India: Government must consider importing wheat and milk fat to keep food inflation under check

The second source of uncertainty relates to the size of the 2022-23 wheat crop. Right now, it looks in good condition, with farmers also sowing a near-record 34 million-plus hectares on the back of high prices, adequate soil moisture and reservoir water levels, and improved fertiliser availability. But the crop has barely entered the flowering stage, leave alone grain formation and filling that typically takes place over March and early-April. Knowing from last year’s experience — when a sudden temperature spike after mid-March took a heavy toll on the standing wheat, whose kernels were just about ripening and accumulating starch — it would be foolhardy to make any predictions of output at this point. A second consecutive poor wheat harvest can have adverse consequences, more so given that consumer price inflation has only in the last two months fallen below the RBI’s 6 per cent upper limit target.

That being so, the Modi government should consider import of 2-3 mt wheat as insurance against a not-too-good crop back home. Wheat from Russia — the world’s cheapest supplier — is currently quoting at $305-310 per tonne free-on-board, which works out to a landed price of around $350 per tonne or Rs 28.5/kg in India. Similar imports on government account may also be required of milk fat, especially with domestic ghee and butter prices going through the roof. Demand for milk products, from curd and lassi to ice-cream, will peak during the summer months. That’s when milk production, particularly by buffaloes, too will fall. Excess volatility in food price is neither in consumer nor producer interest — and a veritable nightmare for an inflation-targeting central bank. The government cannot afford to be lax on supply management, at a time when cereals and dairy products are among the highest contributors to consumer inflation today.