No. 42, December 2006

No. 42
(December 2006):

Counter-Revolution in Military Affairs?

Wheat Imports – A Tool for Re-shaping India’s Agriculture
IV. Failure of Procurement in 2006-07

Entirely predictable
The fiasco of wheat procurement in April-May 2006 was entirely predictable.

First, as mentioned above, private traders and the corporate sector had already started making direct purchases from the farmers the previous year, affecting public procurement. With more and more states making pro-corporate sector changes in the Agricultural Produce Marketing Committee (APMC) Act, the presence of the corporate sector was certain to increase, and further displace public procurement.

Secondly, the officially minimum support price (MSP) at which grain was to be procured was set just 1.6 per cent higher than the previous year, despite wholesale prices rising 4.3 per cent in the previous year (and fuel prices rising at more than twice that rate). Thus the corporate sector was able to bid just slightly higher than the MSP, and buy up the grain.

Thirdly, given the previous year’s shortfall in procurement, and the fact that stocks with the FCI had fallen to just 1.9 million tonnes on April 1, 2006 (2.1 million tonnes below the minimum buffer stock norms), speculators in grain were able to drive up grain prices. Open market prices reigned well above the MSP.

Historic low

As soon as public procurement started it was clear that it would fail. By April 9 procurement was reportedly just 18-20 per cent of arrivals in the market: Private buyers were cornering the rest. Yet it was only on April 21 that the Government announced an incentive bonus of Rs 50 per quintal to attract more sellers (thus raising the effective procurement price to Rs 700). By that point it was too late, as many peasants with less holding power had already disposed of their grain to private traders – at prices much lower than Rs 700. During field visits of members of the Commission for Agricultural Costs and Prices (CACP) to Punjab, Haryana, Rajasthan, Madhya Pradesh and Uttar Pradesh, “it was generally reported that private trade was active in the market from the beginning of the season and bought their grain at prices slightly higher than the MSP announced.”19

Moreover, it appears much of the grain was bought even before it reached the markets. Despite the fact that official estimates put wheat production slightly higher than the previous year, only 13.7 million tonnes reached the market – 2.3 million tonnes less than the previous year, and 4.4 million tonnes less than the year before that.

Of the grain that reached the market, the Government procured only 67.5 per cent, as compared to 93 per cent in previous years. Procurement fell by 23 per cent in Punjab and 51 per cent in Haryana, the two largest centres. The collapse was even more dramatic in U.P., where procurement fell 92 per cent from last year’s already low figure: against a target of 2.5 million tonnes in U.P., the FCI procured only 0.04 million tonnes.20 The U.P. procurement scene is a foretaste of the scrapping of the FCI.

Total public procurement, at 9.2 million tonnes, was thus just 13.3 per cent of the wheat crop – a historic low. Was the crop so small that it was not possible to procure more? Last year, when the crop was smaller, the Government procured 14.8 million tonnes. In 2000-01, when the crop was the same size as this year, it procured 20.6 million tonnes.

Had the Government procured enough wheat in April-May, there would have been no alibi for exports, since the crop itself was not lower, and according to official estimates higher, than in the previous year. Under-procurement was necessary to create the case for export.

Perhaps peasants in wheat-surplus areas kept back a larger share for their own consumption this year, but that could not account for such a major difference. The remainder went to private traders and corporate buyers – including foreign firms such as Cargill and ITC. In the words of Sharad Pawar himself, “Large purchases by private traders, including multinational corporations, have been a contributory factor for the low level of wheat procurement this year.”21 Perhaps for the first time since the creation of the FCI, private trade held far more wheat than the Government. Inevitably, the Government was now much less able to control open market prices. Domestic private hoards and international traders held the whip hand.

PDS ten million tonnes short; rations cut
The failure of procurement can also be seen against the requirements of the Public Distribution System (PDS) and the Government’s welfare schemes. For the last three years, these have required 17.1-17.4 million tonnes of wheat annually. Even if the requirements for 2006-07 were to be frozen at that level, given that the buffer stock had to be replenished by 2.1 million tonnes to meet the minimum norm, procurement of over 19 million tonnes was required. Thus the PDS and welfare schemes were short of at least 10 million tonnes of wheat.

How will the Government manage to cover the gap? First, the Government has booked imports of 5.5 million tonnes of wheat. That leaves a gap of at least 4.5 million tonnes. The Government may book further imports; or it may meet this gap mainly by (i) distributing other grains (rice/coarse grains) in place of wheat and (ii) reducing total distribution. The first is not objectionable in itself, except that, given the normal diet of different regions, and the lack of infrastructure to procure coarse grains, there are limits to which it can be carried out. The second, particularly in a situation of high open market prices, will gravely reduce the already low consumption of the poor.

Thus the CACP projects that wheat offtake from the FCI will fall from 17.2 million tonnes in 2005-06 to just 12 million tonnes in 2006-07. In its projection, this reduction can be achieved by eliminating all allocation for Above Poverty Line (APL) sections, cutting the allocation for the Antyodaya scheme (for the “poorest of the poor”) by 43,000 tonnes, and cutting the allocation for other welfare schemes by 1.54 million tonnes.22

Indeed, the Department of Food prepared a note for the Cabinet Committee on Economic Affairs recommending reduction of wheat allocations to the states, allocation of coarse grains instead of wheat, removal of foodgrains in rural employment schemes as part of wage payments, decrease in allocations for drought-hit areas, and increase in foodgrains prices for both APL and Below Poverty Line (BPL) by five kg.23 Although the Government has issued no official statement to this effect, allocations have evidently been cut – West Bengal now receives 0.15 million tonnes of wheat instead of 0.22 million tonnes.24


19. CACP, Price Policy for Rabi Crops of 2006-07 Season. (back)

20. Ibid., p. 21. (back)

21. Business Standard, 23/5/06. (back)

22. Quite apart from the fact that the separation of consumers into those “Below” and “Above” the Poverty Line is disastrous, since the definition of poverty used is untenable, the attempt at ‘targeting’ inevitably excludes large numbers of even those officially termed “poor”. A Planning Commission study has noted that 57 per cent of those officially termed “poor” have been excluded from the BPL category. (back)

23. B. Karat, “The PDS and eroding food security”, Hindu, 6/6/06. (back)

24. Ibid. (back)

NEXT: Under the Import Regime


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