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Wheat glut: farms face falling prices, rising costs-Ruchira Singh

-Live Mint

After a record harvest of 90.23 mt this year, the govt’s wheat stocks were at 38.2 mt as of 1 May

Worry lines run deep on the faces of wheat farmers in Sehrala in Haryana as falling prices, higher input costs and poor infrastructure erode earnings and cast doubt over not just their next crop, but their future in agriculture as well.

Agents in the grain market of Ballabgarh said spot prices of wheat are at Rs1,200 per quintal (100kg), lower than the government’s minimum support price (MSP) of Rs1,285, and with the government’s procurement now closed, about 10% of production is lying unsold with farmers.

In Sehrala, about 20km from Ballabgarh, 38-year-old Ashok Kumar could sell only 30 quintals out of his 120-quintal produce when the government’s procurement closed on 26 April as he wasn’t able to get to the market in time.

As a result there’s wheat everywhere. It’s in the tin barrels that fill the rooms in which the 10-member joint family lives. It lies in the veranda covered in a plastic sheet. Kumar will have to shift it indoors soon lest it rains.

“This year, what we have stored is three times more than last year,” said Kumar, whose six acres of land is not his own but rented. “We are in debt. We have school fees to pay. We will have to sell all this wheat cheaply as money is needed.”

Farmers in Sehrala, which has a population of about 3,000, said they had a bumper harvest this year owing to a cool spell in February and March, but the government’s procurement closed sooner than expected.

“Procurement took place for only about 19 days. Even then, there were problems like lack of bags and no tractor wagons for transporting the wheat,” said Jai Chand, who has his mound of wheat in an open veranda. “Procurement officers were rude and said there was no storage space.”

Chand and Kumar said input costs such as those of diesel, fertilizers and labour have risen, leaving them with little profit. Poor infrastructure—insufficient water and electricity, no warehouses, inadequate supply chains—are keeping them from optimizing and diversifying production.

Sehrala’s story speaks for the poor food management of the government, which on the one hand boasts of an artificially high MSP—the minimum rate at which the government procures grains from farmers— but then fails to control input costs and is devoid of marketing strategies for exports or domestic sales so that the high MSP can be self-sustaining.

The government’s lack of initiative is obvious as there are no cold chains so that more vegetables and fruits can be grown. Fruit and vegetable inflation is in double digits. There is a lack of incentive for production of pulses and oilseeds, and imports are growing, putting the rupee under stress.

Decades of neglect of farm infrastructure are evident in a run-down irrigation canal into which factories are dumping waste water and a deteriorating electricity supply that is preventing irrigation of fields from groundwater.

Farmers said input costs per acre including labour charges, pesticides, diesel and electricity stood at about Rs22,940 per acre.

One acre generated 20 quintals of wheat, which if sold at the MSP rate, would yield a profit of Rs2,760.

Big stocks, unviable exports

India’s decision to free wheat for exports, after conserving it through the greater part of last year in the expectation of having to implement the ambitious National Food Security Bill, has come at the wrong time.

“At this stage, given the low international price for wheat, India entering the wheat export market appears unviable. There are higher volumes of global wheat stocks compared with the previous two years,” said Jay Vella, research analyst, global food and water crises research programme, at Australia’s Future Directions International Pty Ltd. “Both inflationary and deflationary pressures are affecting international wheat prices, oversupply and strong export competition being the main causes in keeping prices relatively low.”

The current global wheat price in free-on-board terms is $248.93 a tonne, down nearly 30% from $354.47 a year ago, according to Vella.

India’s wheat in the international market would cost around $320 a tonne, including taxes, handling and transportation charges, $70 higher. Last year’s stocks would be even more costly on account of storage charges.

“Without a subsidy it is impossible to export wheat,” said Atul Chaturvedi, chief executive officer, Adani Wilmar Ltd, the commodity trading arm of the ports-to-coal conglomerate Adani Group.

After a record harvest of 90.23 million tonnes (mt) of wheat this year, the government’s wheat stocks were at 38.2 mt as of 1 May, over nine times higher than the buffer requirement of 4 mt. Wrapped up in pesticides so it can last longer even as the government ponders over ways to reduce it, the carrying costs increase by the day.

In Bhaugala, close to Sehrala, 50,000 tonnes of wheat belonging to the food supply department of Haryana lies in bags kept in the open. A caretaker said last year’s stock, also lying there, was infested with worms as pesticides were not available.

State Trading Corp. of India Ltd floated an export tender earlier this month, but it was only meant to test the market. Meanwhile, there is talk about bartering Iran’s oil for India’s wheat.

To be sure, India’s exports do have a chance to become attractive in case of a fall in output at any of the producing countries. In the local market, the government may open subsidized wheat sales to liquidate stocks.

The neglect of agriculture was showing in the anomaly in India’s food sector, said Ajay Vir Jakhar, chairman of farmers’ forum Bharat Krishak Samaj. Despite facing a fall in the price below the MSP, farmers are still finding it viable to stick to wheat production, he said.

“To make farmers diversify, they would need an MSP for other crops as well. There have to be extension services,” Jakhar said. “Why should procurement be the monopoly of the government? While the process is good in some states like Punjab and Haryana, it is not so in other states. There should be scope for the private players too.”

Farms vs industries

Farmers in Sehrala and Ballabgarh don’t want their children to take up farming.

“The crop has been very good this year. But my finances are still in the negative,” said Sathya Prakash, a 45-year-old Sehrala farmer. “I’ll do whatever it takes, but I won’t put my children through this.”

One of the peculiar problems in this region is the presence of the Nilgai, or antelope, that attack pulses and oilseed crops in herds, eating up the saplings.

Labour-intensive work involving cultivation of fruits and vegetables and the lack of markets and cold chains for these perishable commodities are preventing these farmers from growing them even though their villages are not far from Delhi, a big consuming hub.

Wheat and rice, even at a lower MSP, will still be profitable, with a set market that makes them grow more of it, though market dynamics this year have squeezed profit margins.

Pratap Singh Dagar, a farmer from Jharsetri village in his 80s, manages his 15-20 acres of farms himself, preferring to push his three sons and grandchildren into other professions.

“Whoever in the family retires can come and handle the farm,” Dagar said. “Here there is no fund, no salary, no bonus.”

Dagar’s grandson Kuber said he was aiming for an executive job after getting his degree in business administration.

Villages close to cities are on the brink of urbanization and in Sehrala many farmers have have sold land. A poultry farm, a textile plant and a thermocol plant have come up in the neighbourhood.

The farmers said industries in Faridabad and the few present in their neighbourhood are dumping waste water in the Gurgaon canal that was built for the irrigation of farms. The water is black with a greenish tinge. Floating in it are garbage and discarded polypacks. While the supply is erratic, farmers still use it for irrigation, although they know that it’s unhealthy.

It may be just a matter of time before the village surrenders to more dominant forces and gets swallowed up by the industrial wave.

“While we struggle for basics, these companies know how to get a continuous supply of electricity and water and their plants keep running,” said Mange Ram Chauhan.