Country Focus: India

by Dana Holt
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In the past 20 to 30 years, India has been successful in attaining a high level of self-sufficiency in food grains. Although most farms are quite small — less than 1 hectare — the rate of increase in total crop production has outpaced population growth. This accomplishment occurred amid development of high-yielding varieties, greater use of fertilizer and improved irrigation and agronomic practices.

Even so, annual crop output is vulnerable to the vagaries of the monsoon, and the success or failure of the crop depends on the timing as well as the amount of monsoon rains. Accordingly, India's supply-demand outlook is highly changeable from year to year.

AGRICULTURAL POLICY. Although agricultural commodities are traded in a free market system, the government exercises considerable control, particularly over wheat and rice. Policies and programs are managed by the Ministry of Food and the Food Corporation of India. Basically, the Ministry determines policy, while the F.C.I. is responsible for administration and logistics.

The goal is to assure adequate supplies of reasonably priced food grains for India's huge population, and the mechanism to reach this goal is the Public Distribution System. Through the P.D.S., the government procures grain from farmers at subsidized prices and sells to consumers at subsidized prices.

Each year, the government announces its procurement targets and the minimum farm prices it will pay to obtain stocks. The government then distributes grain via a network of about 400,000 "fair price shops" throughout the country that sell to the public at subsidized prices. Typically, a total of 15 million to 20 million tonnes of wheat and rice, representing about 10% of total supplies, moves through the P.D.S. system annually.

The balance is bought and sold on the free market, although that market is heavily influenced by government actions. The minimum farm price serves as a market-price floor, while releases of grain to the P.D.S. help the government contain price rallies that would push up food costs or consumer subsidy levels. In addition, the government controls exports and imports.

FLOUR MILLING AND CONSUMPTION. Slightly more than 700 flour mills, with a total milling capacity of 15.6 million tonnes, operate in India. But large-scale, organized flour milling plays a relatively small role in India's total wheat-based food system; in 1992, mill wheat grind, at about 6 million tonnes, represented only 11% of the 55 million tonnes of wheat consumed as food.

Instead, most wheat in India is milled in "chakkis," small local mills. Typically, consumers buy wheat at fair price shops or on the free market, and the chakki produces the flour for them.

This pattern enables consumers to have fresh, custom-prepared high extraction flour at economical prices. Favored wheat flour products include unleavened flat bread, called "chapatis," and consumers demand wheat and flour with good baking characteristics. In the cities, demand for branded flour packed in 5 kg or 10 kg bags is higher because of its convenience.

India's organized baking industry also is relatively small and is dominated by individual local baking businesses. In 1990-91, the baking industry consumed about 2.2 million tonnes of wheat flour, with small local operations accounting for more than half of the total.

Per capita consumption of bakery products in 1990-91 was only 0.8 kg, but bread, noodle and pasta consumption is increasing in cities, and cookie and biscuit demand is increasing in all areas.

TRADE ISSUES. India's grain trade policies are driven by the goal of maintaining adequate government stocks to meet the demands of the P.D.S. To this end, the government regulates, or is in direct control of, grain exports and imports.

Trade in some commodities, such as rice and oilmeals, is handled by the private sector, but the government uses licensing, minimum export prices, quotas and outright bans to control the trade. In the case of wheat, the government itself is involved in imports, and exports are handled by quasi-governmental trading corporations.

But in some industries, India gradually is opening its market to freer trade and more private participation. India has established a foreign exchange system, eased foreign investment restrictions, and reduced tariffs — although they still remain among the highest in the world — on many imports.

Economists predict that these developments will lead to a strengthening economy and rising living standards. Accordingly, the country may continue its liberalization trend by opening the grain markets to meet the needs of higher-income consumers with changing preferences and diets.