Growing stockpiles of wheat, rice raise national policy debate.

Once a nation dependent on food imports to feed its population, India today not only is self-sufficient in grain production, but also has built substantial reserves.

India’s agriculture is based on traditional village farming, although larger "feudal-type" farms contribute their share. The country’s impressive production increases originated with the Green Revolution of the 1960s, when agricultural research, seed varieties, land management and cropping practices were improved.

Indeed, surpluses of wheat and rice in the past few years have become burdensome, leading India to promote exports of those grains and to re-examine long-standing grain and food policies. Numerous program adjustments have occurred in the past several years, while the nationwide debate over more systemic reforms continues.

For more than 40 years, India’s agricultural policy centered on ensuring the availability of essential food items to consumers at affordable prices, providing minimum support prices on food grains and protecting the industry from foreign competition. India’s support prices are fixed each year, based on input prices, domestic and world market trends, inter-crop price parity, supply and demand and the effect on the cost of living.

The Food Corp. of India traditionally has controlled grain supplies and storage facilities, while the Public Distribution System is the national agency charged with distributing grain to the population. Consumers buy grain through government centers at prices designated "above poverty level" or "below poverty level."

In recent years, high production supports and consumer subsidy cuts combined to increase output while curbing demand. Consequently, India’s food grain system has faltered under mountains of surplus grain and soaring government costs.

Since the 1996-97 crop year, India’s wheat and rice surpluses have exploded by nearly 274%, to more than 47 million tonnes by the end of the 2001-02 season. And in 1999-00, the government’s program costs increased to Rs 121.3 billion (U.S.$2.6 billion), about 48% more than the budgeted level, mostly because of increased storage.

As grain stockpiles and financial costs have mounted, the government has proposed a myriad of stopgap and longer-term measures to deal with the problem. Decentralization of supply management and privatization of grain storage are among the ideas that have surfaced in the past two years. The government also has slashed its prices to consumers to spur demand, even though that action raised subsidy costs.

The government also embarked on a major push to export wheat. Although India is expected to export a record 3 million tonnes of wheat in 2001-02, the effort has posed challenges.

India’s government pricing mechanisms often leave wheat prices above the world market, forcing subsidies to affect overseas business. Even with subsidies, exporters complain about frequent price adjustments made after export contracts are signed, which creates unacceptable price risks.

The lack of a uniform grading system and inadequate cleaning also have caused disputes with export customers and lost sales because of quality issues. The government has proposed policies to encourage private sector development of modern grain handling and cleaning systems, but significant infrastructure improvements will take time.

In December 2001, the government announced it was working on a long-term wheat export policy. The focus is on adopting a more "stable" domestic price regime, implementing quality controls and improving supply/demand management. In February, India’s Cabinet decided to remove licensing requirements for grain dealers, as well as lifting restrictions on private-sector grain movement and storage.

But many of the announced measures and proposals either have not been implemented or have not produced the desired results. For example, the government late last year said that it would offer subsidized wheat to flour millers if they exported at least 65% as flour, semolina or other product.

To ensure that the discounted wheat was not diverted into the domestic market, millers would be required to provide bank guarantees for the difference between the government export sales price and the local sales price, with the difference reimbursed upon completion of the export deal. At the time, millers said that although they saw potential for Indian flour exports to Middle Eastern and Southeast Asian markets, the program’s rigidities made it unworkable.

Meanwhile, the national debate on overall food grain policy rages on. Industry observers, economists and government officials agree that reform is needed, but consensus on comprehensive change remains elusive.


Most Indian wheat is soft or medium hard, best suited for making flatbreads called "chapatis," the most popular wheat-based product. Consumers take wheat to small, local flour mills called "chakkis," where it is milled into atta, or wholemeal flour.

Although total flour milling capacity in India is estimated at 15 million to 17 million tonnes, only 8 million to 9 million are produced annually. Of that total, industrial milling accounts for only about 4 million tonnes, with the balance ground at the chakkis.

A recent study by the McKinsey Global Institute, an affiliate of McKinsey & Co., calls India’s flour milling one of the most backward sectors of the nation’s economy. The study found that regulations, tax policies and subsidies favor inefficient two-person mills over industrial units. McKinsey estimates that India’s flour milling labor productivity is only 7% that of the United States.

India’s "non-chakki" milling sector consists of about 800 roller flour mills, many of which are large, modern facilities. This industrial sector is represented by the 52-year-old Roller Flour Millers Federation of India, a national group with 200 direct members and 20 regional/state association members.

Demand for branded atta milled and marketed by large flour mills increased in recent years because of its convenience. Specialty wheat flour demand also increased along with growth in fast foods such as pizzas, hamburgers and cakes, and with increased consumption of pasta products.

The stronger demand in these markets was said to be a direct result of 1990s privatization of wheat imports, which allowed millers and bakers to obtain supplies of various wheat types to meet end-user needs. But hopes for future growth dimmed in late 2000 when the government imposed a 50% tariff on imported wheat; imports since then have slid to nearly zero from a peak of more than 2 million tonnes in 1998.


Rice is a staple food and the primary food grain in India’s southern and eastern states. Some 80% to 90% is seeded during the monsoon and is predominantly rainfed, except for Punjab, Haryana and Andhra Pradesh, where it is largely irrigated. Use of high-yielding seed is also largely confined to these states.

The use of hybrid seeds has not achieved wide acceptability. Efforts are under way to develop genetically modified varieties, but approval and commercialization is still years away.

After years of expansion, rice area has stabilized in most states. Although the intensive rice/wheat rotation in north India is causing problems with salinity, difficult-to-control weeds and a low water table, a significant shift to less intensive crops is not expected in the absence of a more profitable rotation.

Although India grows more than 4,000 varieties, rice is divided into two categories for government procurement programs: common, which is distinguished by a length-to-breadth ratio of less than 2.5, and Grade A, with a ratio of more than 2.5. Typically, most government rice procurement comes from millers, who must sell up to 75%, depending on location, of their milled rice at rates called the levy price. India has about 40,000 modern rice mills.

India has developed overseas markets for its aromatic basmati rice, but exports of lower-quality varieties have been sporadic, as prices for those varieties have been much higher than competitor prices.

As with wheat, the government recently has offered subsidies for rice exports, which has helped boost shipments to an estimated 2.3 million tonnes in 2001-02. But quality concerns, infrastructure bottlenecks and a steep decline in demand from Bangladesh, India’s main market, have constrained a major rice export program.