Informist, Thursday, Jun 22, 2023
By Arunima Bharadwaj
NEW DELHI – The government's plan to sell wheat in the open market may be a quick fix to soaring prices, but this will push stocks in the central pool below the buffer norm and reduce its ability to intervene in the market and effectively cool down prices.
The answer to this, feel industry experts, could be removing the 40% duty on wheat imports.
India Last Imported Wheat In Significant Quantities In 2017-18 (Apr-Mar).
"In all likelihood, if prices continue to go up, the government may reduce the import duty so that private sector can import wheat at southern ports," said Siraj Hussain, former secretary in the agriculture ministry.
India last imported wheat in significant quantities in 2017-18 (Apr-Mar).
CURRENT SCENARIO
With low carryover stocks and less than normal procurement this year, wheat stock with the Centre is already low. As on Jun 1, the government had wheat stocks of 31.39 mln tn, the second lowest for the month in past 10 years.
Usually, wheat stocks are the highest in June when rabi procurement comes to an end.
The government has procured 26.20 mln tn of wheat during the current season so far, around 8 mln tn lower than the target of 34.15 mln tn.
The procurement season has almost ended and negligible quantity of wheat is arriving at mandis, a senior food ministry official said.
This is the second-lowest procurement in eight years and 40% lower than what was procured two years ago. The next wheat crop will start arriving only in February.
There are also doubts about the actual wheat production this year. Though the government has estimated wheat output in 2022-23 (Jul-Jun) at 112.7 mln tn, up 4.2% on year, industry players estimate it to be much lower at 103-104 mln tn.
GOVERNMENT SCHEMES
The stock is likely to fall further with the government announcing sale of 1.5 mln tn wheat in the open market starting next week, and monthly allocation under the public distribution system.
The government has been allocating 4.8 mln tn food grain per month under the public distribution system, which includes Pradhan Mantri Garib Kalyan Yojana and other central welfare schemes. In this, the government provides about 3.3 mln tn rice and over 1.5 mln tn wheat to beneficiaries.
With 3 mln tn wheat likely to leave warehouses--1.5 mln tn for open market sale and 1.5 mln tn for public distribution--the stock will be perilously close to the minimum buffer stock norms. According to buffer stock norms, the minimum government stock should be 27.6 mln tn as on Jul 1.
PRICE CHECK
Though the government has announced open market sales and imposed stock limits, domestic market prices of wheat are currently higher than the minimum support price of 2,125 rupees per 100 kg.
The grain is being sold at 2,250-2,300 rupees per 100 kg in the wholesale markets of Indore, Madhya Pradesh.
Wheat prices in mandis have risen by 8% on month, Sanjeev Chopra, secretary in the Department of Food and Public Distribution, had said earlier this month.
Though wheat prices moderated momentarily after the government announced open market sales on Jun 12, prices have retracted to the earlier levels due to lower arrivals, market players said.
Industry players also believe that the government's decision to sell wheat in lots of 10-100 tn in the open market will rather push up prices as the quantity is too less.
"The 100 tn quantity decided by the government will not serve any purpose but will inflate the market further," said Pramod Kumar S., president of the Roller Flour Millers' Federation of India.
"Arrivals in the market are very low. The government either needs to increase the minimum quantity of wheat to be sold in the open market, or they should allow duty-free import of wheat."
"If government stocks fall below the buffer norm for two continuous quarters, the government may have to remove import duty on wheat," said Rahul Chauhan, director of IGrain, a commodity research company. "The government can also increase the quantity of rice given under the public distribution system," he said.
But the government has already reduced the allocation of wheat under Pradhan Mantri Garib Kalyan Yojana to one-third from nearly half earlier and to reduce it further may be tough.
"The effect of open market sale scheme is expected to last only for two months. In fact, there is no guarantee that prices will not go up even after the open market sale of wheat," said Chauhan. "Prices can go up again in the coming months," he said.
MONSOON IMPACT
Not only is the country's staple grain under stress because of low stocks, but also the possibility of the El Nino weather pattern setting in later this year can affect sowing of rabi crops in October.
El Nino is a natural climatic phenomenon marked by warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean near the equator. The impact of El Nino extends beyond the Pacific Ocean, and is typically associated with deficient rainfall in India.
Deficit rainfall in the Jul-Sep monsoon season can result in low moisture in the soil which can affect sowing of wheat in the latter half of the year.
Even though the India Meteorological Department has forecast normal monsoon at 96% of the long period average, there are concerns over monsoon this year due to El Nino and an extremely weak start.
The monsoon, which had a delayed onset, is currently running 10-15 days behind schedule in many parts of the country. The cumulative rainfall over the country from Jun 1 till today has been 31?low normal.
"Kharif (crops) sowing has already been delayed by 20 days, which will also delay its harvest. This can further delay the sowing of rabi crops," Chauhan said. "Further, if El Nino occurs, rice production may be affected and this can also affect sowing of wheat because of low moisture in the soil," he added.
The government will have to be judicious with its utilisation of wheat stocks as there are seven months to go before the new crop starts arriving. If stocks dip below the buffer norm at the beginning of the season, the government might have to look at alternative avenues to plug the gap. End
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