Wheat exporting prospects of India

Wheat exporting prospects of India

Why in the news?

India’s prospects for sustained wheat exports are limited. The surplus stocks are a fraction of the quantity exported annually by Russia and Ukraine.

Details:

Russia and Ukraine together accounted for nearly 30 percent of global wheat exports, nearly 60 million tons of wheat exported annually.

India has a limited prospect of sustained wheat exports given the present 1 per cent share of global wheat exports despite being the second-largest producer in the world.

Reasons?

• Limited surplus– though India’s wheat output has consistently exceeded its demand for the past five years, wheat inventory was just 23 million tons at the end of February. 
• Rise of inflation-Exporting all the surplus stock would push up domestic wheat prices, potentially inviting restrictions on future exports, similar to the recent hikes in export tariffs palm oil in Indonesia.
• Uncompetitive global price-profitable only if global prices are higher than the MSP.
• Restriction under WTO –. Under WTO commitments, the government (read FCI) may not sell procured grain for commercial gains.
• Export parity price (EPP) amplifies the lack of competitiveness. The price a producer can expect to receive is the FoBprice (the price when loaded onto

the ship) minus the cost of getting the produce from the farmor factory to the border or the port. If the latter is high, as it is in India, the EPP falls for the producer, which further constrains exports.

• Role of non-price attributes like food safety, quality, and variety of wheat. A recent ICRIER study showed that Indian agricultural produce faces more rejections in key export markets compared to other developing countries.
• Trade strategy– export encouragement but restrictive on import side

How does the government procure wheat?

• The Centre procures wheat by paying the minimum support price (MSP) announced for the crop 
  • The Food Corporation of India (FCI) directly or through state government agencies procure wheat from the purchase centres established across the states
• States do it under two systems— the centralised one, also called non-decentralised procurement system (non-DCP) and the decentralised one, also called DCP.
  • Decentralised system– the state government or its agencies procure, store and distribute wheat against the Centre’s allocation for targeted public distribution system and other weaker sections etc with the state, and that the excess stocks procured by the state and its agencies are handed over to the FCI for the central pool. The expenditure incurred by the state government on the procurement, storage and distribution of stocks under the decentralised system are reimbursed by the Centre.
  • Centralized system-The wheat procured by the state agencies is handed over to the FCI for storage or for transportation to the consuming states. The FCI, which is the central nodal agency for wheat procurement, pays the cost of procured wheat to the state agencies.

Centre also reimburses the arthiyas’ commission, administrative charges, mandi labour charges, transportation charges, custody and maintenance charges, interest charges, the gunny bag cost and statutory taxes.  The cost of excess stocks handed over to the FCI is reimbursed to the state government or agencies as per the Centre’s policies.