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Monday, May 13, 2002

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FCI, saviour for Punjab, Haryana flour mills

Harish Damodaran


WHEAT in the fields, wheat in the mandis, wheat in abundance for everybody except roller flour mills (RFM)!

Well, that is precisely the situation in Punjab and Haryana, the country's `granary' that contributes a third of its total wheat output and 85 per cent of the produce delivered to the central pool.

But for RFMs and chakkies in the two States, the surplus grain in the countryside and mandis means nothing.

The millers there are much more dependent on the Food Corporation of India (FCI) for sourcing their wheat than their distant counterparts in the South or East, where the crop is scarcely cultivated.

During 2001-02, the FCI disposed of a record 51.95 lakh tonnes (lt) of wheat under its Open Market Sale Scheme (OMSS) meant for domestic RFMs, compared to 8.87 lt in 2000-01 and 43.97 lt in 1999-2000.

What is significant though is that out of the 51.95 lt offtake last fiscal, as much as 16.36 lt was accounted for by Haryana and 5.08 lt by Punjab (see Table). Thus, millers in the two `surplus' States lifted over 41 per cent of the wheat sold under the scheme.

This is in contrast to the situation in 2000-01, when out of the total 8.87 lt offtake, the bulk of lifting was from the southern States of Karnataka (1.67 lt), Tamil Nadu (1.59 lt) and Kerala (1.10 lt), compared to 24,160 tonnes for Haryana and 7,580 tonnes for Punjab.

How does one explain the change, wherein the FCI has now emerged as a savior for RFMs in surplus wheat States?

This is unlike in the past, when FCI made available its wheat primarily to millers in deficit States, particularly in the `lean' period when open market supplies dried up.

The reason for this strange state of affairs is simple. It does not make economic sense any longer for millers and traders to buy wheat in Punjab or Haryana, where, apart from the minimum support price (MSP), they are obliged to fork out a host of mandi levies.

The Punjab Government imposes a 4 per cent purchase tax, a 2 per cent market fee, a 2 per cent `rural development' cess and a one per cent `infrastructure cess' on foodgrains. Besides this, the arhtia (commission agent) has to be paid a 2.5 per cent `dami'. The Haryana Government, too, charges all these levies, save the one per cent `infrastructure cess'.

As a result, the cost of wheat, after paying the various levies/charges on last year's MSP of Rs 610 per quintal, would have worked out to Rs 680 per quintal. If to this, the cost of bagging, mandi labour, etc, were added, a miller would have effectively bought wheat from Khanna or Panipat at roughly Rs 705 per quintal. As against this, he could access wheat from FCI at Rs 650 per quintal.

The situation is not going to be different in the current year as well, where the effective cost of wheat in the open market at a higher MSP of Rs 620 per quintal would be nearly Rs 710 per quintal, even as the FCI's OMSS rate in Punjab and Haryana is now Rs 655 per quintal for `sound' wheat and just Rs 615 per quintal for `lustre-lost' wheat.

No wonder, out of the cumulative wheat arrivals of 95.90 l.t in Punjab mandis as on Friday, private traders and millers have bought a mere 14,278 tonnes, with the rest being procured by FCI and State Government agencies.

In Haryana, the private trade's non-interest is even more obvious, with its purchases being a paltry 4,540 tonnes out of total mandi arrivals of 67.39 lt.

On the other hand, a miller in Bangalore or Kozhikode would find it more economical now to source wheat from the open market.

Wheat is currently selling in loose at Rs 505-510 in most mandis in Uttar Pradesh, where MSP enforcement is non-existent.

Even if one were to add mandi-related charges (Rs 50 per quintal), bagging expenses (Rs 20 per quintal), transport cost (Rs 105 per quintal) and trader's margin (Rs 20 per quintal), wheat from, say Hardoi is available at Rs 700-710 per quintal in most southern centres. This is lower than the present OMSS price of Rs 725 per quintal (for `sound' wheat) in Kerala and Tamil Nadu.

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