FROM BUSINESS WORLD OF 10 APRIL 2007
The crisis in procurement
Wheat as well as
sugar are commodities of concern to the government. Both are given out in the
public distribution system; hence the government has to procure enough of them
to last through the year. Sugar is obtained from a levy on sugar mills. But a
levy on wheat farmers would be not just unpopular but unenforceable. So the
government relies on less severe tactics to procure it.
In the north,
wheat and sugar are substitute crops. Sugar is subject to a four-year cycle of
gluts and shortages, which causes ripples in wheat production. The sugar cycle
has been distorted by the ongoing boom. As people got more money in their
pockets, they have been eating more sweets. Sugar output has responded to the
demand. From 13 million tons in 2004-05, it increased to 19.3 million tons in
2005-06. But it could not keep up with demand. Sugar price, which was in the
range of Rs 17-21 a kg in January 2005, had risen to Rs 21-23 by the middle of
2006. So in July, the government allowed unlimited imports of sugar without
duty.
The high prices
lured farmers to grow cane. As the current cane year has progressed, estimates
of sugar output have been rising; now they are touching 25 million tons for the
year to June. Indians would have no difficulty in eating all that sugar if the
price was right. But the industry’s ideas of the right price are different. So
it approached the government to allow sugar exports. Exports would have been
more profitable for sugar mills in the south, which are closer to ports. That
made northern mills jealous, and their owners went to complain to Sharad Pawar,
minister of agriculture. They found the minister receptive, for the UP
elections are looming, and the government sees an advantage in making the
millers there happy. So he has announced a combination of favours for the
industry, which includes an export subsidy as well as a large buffer stock to
be financed by the government.
But the rising
sugar prices have made wheat growing less attractive; wheat production refuses
to rise above 73 million tons, which was reached in 2001-02. Wheat procurement
fell from 20.6 million tons in 2001-02 to under 10 million tons in the current
year – so inadequate that the government had to import wheat. In desperation,
the government raised the procurement price of wheat from Rs 650 to Rs 750 a
quintal this year. But it had not reckoned on the outcome of the Punjab
elections. Shiromani Akali Dal has no interest at heart other than that of the
Punjab farmer; Parkash Singh Badal, the new chief minister, is asking for a
procurement price of Rs 900. Meanwhile, rumours are afloat that the government
will give its own Food Corporation a monopoly of procurement and will not allow
private parties to buy wheat in Punjab and Haryana. They are inflaming farmers
and they are talking of boycotting FCI.
The government
would like to reward sugar millowners with high prices, and procure wheat at
low prices. But its two aims are inconsistent: if it keeps sugar prices high
and wheat procurement prices low, it will not be able to procure enough wheat
for the PDS. Pawar, who sees this contradiction, thought of getting rid of one
half of the problem by decontrolling sugar. If he did not have to collect sugar
levy for the PDS, sugar producers would get a higher price. They would still
have the problem of excess production; but Pawar would help them out to export
and to stock sugar. But he has not been able to persuade the Prime Minister’s
office, which loves the PDS.
So it is likely
that the government will not be able to procure enough of wheat, and will
import 8-10 million tons this year as well. That is the easy part. But before
it gets there, it will have Punjab and Haryana farmers up in arms. The farmers
of Bengal have given the lead: they have stopped forced acquisition of their
land. The north Indian farmers may well say: no forced acquisition of their
wheat. Till now, the revolt against arbitrary, overbearing governments was
largely confined to the middle class. Now it is spreading; unless the
government returns to liberal policies, it has a hot summer ahead of it.
