The Hindu Business Line : Pricey wheat

ERUPTION OF A bullish fervour in the domestic wheat market right at the end of the crop marketing and procurement period is a cause for concern for consumers and policymakers alike. The timing and the rapidity of the price spike are rather unusual and, perhaps, out-of-sync with the current demand-supply fundamentals. No doubt, there are uncertainties on the crop size itself. Against the target of 78 million tonnes, the Government estimates an output of 73 million tonnes, while the private trade places it a couple of million tonnes lower. Still, there is no alarming decline from last year's 72 million tonnes as to cause a sudden price spike. Yet, the forward prices of wheat are disconcerting. For instance, July rates are over Rs 800 a quintal, significantly above the season's opening price of around Rs 720. With this kind of price movement barely weeks after harvest and procurement, the price situation later in the year looks potentially explosive.

Withthe Food Corporation of India's opening holdings barely meeting the minimum buffer-stock norm of four million tonnes as of April 1 and procurement close to 15 million tonnes (versus 17 million tonnes last year), the country should be able to tide over the supply tightness. But, then, market players look beyond current fundamentals to speculate on future demand-supply changes. A major reason for the bullish trend is the large flow of speculative funds. It is believed that corporates and private trade have built considerable inventories in the context of the relative supply tightness and in the hope of profiting from a price rise. The Government has allowed private trade to buy wheat directly from farmers for export. As most of the harvested crop has been marketed, the benefit of high price flows to the traders, and not to the growers.

TheGovernment has the unenviable task of containing the price rise or, in any case, not allowing it to go so much out of control that imports may become necessary. Given the compulsions of coalition politics, neither high prices nor wheat imports to rein in the market would be politically acceptable. High levels of taxes and local levies (as much as 11 per cent) on wheat in States such as Punjab actually add up to over Rs 70 a quintal to the procurement price of Rs 640 a quintal. There is no justification for such steep local levies, especially on wheat procured for public distribution and welfare programmes. In the coming months, foodgrains management and supplies through the FCI are crucial. Open market sales, if handled judiciously, can dampen the price sentiment. Imposing stock limits on the private sector may be tempting, but would be regressive for a government that swears by trade liberalisation. It can be argued that extraordinary situations call for extraordinary responses or remedies. One sure way of de-hoarding would be to import a couple of million tonnes through a government parastatal such as the State Trading Corporation and undertake open market sale. The current situation has exposed the fragility of the country's food security. Needed is some dynamic foodgrains management, covering production, procurement, price, and distribution.

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