The Hindu Business Line : Flour mills, trade seen to double wheat purchase

What's in store
Farm Ministry, trade betting on good weather for better crop
Flour mills, private trade may buy more to ensure adequate raw material

Chennai , Dec. 17

Flour mills and private trade could double its wheat purchase from the open market next year compared with this year. This is since they would like to ensure they have adequate raw materials as back-up for their end use.

This, in turn, could affect procurement of the foodgrain by the Union Government for buffer stocks.

"Flour mills and private trade could be aggressive in their purchase of wheat next year. This could mean that again, the Union Government may not achieve the targeted procurement for buffer stocks," flour mill sources said.

No sellers

This year, the Centre could procure hardly 100 lakh tonnes of wheat against a target of 162 lakh tonnes. The target could not be met as growers held on to their stocks since open market prices ruled higher than the Government's offer of Rs 650 a quintal as minimum support price to them for its buffer stocks purchase.

The Government's effort to woo growers through a Rs 50 a quintal bonus also did not help matters as open market prices ruled above Rs 800. Though exact details of private procurement are not available, companies such as Cargill, AWB and Reliance besides others were reported to have bought good quantities. Besides, flour mills also purchased to safeguard their interests.

The buffer stock is maintained by the Centre to supply wheat for supply through ration shops and meeting demand for various welfare programmes. It is also to ensure to meet any food emergency.

The wheat market faced a tight supply situation as production slipped to 68.03 million tonnes against initial estimates of over 75 million tonnes. Also last year, too, production was below 70 million tonnes, putting pressure on buffer stocks in the face of increasing offtake by State Government and rising consumption.

Better crop seen

Though this year, the area under wheat is showing a rising trend, the Agriculture Ministry and trade are keeping the fingers crossed, hoping the weather does not play truant as it had in the last two years.

"We are told that sowing has been good and weather has been conducive. We expect a better crop this time," the sources said.

Till December 15, the area under wheat was 232.59 lakh hectares against 210.62 lakh hectares during the corresponding period last year.

Asked why private trade and flour mills purchase would double next year, the sources said raw material availability at reasonable price would be the main reason. "We have to have at least one month's requirement as stock. Otherwise, we will face problems. We would not mind having even higher stocks," they said.

"Suppose, if we buy 10 tonnes of wheat in the domestic market, it will take at least 15 days to reach us in the South," said a South-based miller.

However, the trade feels that the prices could be moderate this year since duty-free imports have been allowed till February 28. "We should have adequate stocks this time. But if the Government wants its buffer stock procurement target met, then it should extend the imports till May," flour mill sources said.

Though the Union Agriculture and Food Minister, Mr Sharad Pawar, has said procurement for buffer stocks would be made at prevailing market price, the trade view it sceptically given this year's experience. The MSP for the wheat that will begin arriving in March has been fixed at Rs 750 a quintal.

But the Centre is concerned that allowing wheat imports beyond March could result in lower prices for growers. Given the fact that Punjab and Uttar Pradesh are to face polls next year, it is something that the Centre doesn't want to risk, according to analysts.

On Saturday, wheat dara ended at Rs 1,095 a quintal against a peak of Rs 1,160 during second week of November. In the futures market, wheat for January delivery closed at Rs 1.040 a quintal on NCDEX and Rs 1,000 for February delivery. Contracts beyond these months are quoted lower than Rs 1,000.