The Hindu Business Line : FCI's wheat tender process lacks transparency

Mumbai April 27 Is the Food Corporation of India (FCI) on a fishing expedition? This is a question some of the established parties in the grains business, including trade intermediaries, are asking.

Recently, the FCI sent out selectively, to a few potential suppliers, a communication seeking offers to supply wheat for forward positions. Such selective request itself has come in for severe criticism. The process lacks transparency and is fraught with risk of undesirable practices.

Interestingly, even though FCI may have wanted to keep the tender confined to a small circle of suppliers, traders across the world are reported to be excitedly moving around with hardcopies of the communication. This has sent out a wholly avoidable negative signal about the purchase process being adopted. Trading houses in the country are closely examining the terms and conditions, but some have reservations about participating. The last date to respond is April 30.

Onus on supplier

A special feature of the tender is that technically the onus of hedging the price risk has been passed on to the supplier. Therefore, only a handful of parties who are conversant with futures and options trade are in a position to participate. There are also reservations over the shipment period and voyage time allowed once the call option is exercised.

FCI's direct approach to major overseas suppliers, by excluding trade intermediaries representing overseas interests, has also angered established brokers and agents. They are upset that they have been denied an opportunity although they claim to be in a position to arrange for expeditious supplies at very competitive rates.

This casts a shadow over the modus operandi of FCI. On condition of anonymity, some trade intermediaries complained to Business Line that they have been treated rather unfairly although their track record had been remarkable.

Importantly, what the country currently needs is firm commitment for wheat supplies at competitive rates. Time is probably running out because if the drought threat to Australian wheat crop materialises, international market will firm up by 10-20 per cent from current levels of around $225-235 a tonne cost and freight.

It is also likely that FCI is buying time (instead of wheat) in order to monitor the progress of procurement. The Union Government wheat purchases are running painfully slow with procurement barely touching 7 million tonnes. At this rate, total procurement may barely cross 10 million tonnes.

There is the threat that none of the offers made by the end of the month may be accepted or acted upon by FCI, a grain merchant pointed out.

FCI's wheat import efforts contrast with those of STC. Although there was severe criticism of the manner in which STC floated its 3 million tonnes tender in one go, it was a transparent process; and it succeeded eventually. Clearly, the policymakers have failed to think through issues that involve huge stakes and multiple dimensions.

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