economics

January 31, 2010

Axis Of Wheat

Filed under: Uncategorized — ktetaichinh @ 1:53 am
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Russia wants to include India in its strategic reserve plan for wheat. India will need to handle its foreign relations and grain storage much better to take advantage of that.

The second was a bit trickier. The last thing any farmer wanted was a collapse in prices. That is where the largest wheat consuming countries–India, China and Turkey–had to be roped in as partners. If this could be done, Russia could not only become the biggest grain producer in the world but could also blunt the U.S.’ constant use of wheat diplomacy with developing nations (Indians are still upset about the PL-480 deals that the U.S. forced on India in the 1960s and ’70s).

India is at a crossroads now. Should it join hands with Russia or should it partner with the U.S.? “Logically, India should opt for the best deal, without being tied down to any one player,” says a former ministry of external affairs diplomat who prefers anonymity on this issue. Russia is making an offer that the U.S. hasn’t. If the terms are right and the long-term price commitments attractive, India should tie up with both countries thus preventing a situation where India would have to import wheat at astronomical prices.

Unfortunately, when India or China–large consuming markets–decides to purchase anything from spot markets, prices tend to zoom by 25% to 50%. In case both decide to purchase anything–be it oil, oilseed, cement, fertilizers or food grain–at the same time, prices may shoot up by even 100%. That is why long-term contracts and buffer stocks are critical to the country’s food situation.

Sadly, the government does not pay attention to this, says an executive from the Central Warehousing Corp. (CWC), which stores much of the grain that the government procures either from domestic markets or from overseas. In July 2009 a leading publication (India Today) secretly filmed how 300,000 tonnes of pulses that “were imported from the international market using taxpayers’ money … are lying [to rot for several months] at Tuticorin port … and in the warehouses of CWC.”

“In fact, there is a general destruction of value in all our food grain and vegetables, at multiple levels, and the government isn’t even bothered about it,” says an industrialist engaged in providing refrigeration services to agro-producers.

First there is a destruction of value in perishables not being stored or being destroyed on the way to the markets. Then comes the procurement process. When support prices are announced for wheat or rice, the procurement is actually done by the state government and stored in state warehouses. which are neither temperature- or humidity-controlled nor protected from insects and rodents. This grain lies with state governments for a few years before being transferred to the central government at a loss because of the destruction (or theft) of the food grain. That is one reason why losses running into thousands of crores of rupees (a crore is equal to 10 million rupees) can be seen on the books of almost every state government that procures food grains. The central government, too, puts this grain in CWC warehouses, which are similar to state government warehouses, exposed to rodents, humidity and pests.

That is why in 2000 the Ministry of Agriculture and Food floated a global tender for scientifically designed silos and warehouses. Adani Logistics Ltd. (ALL) won the global tender to build as a pilot project silo storage units with a total capacity of 600,000 tonnes at seven centers in India. “We think this is critically important if India has to manage its food security and are waiting for the pilot project to be converted into a bigger, full-fledged storage plan,” adds Pranav Adani, director of ALL.

“The urgent need, of course, is to find countries where India can grow its pulses and its grain, because India’s farms may just not be enough,” adds Adani.

This article appears in the Feb. 5 issue of Forbes India, a Forbes Media licensee.

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