 countries are reported to have placed restrictions on food and fertilizer exports to secure availability for their populations. The inescapable consequence of all this is shortages and, therefore, record global food inflation.

The World Bank has projected wheat prices will rise by more than 40% this year.

The Indian government has said that it restricted wheat exports to manage the overall food security situation and cool inflation in the country. But India is one of those countries that do not have a shortage.

Government data shows that the country has adequate stocks for domestic needs and exports. This year’s wheat production was expected to be a record 111 million tonnes, but hot and dry weather from March onwards has shrivelled kernels of the wheat crop in many areas. As a result, wheat output is now estimated at 106.4 million tonnes. The government has not been as successful this year in procuring wheat as in the past, as farmers preferred to sell to private agencies and exporters offering better prices. Nothing wrong in that. This is how the market rewards farmers.

The government struggled to reach the revised target of 19.5 million tonnes for procurement for this season. This target was almost 56% lower than the original procurement estimate of 44.4 million tonnes.

Even so, with an opening stock of 19 million tonnes, the government should command more than 35 million tonnes of wheat. The buffer stocking norm for April 1 is 7.5 million tonnes.

Then why are wheat and atta prices rising when there’s no shortage? Because the government hasn’t released wheat from its stocks to cool prices. The stocks in Food Corp. of India's warehouses cannot cool prices just by being there. The stocks will have to be released into the market in a calibrated strategy to reduce the demand-supply mismatch. Trouble is that government officials have traditionally been reluctant to release stocks as it invariably involves auctions to private players with a follow-up trail of corruption inquiries by the dreaded 3Cs: CVC, CAG, Courts.

India is not a significant wheat exporter, but this year was expected to be different.

Prime Minister Narendra Modi had told US President Joe Biden that India would supply from its bulging food grain stocks if the World Trade Organization rules were relaxed to allow export of procured (not that different than subsidized) food grains. The hasty ban on wheat exports, therefore, puts a question mark over India's offer to mitigate global food shortage.

Now, members of the G-7 countries are expected to appeal to India to reverse the ban on wheat exports during the upcoming summit (26-28 June) in Germany which Prime Minister Modi is likely to attend, The Hindu has reported.

Further, soon after the hastily imposed ban, the government was forced to announce some relaxations, letting those wheat consignments that had been handed over to customs for examination and registered into the systems on or before 13 May to be exported.

It also let a wheat shipment headed for Egypt that was already under loading at the Kandla port sail, after the Egyptian government sent a request for it to not be covered by the ban.

This flip-flop was unnecessary. A situation where there's global pressure to reverse the ban is also completely avoidable. Judicious use of FCI stocks can cool prices in the domestic Indian market without requiring a wheat export ban.

The key question is: what’s the point of maintaining mountains of food grain reserves if they will never be released in the open market?

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