No. 42, December 2006
Wheat Imports – A Tool for Re-shaping India’s Agriculture
Knowing that wheat imports in the given situation would signify a deliberate move towards an import regime, the Government made the decision to import in a conspiratorial and suspicious fashion. By June 2005 the total wheat procured in that season was publicly known, as were the annual requirements of the PDS. No unexpected withdrawal was made from the stocks in the course of the year. Thus throughout the year the Government had a clear idea of the low stock position.Yet from June onward the FCI chairman and the Food Minister kept repeating that there were adequate stocks. As late as November 22, 2005, the FCI chairman said “The chances of wheat imports are nil. Stock levels do not support the idea of imports. If you take consumption of 1.5 million tonnes of wheat a month, we will be left with at least one million tonnes in April.”25 On January 3, 2006 Sharad Pawar declared that “The Government does not believe that there is a shortage of grain and is not planning to import it.” Indeed, right upto March 2006 the Government continued to make open market sales of wheat, totalling more than one million tonnes.
Then, on February 2, 2006, with no unusual offtake in the interim, and less than two months before procurement, Pawar announced imports.
Foreign firms long in the know
The Australian Wheat Board (AWB) too was clear that India constitutes an attractive long-term market, and began investing in physical assets such as warehouses. According to the AWB, given the slow growth of India’s farm sector, “there will be a gap between demand and supply of agri-commodities [that is, there will be a shortage]. By doing opportunity-based imports and exports, AWB can become a serious participant.”26
Do foreign exchange reserves constitute food security?
If large foreign exchange reserves constitute food security, then indeed India should be food-secure. At the start of April 2006 the foreign exchange reserves were $152 billion; they rose by June 2006 to $163 billion, and continue to rise. Yet the actual exercise of imports has been fraught with peril.
Three problems emerged in the process of the imports: the failure of successive tenders, and the slow pace of actual imports; the dilution of food and plant safety norms under pressure from foreign suppliers; and the price of the imports.
Although the size of the gap in required wheat stocks was evident at the outset, the Government at first announced in February 2006 that it would import 0.5 million tonnes of wheat. The tender was awarded to the Australian Wheat Board (AWB), much to the resentment of US firms, who lobbied furiously for further imports. On March 13 the Indian Agriculture Minister declared: “My policies are not decided by American agriculture. Our present decision is to import only 5 lakh (0.5 million) tonnes.”
In the third week of April, the Government announced its intention to import another three million tonnes. However, only two out of eight bidders for this tender fulfilled the conditions of the tender, and the Government was able only to import 0.8 million tonnes. A fresh tender for 2.2 million tonnes was issued in June; another in July for 0.4 million tonnes (of which it was able to import 0.33 million tonnes); and one more in August for 1.67 million tonnes. The actual arrivals were much slower: by June only 91,000 tonnes of the first tender had arrived; by the third week of September a total of 1.2 million tonnes. Indeed, as world wheat supplies tightened, it became increasingly difficult for the Government to arrange supplies quickly.
Dilution of norms
The first tests of the first shipment of Australian wheat showed unacceptably high pesticide levels, leading to prolonged negotiations which greatly delayed the actual arrival of the contracted wheat. Meanwhile, the US and other importers objected to the norms prescribed for the first tender, which they claimed had prevented US firms from bidding. In April itself the US ambassador met India’s Cabinet Secretary to demand that the norms be relaxed.
In May the Indian government reportedly showed US authorities an advance draft of the newly revised plant health norms before they were officially announced. The Bush administration suggested substantial easing of norms for weevils (grain-eating beetles), fungal diseases, and weeds. It also objected to the requirement of fumigation with methyl bromide which the Indian government demanded in order to eliminate particular pests found in the US but not in India. The US Department of Agriculture spokesman, Ed Lloyd, asserted that Indian wheat imports were “something we’re very aggressively involved in. What we’ve been trying to do is open more markets for US agricultural products and wheat in India is a very important market.”28 Canada, the European Union, Russia and Australia also pressed for revision of the norms.
Although the Government relaxed import norms substantially in May at the behest of exporting countries, it continued nevertheless to face pressure for further revision. The US Deputy Trade Representative met Indian officials in May, and the US agriculture secretary pressed his case on Indian Agriculture Minister Sharad Pawar’s visit to Washington in June. The June tender thus further relaxed the norms to allow 100 banned quarantine weed seeds per 200 kg of samples from a single consignment.
Yet the Indian government found it difficult to make the required imports with even these relaxed standards. It decided in August to allow wheat imports even if they failed to meet the quality or phytosanitary norms specified in the import tenders. The Agriculture ministry only ordered that “If the plant quarantine officials find that the level of infestation of the import consignments of wheat warrant their milling in order to prevent the establishment of quarantine pests in the country”, they should direct the importers “to ensure that the consignments are milled at the earliest...” The importers would not be allowed to store or transport it through major wheat growing regions unless it were milled.
However, it is doubtful that the existing Government machinery can enforce any such order effectively, and agricultural scientists raised objections to this relaxation, which was reportedly carried out specifically to allow US participation in the tender.29 Speaking of the relaxation of norms for the first instalment of imports, a leader of the Congress farmers’ front, Krishan Bir Chaudhury, complained: “We spent crores [tens of millions] fighting a single weed (parthenium, or congress grass) that came with Mexican wheat. And now we have got 12 weeds to oblige AWB.20
The CACP tellingly observed:
There are schools of thought that delink the issue of food security from the self-sufficiency in food production and articulate that the level of India’s foreign exchange reserves is a permit to acquire food security through imports.... The scenario of wheat economy in the season 2005-06 has not only exposed the vulnerability of much acclaimed sustainable food security of the country, it had dislocated the price stability of this essential item of mass consumption in the country. It has also demolished the premise articulated by several thinkers that India’s healthy foreign exchange reserves is a guarantee for the nation’s food security.
Rising import prices
Table 5: International Prices of Wheat ($/metric tonne)
Table 6: Price of Wheat Imports by India in 2006 (cost and freight)
Are imports cheaper?
(i) Handling, storage, administrative and interest costs would be similar for domestic and imported wheat. Transport costs alone would differ, though even imported wheat would have to be transported to destinations within the south. (In fact, Brinda Karat has released details showing that much of the imported wheat has been despatched to destinations outside south India; in that case transport costs for imported wheat presumably would be identical to those for domestic wheat.)
How much are the transport costs? A break-up of the FCI’s costs per tonne of wheat (the “economic cost”) is available uptil 2001-02 in the Report of the Committee on Long-Term Grain Policy. Of the economic cost of Rs 8,713/tonne, all transport costs accounted for less than Rs 608/tonne. Since this is an average cost for the whole country, we could liberally take it at double, or over Rs 1200/tonne, for south India. Even at these transport costs domestic wheat would be cheaper.(ii) While wheat is being imported at zero tariff,31 state government levies are applied to domestic wheat. The price of Rs 10,308/tonne includes these levies. (The latter were Rs 985 per tonne of wheat in 2001-02.) For a proper comparison of the prices of domestic and imported wheat, the two must be compared at zero taxes and tariffs. Let us say domestic wheat costs Rs 7,000 + Rs 1,200; imported wheat would be around Rs 9,300 + transport costs within south India.
(iii) Moreover, the quality of the imported wheat compares poorly with that of domestic wheat. As mentioned above, quality norms have had to be repeatedly relaxed in order to meet the import target. Clearly, one cannot compare the prices of different qualities of wheat.
(iv) The above confirms what commonsense would tell us, namely, that domestic wheat is much cheaper than imported wheat (this despite the subsidies provided in countries like the US to wheat). But further, even were imported wheat to be of comparable quality and cheaper than domestic wheat, it should be obvious that purchasing domestic wheat puts purchasing power in the hands of Indian peasants and benefits the Indian economy, whereas consumption imports are a drain on the economy.
Thus the imports were justifiable on neither purely commercial considerations nor on wider economic ones. That they were carried out underlines the political grip of the imperialist countries on the Indian State.
The peril of import dependence is underlined by the fact that international supplies are projected to remain tight, and prices high. The International Grain Council estimates world wheat output in the year July 2006-June 2007 will be 33 million tonnes lower than last year. Closing stocks are set to fall 21 million tonnes, and the ratio of stock-to-use is likely to be the lowest for three decades. Although this is in part because of a severe drought in Australia and a production shortfall in Ukraine, it is in line with longer-term trends which suggest that production will lag behind consumption for the next decade.
Domestic prices – at the mercy of hoarders
Domestic hoarding had been facilitated by the Centre’s removal (in June 2002) of curbs on distribution and storage of wheat and pulses under the Essential Commodities Act (ECA), 1955. The new element this year was that not only private traders, but large corporate firms, were hoarding wheat.
Mass discontent, pressure on Congress leadership
Under this pressure, on August 25, the Government revalidated the orders for control and curbs on distribution and storage of wheat (that had been rescinded in 2002). In September the Maharashtra government placed a ceiling of 150 tonnes on wheat stocks held by traders in Mumbai and Thane, and 50 tonnes for those in the rest of the state, and the Karnataka, Gujarat, A.P., M.P. and Rajasthan governments said they were considering similar moves.
These measures indicate that the Government was aware of the extent of hoarding. However, the Government does not appear to have been implemented the measures seriously, which thus had little effect on prices. Later, successively stricter curbs on the futures market in wheat (increasing step by step the total margin to be paid on wheat contracts, lowering the limits on positions taken, narrowing the limits on daily price fluctuations, and lengthening the “cooling period” after prices hit the daily limits) did have some effect.
25. Business Standard, 23/11/05. (back)
26. “AWB to be the first MNC to step into farm retail here”, Economic Times, 9/12/05. (back)
27. World Bank, India: Country Economic Memorandum, vol. II, Agriculture: Challenges and Opportunities, 1991. (back)
28. Business Standard, 16/5/06. (back)
29. Business Standard, 4/8/06. (back)
30. Business Standard, 12/6/06. (back)
31. The government has also allowed private traders to import wheat at zero duty till February 28, 2007, and at five per cent duty from then till March 31, 2007, on the plea of easing supplies. (back)
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