Wheat Economy: Growing Pain for Farmers - Diminishing Gain for Government

Wheat Economy is at Cross Roads:  

Time to review Wheat related Policies and Products

By:
Vijay Sardana

Photo By: Vijay Sardana near Pakistan Border in Amritsar District

Last week I was in Haryana and Punjab to meet farmers and to know how much money they make in wheat crop. You will surprise to know farmers are growing wheat under compulsion and not happy with wheat as projected. there are many other options which are more profitable but government policies don't allow those sectors to come up. Why blame the farmers. the biggest benefit of wheat and paddy is to state governments and not to farmers. Farmers are working like laborer for the state governments so that states can earn revenue from mandi tax and FCI procurement due to state policies.

It is harvesting season for wheat in Punjab and Haryana, newspapers will carry headlines about how wheat is handled and how wheat is managed in mandies.

Let me share some of my thoughts on this subject with you all. You may agree or disagree, it does not matter, what matters is let us start thinking seriously what is the future of Punjab and Haryana if they continue to depend upon wheat and rice forever. Chief Ministers, Ministers and Policy makers do not have time for these small things, they have better things to do, which is why nothing has happen so far on ground. Their concern is only till elections or retirement. But farmers, industry and consumers have to live here forever, so let us think about our future let us not outsource thinking process to politicians and policy makers who are likely to retire in next few months and years.

In India, wheat and rice are two important staple cereals. In recent past, rice industry was able to get due attention of all the investors and policymakers. In fact, wheat has more opportunities for value addition in comparison to rice, considering the food habits of India, but somehow wheat industry failed to get that attention. The reasons are very obvious and needs serious introspection.

In this article, I will prefer to highlight issues of post harvest because growing of wheat is induced by State Government by masking market signals. State government wants to make money from central government by selling wheat to Food Corporation of India. Because this is one of the major source of revenue for the state government. What will happen in FCI stops buying from Punjab? You will see political drama and all sorts of logic from lawlessness to partisan politics will be at full play. 

Let us understand few facts, before we talk about farmers.

Logically, if Wheat is a major crop for Punjab, in that case why Wheat Milling Industry is not growing in Punjab? 

Why Punjab wheat and wheat flour is not preferred option by consumers? 

Please think over it. 

Flour milling industry in India is important industry but due to reasons best known to them, this industry is not able to make an impact on investors. Very often consumer complains about quality of flour offered in market. It is very strange that there are billion plus population in the country but only three or four leading brands in this segment. Still there is no major investment coming into wheat milling industry. This is a matter of concern.

Let me touch-up few possible reasons for poor attention to wheat milling industry.

It is well known that Punjab, Haryana and West Uttar Pradesh are traditionally the wheat basket of India. These state governments always looked at wheat as finished product for Food Corporation of India and Public Distribution system. These state governments never looked at Wheat as important raw material for industrial development. As a typical monopolistic trader, there state governments used wheat as a source of revenue for the state government. Today, Punjab government mandies are the most expensive places to trade any commodity.  This is one of the reasons that no investment is taking place in Punjab in wheat sector, because with about 10 to 12% transaction cost in mandies, no business can survive in competing markets. Punjab government must relook at their agriculture and related marketing policies. 

Taxes on Gold and Computers is less than Wheat and Rice in Punjab. 

It is cheaper to import from other countries than to buy from Punjab and Haryana. 

Wheat growing belts will also have serious competition from other states like Madhya Pradesh, Gujarat, Bihar, Chhattisgarh, Rajasthan, etc. It is more logical for the other states to source wheat from these states than Punjab, Haryana and Western UP due to low cost of operations. What will happen to tradition wheat growing areas? It is high time for the concerned departments to think about it. State governments will have tough time to manage their economy, if they don’t diversify to make their agriculture market oriented in place of subsidy oriented. I will not be surprised that imported wheat will be cheaper than wheat from Punjab and Haryana in coming days. This factor cannot be overruled.

Industrial policy for new wheat producing states are more progressive and forward looking than traditional wheat producing states.  This is also a factor for lack of investment in these states.

One of the options for the state government should be that whenever Government Issue any license for wheat milling industry and other grain milling industry, these mills should be entitled to get waiver from APMC Act and should be allowed to deal directly with the farmers to source raw material as per their quality requirements. This will reduce the burden of grain handling by Government agencies like FCI and at the same time milling industry will get enough raw materials to run their mills round the year based on their desired capacity.

Wheat is a product which gives maximum opportunity for innovation and product development, in fact, more than any other cereal. Unfortunately, chapattis, biscuit and bread are not the only products consumer look for. They are many products in the market place, but rarely made in India. Wheat milling industry lacks innovation. It may be due to old mindsets because still many promoters are in the grip of “commodity mindset”. Either they lack of exposure or they lack interest to invest. In both the situation they will either shrink or quit. It is high time, Indian wheat industry must learn few things from rice industry. Wheat Industry must invest in better technologies to improve the recovery, quality and to reduce the operating cost. Today consumers are willing to pay for better quality and for more meaningful products. Opportunities are huge but somewhere there is disconnect between milling industry and consumer expectations. Packaging is another area where flour industry must focus.

For the development of vibrant milling industry, we must also focus on better equipment. Currently most of the good machines are imported. In order to reduce the capital investment, many millers either go for local machines, which are very often copied versions of imported machines. In general, food machines industry in India lack research back-up. Many millers also compromise of maintenance of imported machines because of high cost spares. There must be a nation policy to promote development of local food machines industry to reduce the capital cost for food industries.  

With the new policy on wheat products exports, Indian milling industry should focus on product development. There is huge opportunity for value added products in world market including India. Research and development will be the key to capitalize on this emerging opportunity. Large number of wheat based confectionery products are coming to India. This is a message for our milling industry. If you deliver what consumers want, there is always a good market.  Industry should study this import trend and develop itself accordingly. If domestic industry lacks research capability, they should explore technical tie ups in the world market to service the market in India as well as international markets.

New Food safety Act needs to be evaluated to promote innovation in wheat based products. Existing food laws somehow acts as deterrence for innovation. Lack of institutional back-up for new product development is also major reason for investment and innovation in this sector. Is there any institute who can help any industry in product development based on wheat as per market requirements in a time bound manner? The role of food research institutes and universities in India should also be reviewed based on how many products they commercial every year. This will make institute profit center because they can charge royalty form the industry for the technology they offer based on sale of the product.

Consumers have high expectation from the wheat flour and wheat based products industry. Imported wheat based products are flooding Indian markets. Why Indian companies are not able to deliver? Why traditional wheat growing states are sitting with huge inventory?

Wheat economy in India is at cross roads. Whether policy makers and industry will come up to the consumers’ expectations or not, only time will tell.

Next two years will be test years for Wheat Policy in India. Read the wheat stories carefully. I will update this blog with reports from "Ground Zero" in coming days. 

Share this with your friends those who consume WHEAT and Trade in WHEAT.  

Also do write your views what government should do with wheat policy in coming years. Place your comments in the comment section below so that all can see it.