Ukraine crisis to help cut wheat procurement bill

The Russia-Ukraine war may have increased India’s import cost on crude oil and several other commodities, but is expected to have a beneficial effect on the government’s wheat procurement bill.

The war between two of the world’s largest traders of wheat — together, Russia and Ukraine account for one-fourth of its global trade — has led to worries over the supplies of the staple grain. Multinational traders are now turning to India, the world’s largest producer and consumer, and prices are already 25% higher compared with the minimum support price at which the government buys the grain. Farmers are keen to sell to private traders, and that is expected to leave less wheat for the government to purchase.

Market experts said the government’s wheat procurement bill could fall by 15-20% in the next marketing season starting April. The fiscal benefit would be significant, as it had spent Rs 85,581 crore in 2021-22 to procure wheat from farmers.


Traders expect exports of 10-15 million tonnes in the next wheat marketing year beginning April. Shipments this year are estimated at 7 million tonnes.

"All the global commodity companies have become active, which has led to a sudden jump in wheat prices," said Ajay Goyal, director of Shivaji Roller Flour Mill. “There is more head room for an increase in prices as global prices are still higher.”

In India, production of wheat exceeds demand and even when its granaries are full, the government is forced to procure the grain from farmers at the MSP as it is a politically touchy subject. The Food Corporation of India had procured 43.33 million tonnes of wheat in the 2021-22 crop year and has a target to purchase 44.4 million tonnes the next season.

While the farmers stand to benefit from increased prices, the government is also seen as keen on exporting more of the grain.

Rejecting the demand of the domestic industry to impose export duty on wheat, union food secretary Sudhanshu Pandey said last week that the increased export demand was an “opportunity” for Indian farmers.

Anjani Agarwal, president of the Roller Flour Millers' Association, agreed that this was a "win-win situation" for the country, “where not only farmers will get best price but also the government procurement figures will come down, which will reduce the subsidy bills that is spent on storing more than required quantities".

While the demand for Indian wheat is strong, infrastructure constraints like handling capacities at ports may cap the exports to 10-15 million tonnes, said industry insiders.

Farmers from Gujarat, Rajasthan, Madhya Pradesh and Maharashtra are expected to benefit more due to their proximity to the ports and cheaper madi taxes, compared with those in Punjab, Haryana and Uttar Pradesh.

However, as the prices of wheat from North India are cheaper, farmers and middlemen said MNCs have started approaching them to ensure enough supplies when the new crop hits markets in a month. They also want the central and state governments to help them benefit from the higher prices.

"In order to take the benefit of the global rise in wheat prices, the state governments of Punjab and Haryana should allow FPOs (farmer producer organisations) direct procurement of wheat from their members and the central government should arrange special rail transportation to ports to help Punjab and Haryana wheat to compete in the global market," said Puneet Singh Thind, director of the Northern Farmers Mega FPO that has 43 FPOs from Punjab and Haryana as members.

There are also worries that higher exports could affect local supplies of the staple grain and add to inflation, as the FCI has already liquidated large quantities of wheat during the Covid times.

"The supply situation in local markets of North India is tight as the FCI has stopped selling locally in Punjab and Haryana, while the arrival of new crops will begin after mid-April," said Sanjay Puri, former president of the Roller Flour Millers' Association.