Wheat export: The ‘Virtual Water Trade’ problem

An opportunity for profits, but also a reminder to restructure agriculture

The Russian invasion and the West’s reaction has strained the world economy through food shortages. A ‘grey rhino event’ -- a prominent, high-impact threat, but ignored -- has unfolded. Before the war, Russia and Ukraine used to account for about 30% of the world’s wheat exports. With these exports disrupted, wheat prices have risen 40% in a single month. The supply disruption has presented India with an opportunity to make wheat exports more remunerative, but this might turn out to be a double-edged sword.

In his recent summit with President Joe Biden, Prime Minister Narendra Modi offered to shore up the world’s wheat supply, giving a push to the Indian farming community. Given India’s wheat surplus of 2.5-times buffer stock, no doubt, India can support the world to feed billions.

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Predominantly agrarian, India has come a long way from being a drought-prone nation sustained by international food-aid at the time of independence to a net exporter of food grains today. Through the Green Revolution, states like Punjab, Haryana and Uttar Pradesh contributed the most to this feat of attaining self-sufficiency and, eventually, export capabilities.

This epoch saw massive public investments in dams, extensive canal networks, reinvigoration of APMCs, institution of MSP, etc. However, the golden age did not last long. Profitability dwindled, public investment in agriculture declined, average farm sizes shrunk, both free and regulated market models failed, and most importantly, turned farming into a subsidy-led activity, resulting in the agrarian distress of recent decades.

In such distressing times, windfall gains from wheat exports could help farmers greatly. But a more pertinent concern is over the sustainability and the future implications of wheat exports, if India does manage to grab the export space durably.

Short-term export gains conceal hidden issues plaguing the environment since wheat is a water-intensive crop – it takes 1,644 litres of water to produce a kilogram of wheat. Wheat production, power subsidies and excessive utilisation of fertilisers have increased groundwater dependence, putting tremendous stress on the aquifers, leaving them critical, and aggravating India’s water scarcity.

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Thus, in promoting wheat exports, the government must be deemed to be exporting not just wheat but also scarce water for free. Scholars call this phenomenon “Virtual Water Trade”. India is generally considered a net-exporter of virtual water due to its sizeable agri-exports. Further, the changing climate has added pressure to maintain water balance and sustainability. Thus, our declining per capita water availability.

We may not realise the implications now, but the future of Indian agriculture is bleak without water. In fact, due to excessive drawing of water and the use of fertilisers, Green Revolution states are suffering from desertification and aquifer contamination. Emergent wheat-producing states like Madhya Pradesh are also heading out on the same unsustainable path.

It is said that history repeats itself. A high price this year may motivate more farmers next year into wheat cultivation. However, next year’s prices may be disastrous -- a textbook case of erroneous price-signalling. The vanilla crop in Karnataka is a classic example. It was successfully experimented with and propagated during the late 1990s.

Madagascar, the world’s primary source of vanilla, was hit by cyclones and floods in 2002, reducing its production levels significantly. Indian vanilla producers rejoiced over the sudden price surge, enticing more people into vanilla farming. However, the party did not last long. Madagascar recovered and recaptured the market, resulting in a price crash and a near-complete decimation of the Indian vanilla industry. Lessons must be learnt from the vanilla episode to prevent the future victimisation of India’s wheat farmers. Else, they might face a similar situation as vanilla farmers.

A general prescription is to substantially change agricultural practices, viz., effective irrigation techniques, irrigation scheduling, suitable crop and technology selection, to secure future production and availability of cereals in India. However, small and marginal farmers may not be able to adopt these measures for obvious reasons.

While there is no consensus anywhere regarding the revamping of Indian agriculture, there is a consensus that the root of the problem is the unremunerative farm produce prices. If the farmers can be incentivised and given the right price, then intercropping of wheat with successful combinations like pea-wheat, soybean-wheat or oilseed-wheat intercrops can be achieved. This may help hit two birds with one stone: India has been a net importer of oilseeds, and a majority of it comes from Ukraine and Indonesia. Intercropping would create a win-win situation by reducing the prospect of a ‘stagflation’ and setting right the structural vulnerabilities in Indian agriculture.

An opportunity has presented itself, but it is also a reminder to make lasting impact by restructuring agriculture and water sustainability in one swoop.

(Subramanian teaches at Christ University, Dharmanand at PES University, Bengaluru)