EVEN as the Indian government battles in vain to manage its overflowing wheat granaries caused by a surge in procurement, by stepping up exports, it has decided to jack up the minimum support price for the food grain.

India, the world’s second-largest producer of wheat (and the largest consumer) is facing a problem of excess production and procurement, triggering off a crisis in storing the commodity. Despite these problems, the United Progressive Alliance (UPA) government last month decided to hike the MSP on wheat by Rs65 to Rs1,350 a quintal.

The price hike, apparently carried out at the behest of the powerful lobby of wheat-growing farmers, came as a surprise as the Commission for Agricultural Costs and Prices (CACP) had suggested that the MSP be frozen at last year’s levels. While the agriculture ministry has been seeking a Rs100 a quintal hike in MSP, the government decided to raise it by Rs65.

The CACP has been urging a freeze in wheat MSP to encourage farmers to diversify their crops and to meet the growing demand for other agricultural products that are in short supply. But the powerful wheat farmers lobby in the four northern states of Punjab, Haryana, Uttar Pradesh and Madhya Pradesh has been pushing for a Rs100 hike in MSP.

Wheat growers argue that the input costs have soared including those of fertiliser, fuel and labour. Farmers in Punjab have been demanding a MSP of Rs1,750 a quintal. According to Dr R.S. Sidhu, a prominent agriculture economist and a dean at Punjab Agricultural University, the Rs65 hike in MSP is ‘inadequate and meaningless’.

The hike in MSP for wheat is expected to result in a Rs40 billion increase in the overall food subsidy. Last year (2011-12), the food subsidy bill amounted to Rs723.7 billion and this year the government expects it to rise Rs745.52 billion (without taking into consideration the hike in MSP for wheat).

It will also lead to an increase in the economic cost of procuring and storing wheat, from Rs18,225 a tonne (in marketing year 2012-13) to Rs19,147 a tonne in MY 2013-14.

India has been recording bumper harvest of wheat in recent years; in crop year 2011-12 (July-June), it produced 93.9 million tonnes of wheat. In September 2011, the government lifted the ban on wheat exports, as its granaries were overflowing and agencies such as the Food Corporation of India (FCI) had no place to store the grain.

Even the Supreme Court had directed the government to manage its foodgrains storage more efficiently and had suggested it would be better to supply it free to the needy, instead of letting rodents eat away the stock.

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THE current Rabi (winter) season is also proving to be a good one for India’s agriculture sector. Though the acreage under wheat is marginally lower this season – down to 27.27 million hectares – it is still a million hectares more than the average of the last five years. According to government figures, total Rabi crops have been planted in 54.22 million hectares, just 0.8 per cent less than last year.

Agricultural experts expect better yield this season thanks to lower temperatures in December and January. However, the government reported a stock of 37.65 million tonnes of wheat as of December 1, 2012, more than three times the requirements.

Last month, the government also decided to export an additional 2.5 million tonnes of wheat to ease the burden on the
warehouses. The US Department of Agriculture (USDA) estimates that India’s wheat exports could touch six million tonnes in MY 2012-13, as global prices are firm.

“With the current tight open market supplies of wheat, private wheat exports are likely to come down significantly in the coming months,” said a USDA report. “Consequently, we continue to estimate MY 2012-13 exports at six million tonnes, which includes three million tonnes each of government and open-market wheat.”

In July, the Indian government allowed the export of two million tonnes of wheat and it managed to get between $300 and $320 a tonne.

The Food and Agriculture Organisation (FAO), a UN affiliate, estimates India’s wheat exports would touch five million tonnes in MY 2012-13. “Given the estimated bumper wheat harvest and larger carryover stocks, exports are anticipated to reach a record level of five million tonnes in 2012-13,” the FAO said in its latest Crop Prospects and Food Situation report.

“Weather conditions at the start of the 2012-13 season have been generally favourable for planting of winter wheat, barley and secondary rice crop. In India, early official forecast for the 2013 wheat crop is set at a near average level of about 86 million tonnes.

Even the CACP has urged the government to aggressively push for exports of 10 million tonnes of wheat from its warehouses in fiscal 2013-14. “A 10 million tonne export target of wheat can be done within 2013-14 fiscal, if the government acts aggressively and quickly,” says Ashok Gulati, chairman, CACP.

According to Gulati, the government should act fast as international wheat prices are quite attractive now, fetching an average of $300 a tonne. But with other wheat exporters entering the market, the price may decline.

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RECENT offers by state-owned wheat exporters have elicited good response. Public sector PEC Ltd, for instance, got a bid of $318 a tonne from a Swiss firm for export of wheat. Other government firms including State Trading Corporation and MMTC have also been floating tenders for the export of wheat. MMTC got one of the highest bids at $322.5 for a tonne of wheat.

According to Sudhir Kumar, the food secretary, the government got a price of between $296 and $328 for its tenders with about a dozen international firms bidding for the export orders. Kumar points out that the government’s aim is not ‘to maximise price realisation’ but to manage its foodgrains stock.

Worried about the colossal loss caused by primitive storage conditions at the FCI warehouses, the government is now considering inviting private companies to set up silos for storing wheat. The FCI is expected to invite bids from companies for setting up silos, each of which could store up to two million tonnes of wheat.

Several companies are believed to have expressed interest in setting up the silos, which could come up on land owned by state governments. About 10 acres of land would be needed for setting up a silo with a capacity of 50,000 tonnes.

The government is also considering providing partial funding for the projects, to be taken up on a public-private partnership basis.

Of course, the biggest problem is getting state governments to provide vast tracts of land for the project. Land acquisition for public projects is a major issue in India, and many mega investment projects have had to be shelved because of disputes over acquisition of land.

Multi-billion-dollar investment proposals by both Indian and international investors have been hanging fire for years because of the inability of governments to provide vast tracts of land for the projects. Land acquisition problems have led to domestic majors such as the Tatas to relocate their plants from West Bengal – where it faced a hostile reaction from the local population, who were instigated by a political party – to Gujarat, an investor-friendly state.