No. 42, December 2006

No. 42
(December 2006):

Counter-Revolution in Military Affairs?

Wheat Imports – A Tool for Re-shaping India’s Agriculture
II. How the Wheat Crisis of 2006 Was Created

Let us briefly recapitulate our earlier account5 of how the Government managed to hand over the vast stock of foodgrains to private interests. In July 2002 the Food Corporation of India’s (FCI) foodstocks were 63 million tonnes (of which wheat stocks were 41.1 million tonnes) as against a minimum foodgrains buffer stock norm for July 1 of 24.3 million tonnes (14.3 million tonnes for wheat alone).

Even if we took the value of these stocks very conservatively at Rs 6/kg, they would be worth Rs 378 billion. Much of this huge capital could have been used as wages in food-for-work schemes to create rural assets – thus increasing the country’s productive base, its storage of farm products, its rural roads, and its education and health infrastructure. However, only a small portion of the total was used in such a fashion. Instead, the Government did the following:

(i) Subsidised exports: Between 2000-01 and 2004-05, 29.9 million tonnes of the FCI’s foodgrains stocks was exported at a heavy subsidy. During November 2000 to February 2004, the FCI subsidised wheat and rice exports by Rs 141.35 billion.6 In fact, from 2000-01 to 2003-04, the grains were exported at considerably below the Minimum Support Price paid to the peasants. The beneficiaries were giant foreign agricultural traders such as Cargill and large domestic trading firms who bought the grain for export.

(ii) Handed over to traders at a subsidy: Further, a huge quantity of wheat and rice – 18.7 million tonnes – was sold, largely at subsidised prices, to domestic traders under the open market sales scheme (OMSS) between 1999-2000 and 2003-04.

(iii) Plundered with official collusion:  Finally, giant quantities appear to have been stolen, in an operation that could only have been organised at the top levels. Between April 2002 and October 2003, 14.7 million tonnes simply disappeared from the FCI’s foodgrain stocks and are unaccounted for.7 If we value these stocks at Rs 6/kg, the loss on this account is Rs 88 billion.

Since the UPA government came into office on the back of massive rural discontent, it has had to revive, to some extent, the rural employment schemes and welfare schemes, which were in a coma during the preceding years. As a result the offtake of foodgrain for these schemes has picked up somewhat, requiring higher foodgrain stocks with FCI.

For all these reasons the stocks drew down rapidly, as the result of conscious policy. Wheat stocks as on April 1 (ie before procurement) fell from 26 million tonnes in 2002 to 15.6 million tonnes in 2003 to 6.9 million tonnes in 2004 to 4 million tonnes in 2005. The figure for April 1, 2005, was thus 0.1 million tonnes below the buffer stock norm for that date.

Deliberate under-procurement in April-May 2005
Given the increased requirements of the PDS, welfare schemes, and food-for-work schemes, the Government was aware in April 2005 itself that it needed at least around 18.5 million tonnes of wheat for distribution through the following year.

Thus it was crystal clear at the start of the procurement that the Government would need to energetically carry out procurement. Nevertheless, it procured only 14.7 million tonnes in the 2005-06 marketing season (April-May 2005).

The Government has made out that this merely “happened”, as if by accident. Union Food Secretary, S.K. Tuteja, “hedged questions on why procurement was less this year, saying there is no procurement target and the government is quite happy if private players are paying farmers more than the minimum support price. After all, he said, the objective of the procurement exercise is to ensure farmers get the MSP and the government can meet its welfare commitments.”8

Tuteja’s statement is false in two respects: first, the shortfall in procurement was deliberate; and secondly, peasants received less than the MSP. The shortfall occurred for two reasons.

The Government tells peasants: “Reduce your grain production”
First, the Government adopted a policy of keeping the Minimum Support Price low in order to reduce food procurement.9 The Economic Survey states that in recent years the Government deliberately restrained increases in the MSPs: “the price policy for rabi and kharif crops announced modest price increases in the past five years. The Government’s policy of restraint in announcing hike in MSP of principal cereals in the last four seasons is likely to address the problems associated with excessive concentration on production of two crops, namely, wheat and rice.” That is, the Government was deliberately getting peasants to shift away from wheat and rice to other crops.

This has been the explicit policy of the Government for some time now. In March 2001 then Prime Minister Vajpayee told peasants at a meeting in Haryana to “Look beyond wheat and paddy” and to switch to “horticulture, floriculture, oilseeds and vegetable production and have a good export potential.” With the removal of restrictions on imports under the World Trade Organisation, he said, Indian farmers would have to grow less food and more of other crops. Thus it became official Government policy to discourage foodgrains growth and thus ensure dependence on imports.

This policy was also defended by falsely claiming that Indian peasants were growing too much grain, more than Indian consumers could consume. The Food and Agriculture Minister, Sharad Pawar, declared on February 20, 2005, (almost exactly a year before deciding to import wheat) that “the days of importing foodgrains were over.” He boasted: “Punjab, Haryana and parts of U.P. are satisfying the country’s hunger. I want Punjab and Haryana to reduce their production of wheat and rice, which is in abundance.” (emphasis added) He said this on the occasion of announcing a Rs 150 billion National Horticulture Mission, underlining the new direction that the Government wants peasants to take. Most of the little increase in the allocation to agriculture in the 2005-06 and 2006-07 Union Budgets has been devoted to horticulture and micro-irrigation (the latter largely for horticulture). 

Government freezes Minimum Support Price
As can be seen from Table 4, between 2000-01 and 2005-06, the MSP has increased by just 6.6 per cent. In fact, during 2001-02 to 2004-05 the Wholesale Price Index for all commodities rose 4.7 per cent per year, whereas wholesale prices of wheat rose rose by just 1.1 per cent per year.

This virtual freezing of MSPs was intended to dampen wheat production and procurement. Consequently, as can be seen from col. 4, procurement fell sharply between 2000-01 and 2004-05, by 5.84 million tonnes; as a percentage of the crop (col. 5), procurement fell by 9 percentage points. 


Table 4: Wheat Minimum Support Price and Procurement

Crop Year Minimum Support Price (Rs/quintal) % change over earlier year Procurement* (million tonnes) % change in procurement over earlier year Procurement as % of crop*
1999-2000 580 5.5 16.35 15.6 21.4
2000-01 610 5.2 20.63 26.2 29.6
2001-02 620 1.6 19.05 -7.7 26.2
2002-03 630 1.6 15.80 -17.1 24.0
2003-04 630 0 16.80 6.3 23.3
2004-05 640 1.6 14.79 -12 20.6
2005-06 650 (700)** 1.6 (9.4)** 9.22 -37.7 13.3

*Wheat procurement is carried out in the marketing year following the crop year, that is, procurement of the 1998-99 crop is carried out in 1999-2000.

** Wheat procurement was started in April 2006 at the price of Rs 650. After this met an abysmally poor response given the low procurement price, the Government declared a bonus of Rs 50, bringing the total to Rs 700. However, by that time many peasants, especially those without holding power, had sold their crop, much of it to private traders.

Source: Economic Survey 2005-06 and Commission for Agricultural Costs and Prices (CACP).

Government tells FCI: don’t procure
However, the near-freezing of MSPs in wheat was not enough to depress procurement to the extent the Government wished. Therefore, in April 2005, instructions were issued to the FCI not to procure in Uttar Pradesh. U.P. might have been chosen because peasants there have been less organised and militant than those in Punjab and Haryana. We have seen in recent years militant rail rokos and other protests by Punjab peasants specifically on procurement, forcing the Government to procure.

None other than the Union Secretary for Agriculture, Radha Singh, confirmed that such instructions were issued by the FCI. She stated that “Procurement [in the 2005-06 marketing season] has declined mainly because government agencies did not make requisite purchases in states like UP.” She said wheat output in U.P. was estimated at nearly 25 million tonnes, making it the largest producer of the crop in the country. Yet the government procurement in the state was a dismal 0.56 million tonnes, as against a normal 2.5 million tonnes. “Nothing stops government-run agencies like FCI from procuring wheat in UP. If procurement in UP would have been in proportion to the output, the stock position would have been much more comfortable.” On the other hand, she noted, “Private players including multinationals are estimated to have purchased around 4-5 million tonnes of wheat in Uttar Pradesh.”10 This demolishes Food Secretary Tuteja’s claim that the shortfall in procurement occurred spontaneously.

The Commission for Agricultural Costs and Prices (CACP) called attention to the dangerous consequences of this withdrawal by the state agencies. It noted that corporate groups had been staying out of procurement in Punjab and Haryana because of restrictions on licensing, payment of tax, etc, but

The removal of restrictions in some other states has seen the entry of corporate groups and large trading companies like ITC and Cargill entering business of the purchase and sale of wheat and wheat flour. In Uttar Pradesh, the corporate bodies have been allowed to directly purchase from farmers at any price above MSP.

Meanwhile, the domestic market is poised to witness further changes with possible entry of international agencies. The Australian Wheat Board (AWB) has received Government of India’s permission to set up a wholly owned subsidiary in India. The Board intends to purchase and sell wheat, rice, maize and other permitted agricultural commodities. The AWB also perceives India as a prospective market for Australian wheat in the medium term and is certain that India would start importing wheat in future.

Corporate groups enter the market with the profit motive which determine their operations. They purchase such produce for which they foresee a ready market. During a visit to Madhya Pradesh, the members of the Commission observed that ITC purchases at e-chaupal were restricted to Lok-1 variety of wheat. Durum wheat was quoted at prices less than MSP because of poor local demand. At local level, the existence of a corporate purchaser lulled the state government into believing that all wheat would be purchased by private entities. In a scenario, where buying and trading in grain is witnessing the entry of new players, the Commission feels that government, both at central and state levels, have to be vigilant to ensure that farmers get remunerative prices for their produce.11

The Commission further remarked on the failure to procure in U.P., resulting in lower prices for the peasant and lower procurement:

In Uttar Pradesh also, the procurement in the marketing year 2005-06 was around one-fourth of the past three years average procurement. One possible reason for this subdued performance of procurement could be the market reform in the state, enabling corporates to purchase directly from farmers with the incentive of market fee exemption, provided these purchases were made at a price not lower than MSP. However, in several markets of the state, prices ruled below MSP. There were some reports that these corporates did not adhere to their commitment of paying MSP to farmers for their purchase of wheat. In Madhya Pradesh also, there were instances of prices of wheat quoted at less than MSP for certain varieties, which required MSP intervention by the state. However, due to lack of vigil on the part of state agencies, the farmers lost on the price front while the procurement also remained subdued. (emphases added)

Thus the evidence is clear: There was a decision to procure less, and to leave the field open for the multinational corporations and other grain speculators, at the expense of both peasants and consumers. It is worth noting that the amount of shortfall in procurement from U.P. – two million tonnes – is roughly the same as the shortfall in the buffer stocks on April 1, 2006.


5. See Aspects no.s 36 & 37, pp. 149-151. (back)

6. The Comptroller and Auditor General estimated the economic cost (i.e., all costs incurred by the Food Corporation, including transport, storage, and interest) of wheat and rice exported at Rs 339.27 billion; the sale value was Rs 197.92 billion. – Business Standard, 9/5/05. (back)

7. See Aspects no.s 36 & 37, p. 151. (back)

8. Times of India, 10/6/05. (back)

9. The Government’s official Economic Survey 2005-06, claims that large Government procurement hurt private traders and discouraged them from expanding in the field of agricultural marketing: “Reduction of private trade in wheat and rice in the northern states of Punjab and Haryana also possibly led to the ‘crowding out’ of private investment in agricultural marketing channels.” So the Government wants to encourage private investment in agricultural marketing by keeping the MSPs low, and diverting more grain into the hands of private trade. (back)

10. Business Standard 17/6/05; emphasis added. (back)

11. CACP, Profile of Rabi Crops under Price Support of 2005-06 Season; emphases added. (back)


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