The Hindu Business Line : Punjab, Haryana wheat farmers' hold-back strategy may backfire

Khanna (Punjab) April 22 Will the attempt by farmers in Punjab and Haryana to hold back their wheat in anticipation of higher prices backfire? If traders here are to be believed, this could well be so.

Their logic is simple. Last year, the Government agencies could procure only 69.46 lakh tonnes (lt) of wheat from Punjab, against 90.10 lt in the 2005-06 marketing season (April-June).

Part of this was due to a 10-lt decline in production.

Corporate buyers

But more important was the entry of large private players (Cargill, ITC, Glencore, etc.), who are estimated to have bought 10 lt — in addition to the usual 3-4 lt bought by local flour millers.

And, it is they who botched up the Centre's wheat purchase plans.

Preferred place

"Normally, these corporate buyers would have preferred to source from Madhya Pradesh (M.P.), as freight costs are lower and the wheat quality is also better.

"However, since M.P. had a disastrous crop, they all converged to Punjab and Haryana", noted Mr Raj Sood of Pela Mal Milkhi Ram, a leading grain commission agency firm here.

Bumper crop

This time though, things are different. For one, M.P. has had a bumper crop; so has neighbouring Rajasthan. Punjab and Haryana, too, have had good crops: at worst, the output will hover around last year's levels.

Either way, the point is that the scope for corporate wheat purchases from Punjab and Haryana is limited.

Indeed, out of whatever little mandi arrivals have taken place so far, the Government has mopped up over 90 per cent, with local mills accounting for much of the rest.

Difference in cost

"Why should any big private player buy from Punjab? If on a support price of Rs 850 per quintal, one adds 11.5 per cent taxes and fees, Rs 35 on bagging and Rs 12-15 on labour, the total cost comes to Rs 995.

In M.P., you pay Rs 920 to the farmer, but only 2.2 per cent taxes and fees.

Even after Rs 35 on bags and Rs 20 on labour, the effective price is still Rs 995.

Other sources

Moreover, you get superior wheat and enjoy a freight difference of Rs 50 over Punjab in supplying to the deficit southern and western markets", Mr Sood pointed out.

Similarly, wheat can be sourced from Rajasthan (Kota) and Uttar Pradesh (Shahjahanpur) at below Rs 1,000 per quintal, with freight difference of Rs 20.

"The farmer is under the illusion that 2006-07 will be repeated. But the truth is there is no corporate interest and southern mills are finding it cheaper to even import from Pakistan.

By July, prices here will ease with farmers being forced to bring out their hoarded produce for want of buyers", he added.

So, what should the Centre do? The best strategy to adopt is to extend the procurement season beyond June and not worry too much about poor arrivals now.

The worst thing it could do is to press the panic button and push up global prices by announcing grand import plans.

Ultimately, the farmer may have no one to go to, except the Government.

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