Why it has fallen ?

• There are two main reasons for procurement plunging to a 15-year-low this time.
• The first is export demand- In 2021-22, India exported a record 7.8 mt of wheat. Supply disruptions from the Russia-Ukraine war – the two countries account for over 28% of global wheat exports – have led to skyrocketing prices and a further increase in demand for Indian grain.
• Recently, wheat futures prices at the Chicago Board of Trade exchange closed at $407.30 per tonne, as against $276.77 a year ago.
• With Indian wheat getting exported at about $350 or Rs 27,000 per tonne free-on-board (i.e. at the point of shipping), farmers are realising well above the minimum support price (MSP) of Rs 20,150/tonne at which government is procuring. This is even after deducting various costs – from bagging and loading at the purchase point, to transport and handling at the port.
• These would add up to Rs 4,500-6,000 per tonne, depending on the distance from the wholesale mandi to the port.
• The second reason is lower production- In mid-February, the Union Agriculture Ministry estimated the size of India’s 2021-22 crop (marketed during 2022-23) at 111.32 mt, surpassing even the previous year’s high of 109.59 mt.
• But the sudden spike in temperatures from the second half of March — when the crop was in grain-filling stage, with the kernels still accumulating starch, protein and other dry matter — has taken a toll on yields. In most wheat-growing areas — barring Madhya Pradesh, where the crop is harvest-ready by mid-March — farmers have reported a 15-20% decline in per-acre yields.
• A smaller crop, in combination with export demand, has resulted in open market prices of wheat crossing the MSP in many parts of India.
• The shorter the distance to the ports, the higher the premium that exporter/traders have paid over the MSP.
• Even in Punjab and Haryana — where the state governments charge up to 6% market levies, compared to 0.5-1.6% in MP, Uttar Pradesh and Rajasthan — flour millers have paid farmers Rs 50-100 above the MSP of Rs 20,150 per tonne. Traders and millers aren’t the only ones stocking up in anticipation of prices going up further.
• Many farmers, especially the more entrepreneurial/better-off sections among them, are also holding back their crop. Such “hoarding” by farmers was seen in the recent past in soyabean and cotton, too, again driven by soaring international prices.
• The end-result of a heatwave-affected crop and open market prices rising closer to export parity levels has been that procurement by government agencies has plummeted to 9.6 mt in Punjab (from 13.2 mt last year), and even more in MP (12.8 mt to 4 mt), Haryana (8.5 mt to 4.1 mt) and other states (8.8 mt to not more than 0.8 mt).

When govt. revised the wheat allocation under the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY)?

• The government revised wheat allocation for 11 states under the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) May 3, 2022.
• This means that Bihar, Uttar Pradesh, Tamil Nadu, Kerala, Delhi, Gujarat, Maharashtra, Madhya Pradesh, West Bengal, Uttarakhand and Jharkhand will receive nil to very little wheat till September. Meanwhile, their rice allocation has been increased.
• The government had procured 16 million tonnes (MT) of wheat through May 2.  This is 30 per cent less than last year when 23 MT had been procured by April 27, 2021. The government wants to procure 44.4 MT of wheat in 2022-23.
• Government procurement in Punjab through May 2 was 8.9 MT. The target for wheat procurement in Punjab this year is 13.2 MT.
• Haryana, which has a target of 8.5 MT, had procured 3.7 MT through May 2. Madhya Pradesh is to procure 12.9 MT and has procured only 3.4 MT till now. Uttar Pradesh is to procure 6 MT and has procured only 0.14 MT.
• Experts say there are two reasons for the reduced procurement of wheat this time. One is the high temperatures experienced in March and April when the crop was about to ripen. The other is the Russian invasion of Ukraine which has caused a global wheat shortage and caused the Centre to think of exporting the grain.
• India was to produce 111.32 MT of wheat this year according to the Second Advanced Estimate of the Union Ministry of Agriculture and Farmers’ Welfare released in February this year.
• The United States Department of Agriculture and the Global Agriculture Information Network had predicted in their report released on March 31, 2021 that India would consume 97 MT of wheat in 2021-22.
• That would leave 14.32 MT of wheat with the country. But the heatwave of March and April upset this scheme of things. The true impact of the heatwave will be known only when the Third Advanced Estimate figures are out.

Where low procurement of wheat will impact welfare schemes?

• India requires over 25 million tonnes of wheat to run welfare programmes every year. The government procures food grains to run welfare schemes like mid-day meals, the public distribution system etc. and ensures food security for the poor.
• Ensuring minimum support price (MSP) to farmers, the government also controls the prices of the commodity in the market. In 2022-21, under several government schemes about 46 MT of wheat has been distributed including 25.8 MT under the National Food Safety Act, 2013.
• Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), 20 MT of wheat has been distributed as Covid relief. According to the department of food and civil supplies, 18.9 MT of wheat was available in the central pool on 1st April 2022.
• According to a report published in Down to Earth, it is estimated that the government should have 25 MT for PDS and 10 MT for PMGKY. The government is required to have 57 MT of wheat by July to ensure sufficiency.
• Currently, rice is being used to compensate for the scarcity of wheat. The government decided to give 5.5 MT of rice instead of wheat under the PMGKY.
• The Food Corporation of India (FCI) and State Government Agencies(SGAs) procures wheat. Every year, the government purchases wheat at the MSP, which is decided on the recommendations of the Commission for Agricultural Cost and Prices (CACP).
• Presently, the MSPs are applicable on 23 farm commodities, including wheat and rice. Notably, there is no statutory support or any law mandating the implementation for MSP.
• According to the rule, “it is required to maintain a buffer stock of 74.60 lakh tonnes in the central pool as on April 1; 275.80 lakh tonnes on July 1; 205.20 lakh tonnes on October 1; and 138 lakh tonnes on January 1 every year.
• As per the latest available figures with FCI, wheat stock in the central pool stood at 189.8 LMT as on April 1, 2022, which is almost 2.5 times of the buffer stock requirement of 74.60 lakh tonnes.

Who is responsible for quality checking of wheat?

• Farmers bring their produce to procurement centres and dump it in heaps. The quality control manager or technical assistant takes samples to check the quality. There have been concerns over the quality of wheat due to high temperatures in March. There have been complaints about shrivelled grains in Punjab.
• Procurement differs from state to state. During the current marketing season, procurement began on April 1 in eight states: Punjab, Haryana, UP, Rajasthan, Uttarakhand, Gujarat, Delhi, and Jammu and Kashmir. In MP, it started on March 15. In Himachal Pradesh and Bihar, it began on April 15 and April 20 respectively.
• With the exception of 2020, Punjab has traditionally been the number 1 contributor to the central pool for wheat, having increased its contribution from 102.09 lakh tonnes in 2011 to 132. 22 lakh tonnes in 2021. Haryana’s contribution increased from 63.47 lakh tonnes to 84.93 lakh tonnes. MP contributed the most in 2020 — 129.42 lakh tonnes.
• The FCI defines economic cost as “the total cost”, including acquisition and distribution costs. It includes MSP and incidental costs of procurement, including state taxes, commission to arhtiyas or societies, cost of bagging materials, mandi labour, transportation to depot, etc. The FCI has pegged the economic cost of wheat at Rs 2,588.70 per quintal for the current season.
• Under centralised procurement system, the procurement of foodgrains in Central Pool is undertaken either by FCI directly or by State Govt. Agencies (SGA),”. Central pool refers to stocks procured through MSP operations for welfare schemes and calamity relief.
• “Quantity procured by SGAs is handed over to FCI for storage and subsequent issue against GoI (Government of India) allocations in the same State or movement of surplus stocks to other States.
• The cost of the foodgrains procured by State agencies is reimbursed by FCI as per Provisional per cost-sheet issued by GOI as soon as the stocks are delivered to FCI.
• Under the decentralised procurement system, state governments or their agencies procure, store, and distribute — against the GoI’s allocation for the targeted public distribution system and other welfare schemes (OWS) — rice, wheat, or coarse grains in the state.
• According to FCI, “The excess stocks (rice & wheat) procured by the State/ its agencies are handed over to FCI in Central Pool. The expenditure incurred by the State Government on procurement, storage and distribution of DCP stocks are reimbursed by Government of India on the laid down principles.
• “The expenses such as MSP, arhatiya/society commission, administrative charges, mandi labour charges, transportation charges, custody & maintenance charges, interest charges, gunny cost, milling charges and statutory taxes are reimbursed on actual basis. The cost of excess stocks handed over to FCI is reimbursed by FCI.

How will this impact the public distribution of grain?

• Wheat procurement is undertaken by the state-owned Food Corporation of India (FCI) and other agencies at MSP to meet the requirements under the Public Distribution System (PDS) and other welfare schemes such as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) introduced during the pandemic.
• The government has revised the grain allocation under PMGKAY for May to September 2022. According to the new guidelines, the FCI will fill the gap left by wheat with an increased allocation of rice. An additional 5.5 MT rice is being allocated to the States to fill the gap in supplying wheat grain.
• Mr. Pandey said rice procurement last year was about 60 MT and this year a similar quantity is expected. Under the National Food Security Act (NFSA), he said the annual requirement is roughly about 35 MT. Pointing out that from next year, fortified rice will be distributed to the entire Public Distribution System (PDS), he said with surplus rice stocks, the country is in a comfortable situation.
• As government wheat procurement has dipped, concerns are being raised about the stability of prices in the country and the availability of grain for internal consumption, which many agri-experts argue should be a priority.

Measures needed

• Relatively tight supplies in wheat can be compensated by the comfortable public stocks of rice. At over 55 MT as on April 1, these were more than four times the required buffer of 13.6 MT.
• Further, a good monsoon should further augment availability from the ensuing kharif crop and tide over the shortages in wheat.
• In this regard, the government has revised the grain allocation under PMGKAY for May to September 2022. According to the new guidelines, the FCI will fill the gap left by wheat with an increased allocation of rice.
• Second, with every 1oC rise in temperatures, wheat yields are likely to suffer by about 5 Million Metric Tonnes (MMT), as per earlier IPCC reports. This calls for massive investments in agri-R&D to find heat-resistant varieties of wheat and also create models for ‘climate-smart’ agriculture.
• Third, there should be a check on wheat exports. Indian wheat is highly competitive in the global market today, but the government should let these exports happen through the private trade in the natural course. It mustn’t push beyond a point, leave alone exporting from its stocks.