How we can manage cereal inflation

How we can manage cereal inflation

Unseasonal rains and stock depletions are a problem. Cereal inflation can be managed, however, and does not weaken the case for crop diversification.

Retail cereal inflation, at over 11.5 per cent year-on-year in September, is at its highest since end-2013. This, even as total stocks of wheat and rice in government godowns have depleted to a five-year low. Such a scenario was unimaginable at the start of the year when the same warehouses were overflowing. In 2021-22, not only an unprecedented 105.6 million tonnes (mt) of grain got channeled through the public distribution system, the country also exported a record 28.4 mt of the two cereals. The debate, until quite recently, was on how to achieve both cropping and dietary diversification: Weaning away farmers from paddy, wheat and sugarcane and ensuring that the poor had greater access to foods rich in proteins, vitamins, minerals and fibre than just carbohydrates and calories. Public policy’s focus, whether it had to do with the now-repealed farm reform laws or fixation of minimum support prices (MSP), was to make agriculture market-led, resource-efficient and environmentally-sustainable.

Those structural transformation goals have been set back by the war in Ukraine and the effects of climate change. The latter is seen clearly from the excess rains during September-January 2021-22, followed by sudden temperature spikes in March-April, a severe monsoon deficit across the Gangetic plain states, and the wet spell after mid-September just when the current kharif crop had entered the harvesting stage. In the case of wheat, a single harvest failure (the official production estimates probably don’t reflect it) has resulted in public stocks plunging close to the normative minimum buffer. While rice stocks are comfortable, there is uncertainty over production in Uttar Pradesh, Bihar, Jharkhand and West Bengal. Even Punjab and Haryana have reported crop damage from incessant rains, the extent of which will be known only as the procurement season, already delayed, progresses. In short, the Food Corporation of India’s grain mountain has shrunk to levels where stocks are quite precarious.

What should the government do? The options are limited when farmers are yet to commence wheat sowing and the next crop will not arrive in the mandis before late-March. Nor are imports commercially viable; the landed cost of even the cheapest wheat from Russia will be above Rs 30 per kg. The only import that is possible today is on government account. It may be worth contracting 2-3 mt of such imports for replenishing public stocks and undertaking open market operations to keep a lid on prices. The Narendra Modi government made a mistake extending the free-grain Pradhan Mantri Garib Kalyan Anna Yojana scheme till December. It shouldn’t compound the mistake through a huge MSP hike; farmers don’t need special incentives to plant wheat. While cereal inflation is a worry, it can be managed and does not weaken the case for cropping diversification.