Lets Decipher Farm Protests (Part-1)

To understand what has gone wrong with our agriculture sector, the actual production, glut in the market and more, let us dig into details. I have used FY2015 data, and the crop is wheat.

The wheat production in 2015 was 94-million tons (MNT), in 2020, its whooping 105 MNT. No matter what pessimists project, the actual agricultural production is commendably high.

Now, as it is visible the wheat production is going great guns, what’s about the consumption status? Now let's have a look at the consumption chart. It is amply clear that wheat consumption in our country is almost stagnant. So, who needs this extra 10MNT wheat? One thing is obvious- We don’t.

So, if we have extra produce we can export it, right? Unfortunately NO. This is because there is already glut in the International market with India, EU, and China collectively produce 762 MNT, a little over 50% world production(2018-2019).

Now the problem starts building up, India doesn’t export wheat. Only marginal exports take place. The most developed world is in surplus while the wheat consumption is on the decline worldwide.

Most of the wheat imports take place in the African continent, and with surplus production, the prices are depressed making it economically unsound to export. The charts show the prices are stagnant for a while around $200/ton.

Devil in details

The $200/ton price of wheat(in international markets) roughly translates to Rs.1400/quintal. This implies the MSP offered by GOI is good 37% higher than the prevailing prices. The resulting outcome is NO EXPORTS of a commodity that is lying unused in India. However, a farmer expects GOI to commit itself with MSP, thus enabling him to get the regular income through his produce.

The Facts:

We have seen that the farmers:

 Have benefited from steps initiated by successive governments resulting in surplus wheat production(hardly consumed within country and can’t be exported).

 Bumper harvest due to high-quality seeds compounding the problem of plenty.

 The produce can’t be exported and the tax-payers money is wasted to buy grains.

The problem

The increasing farm income is good news for farmers, however, it is coming from taxpayers pockets with no incentive. When GOI procures excessive grains (FCI), this is what happens:

The above stock represents 3yrs of production. The stocks with FCI are excessively high, now add to it the populist measures taken by the GOI in the last 5 years of increased MSP. And you are starring at 2.5 lakh crore of the deficit with FCI.

The most troublesome part is the speed of increased FCI deficit in the period. The resultant borrowings by FCI from National Small Savings is ₹191,000 core in FY20 in addition to food subsidy bill of ₹184,000 crores. If you look at the earlier financial reports, in FY17, the borrowings were at ₹70,000 crores.

Now you can understand the problems we as Indians are staring at, on one hand, farmers are unsatisfied and are ‘protesting’ the entry of private players in the agriculture sector, the other problem is the ballooning of country’s deficit.