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Why Indian govt's move to ban wheat exports was necessary

It makes tremendous economic sense to be food secure rather than standing in queue next year with a begging bowl

Why Indian govt’s move to ban wheat exports was necessary
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Why Indian govt’s move to ban wheat exports was necessary

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A country like India, with food inflation steadily rising and knowing well that it has over 800 million nutritionally poor whose food security is of paramount importance, the country has to be watchful for two reasons. First, several global climate studies say that extreme heat wave incidences will now become frequent, from an average of once in 100 years, to once in 3 years. Who know therefore how the weather will perform in the months to come, how the monsoons will behave, and so on. Secondly, there is still a remote possibility of pandemic showing its head again, which means India must be ready with enough grain surpluses in its kitty

At a time when the UN Secretary General Antonio Guterres warns that 49 million people in 43 countries are just one step away from famine, India's conditional ban on wheat exports – and that too at a time when countries are scrambling to pile up as much grain as possible for their food reserves - has drawn much criticism from the international community.

While the G-7 countries have expressed their disappointment over trade restrictions imposed by India, the German Agriculture Minister Cem Ozdemir on the sidelines of the recent summit meeting of G-7 agricultural ministers said: "We call India to assume its responsibility as a G-20 member," adding that the issue will be discussed further at the forthcoming G-20 leaders meet in Germany, in June. As if this is not enough, Kristalina Georgieva, the chief of the International Monetary Fund (IMF) has now urged India to rethink its ban on wheat exports. Speaking to Indian media at the World Economic Forum at Davos she said: "I would beg India to reconsider as soon as possible because the more countries step into export restrictions, the more others would be tempted to do so and we would end up as a global community less equipped to deal with the crisis."

While the international pressure on India to lift the ban is understandable, I find Indian economists as well as economic writers too speaking the language of the rich countries. For the past several years Indian economists, led by World Bank, were critical of India's food procurement system that led to over production of grain surplus year after year, but now in a complete turnaround want farmers to produce more for exports, so as find a permanent slot in international wheat trade – an opening that has been temporarily created by the ongoing conflict in the Russia-Ukraine region.

Before we examine why the need for a ban in wheat exports was necessary, let's first look at how superficial is the humanitarian responsibility that the rich developed countries are blaming India for. Even with the best of intentions, India's target of exporting wheat was only 10 million tonnes, to be stretched to 12 million tonnes at best. This would be a fraction of the food supplies required. But if the G-7 countries really care about the poor and hungry people, here is an opportunity for them to act like a statesman and demonstrate leadership

By just cutting down by 50 per cent the grain supplies that go into producing ethanol and also palm oil that goes into bio-diesel production, the rich countries can easily meet the entire shortfall in food supplies. New Scientist magazine estimates that the US utilises 90 million tonnes grain for ethanol and the European Union makes use of 12 million tonnes, including wheat and maize. Since only six per cent of the fuel sold in the US is ethanol, diverting grains back to feed the people wouldn't make much difference in any case to fuel prices. But for the hungry, it would be like the proverbial straw that pulls the hungry from the jaws of acute hunger and starvation.

In any case, only a 50 per cent cut in bio-fuel production is required to be made. After all, who would say that running cars should take precedence over feeding the hungry millions? Therefore, instead of blaming India, the G-7 countries have a moral obligation to first feed poor nations. I hope the IMF chief too points the rich countries to cut down on bio-fuel production.

Now let's come to India. In February, India was looking to a record wheat harvest, exceeding 111.32 million tonnes. But a sudden heat wave that struck the wheat growing belt in north India in early March, the production estimates fell to106 million tonnes. In Punjab, for instance, crop cutting experiments has shown the drop in productivity to be around 5 quintals per acre causing an estimated loss of Rs 7,200-crore to farmers. The best way to compensate farmers would have been to let Food Corporation of India (FCI) announce a bonus, and procure as much as possible. This would have helped the loss-making FCI to cover up the losses. It could have been then directed to export keeping a tab on domestic requirements.

Given that farmers have incurred losses from a reduction in wheat yield, the best way to compensate them is to announce a bonus, say an increase of Rs 250 per quintal, over and above the MSP of Rs 2,015 per quintal. This would also take care of the increased cost of production that the farmers are faced with. Even China, realising the loss that farmers are undergoing from increased fertiliser and input prices, has only a few days back announced a support of $1.49 billion to its farmers.

Coming back to wheat exports, with Russian invasion of Ukraine also happening at the same time, private trade in India became hyper-active looking at the immense export opportunities. Initially, there prevailed a lot of excitement over the tremendous export opportunities that the ongoing war had created for Indian traders. With promises of India turning into a food provider for the world, and the need for WTO to ease its restrictive trade policies, the trade was euphoric, with some trading companies pointing at the possibility of exporting 21 million tonnes. The government itself was enthusiastic, even thinking of sending trade delegations to some countries. And subsequently, in a complete U-turn, India imposed a conditional ban on wheat exports a week ago thereby inviting criticism.

The conditional ban, leaving enough room for exports on a government to government request, thereby has come at the right time. A country like India, with food inflation steadily rising and knowing well that it has over 800 million nutritionally poor whose food security is of paramount importance, the country has to be watchful for two reasons. First, several global climate studies say that extreme heat wave incidences will now become frequent, from an average of once in 100 years, to once in 3 years. Who know therefore how the weather will perform in the months to come, how the monsoons will behave, and so on. Secondly, there is still a remote possibility of pandemic showing its head again, which means India must be ready with enough grain surpluses in its kitty.

Even if the wheat availability is comfortable now, we cannot repeat the wheat blunder of 2005-06 when the country allowed private trade to purchase wheat directly from farmers. They did, and left a huge gap in supplies for the food security needs. These companies also refused to divulge how much stock they carried, as a result of which India had to import 7.1 million tonnes in the next two years at prices that were more than double to what was paid to farmers. That is why the need to be doubly cautious. It makes tremendous economic sense to be food secure rather than standing in queue next year with a begging bowl.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)

Devinder Sharma
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