Relevance: GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Key Phrases: Wheat prices, Export, Logistics hurdles, Cost efficient, Supply chain efficiency, MSP factor, Govt interventions, Climate challenges, Area under Wheat, Procurement costs, Infrastructural bottlenecks, high MSP.

Why in News?

• Climate challenges, storage costs and land constraints are the long-term issues that need policymakers’ attention.

Context:

• Wheat prices have doubled in the international market following the outbreak of hostilities between Russia and Ukraine, two of the world’s large exporters of the cereal.
• Although India is the world’s second largest producer of wheat, it is not a regular exporter of the cereal to the global market. However, the current tightness in global availability has created an unusual opportunity for India to export wheat from its domestic production.
• Export of Indian wheat in 2021-22 touched a record high of 7.0 million tonnes (mt) valued at about $2.0 billion more than three times the quantity (2.15 mt) exported in the previous year.
• There is talk that Indian wheat export may touch even 10 mt in 2022-23. All this has created a sense of euphoria within the government and in the export trade. Some observers are so gung-ho that they are emboldened to suggest India has arrived in the world wheat market with a bang and that in future too India will continue to remain a large exporter of wheat.

Challenges to India’s Wheat Export:

• There are some factors that may hinder India’s aspiration to be an important wheat exporter.
• Logistics Hurdles:
  • Logistical challenges such as congestion at ports and unavailability of train rakes are major infrastructural bottlenecks for wheat exports from India. At present, a bulk of India’s wheat export is sourced from Madhya Pradesh, which is closer to Kandla and Mundra ports.
• Cost Efficient:
  • With wheat being a commodity of daily consumption, Indian exporters have to become price-competitive to find a strong foothold in the export market.
  • Supply chain efficiency contributes significantly to being cost-efficient. Unless seamless infrastructural facilities and timely and cheaper modes of transport are available in the coming days, India may find it difficult to make significant inroads into the wheat export market.
• MSP Factor:
  • Another fundamental factor that influences India’s export competitiveness is the Centre’s MSP. Irrespective of the supply and demand situation, both at global and domestic markets, in India, MSP for a given year is set at a higher price as compared to that in the previous year.
  • Due to high MSP prices, India has remained a rather small player in the export market, even though thousands of tonnes of wheat and rice rot in the FCI warehouses. Considering that there’s no plan to do away with the MSP in the near future, the chances for Indian wheat to become competitive in the global market appear to be slim.
• Government Interventions:
  • Wheat, being an essential commodity, is prone to frequent government interventions in terms of export bans and imposition of higher import duty. The Centre also bans agri-commodity derivatives’ trading in domestic exchanges routinely. These frequent bans and interferences hinder export competitiveness. The fact that Russia, Canada, and the US are top three exporters of wheat though they produce 25–60 per cent less wheat than India is proof of the market distorting impact of these bans.
• Climate challenges:
  • Many challenges confront Indian wheat export, not the least of which is global warming and climate change. Whether deliberate or out of ignorance, many experts overlook the well-recognised fact that Indian wheat is at the limit of heat tolerance.
  • In the critical growing months of January and February and till mid-March the mean day temperature has to be crop friendly at around 20-21 degrees Celsius. Any marked rise in day temperature would hurt the crop yield.
  • So, global warming is a real threat to Indian wheat. Our research and development efforts need to double up. We need to be investing a lot more than we do currently in order to produce heat-tolerant, drought-resistant varieties of wheat in the years to come.
• Area under Wheat:
  • Another challenge is the acreage under wheat crop. At about 33 million hectares, the area under wheat cultivation is perhaps reaching a saturation point. It would be unwise to expect any significant expansion of area in the years to come. If anything, there is a case for shifting a part of the wheat area in Punjab and Haryana to other crops such as oilseeds and pulses. But implementation of crop diversification calls for enormous political will.
• Procurement costs:
  • The inefficiency associated with open-ended procurement of wheat in quantities far in excess of our normal requirement is well known. The policymakers justify it on the ground that it ensures farmers get remunerative prices and do not have to resort to distress sales.
  • The government agencies spend enormous amounts of money on storage and finance cost. By the government’s own admitted position, the storage and financing cost of wheat is ₹21 per quintal per month which works out to ₹2,520 per tonne per year. In other words, with one year of storage, the total cost of procured wheat goes up sharply and the cereal gets completely out-priced in the market.

Way Forward:

• Right now, many countries have opened their doors to Indian wheat to rein in the high food prices. The world sentiment for Indian wheat is rightly echoed. Infrastructural bottlenecks, high MSP, and frequent government interventions in the wheat market make it difficult for wheat importing countries to have a long-term relationship with India. The current export opportunity for wheat seems to be the case of making hay while the sun shines.
• The Commerce Ministry has mandated the Railways to make available extra rail wagons for the transport of wheat. It is also working with port authorities to prioritise wheat exports. The Centre has also empanelled 200-odd government-approved laboratories to test the quality of wheat, having mandated the Bureau of Indian Standards (BIS) to monitor the quality of wheat being exported.
• Right now there seems to be a sense of urgency to fill the void caused by the Russia–Ukraine war, and the government machinery is making an all-out effort to support and facilitate exports. However, though these measures are commendable, such measures will only yield short-term benefits, which is, increasing India’s wheat export for the current year.
• We need to be more focused on ensuring sustained growth in wheat production in order to meet the growing needs of the population. The multiple challenges of climate change, land constraints and high carrying costs are already daunting.
• For wheat, a comprehensive or holistic approach with a long-term perspective is the need of the hour without which we risk becoming an importer over time.

Source: The Hindu BL

Mains Question:

Q. Discuss the factors that may hinder India’s aspiration to be an important wheat exporter. (250 Words).