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Thursday, Jun 14, 2007
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Wheat Agri-Biz & Commodities - Agricultural Policy Differences over floating domestic wheat tender Harish Damodaran
Point, counter point Food Ministry officials feel that a domestic tender may have an inflationary impact. A section in the Finance Ministry favours floating tenders to invite delivery at FCI godowns.
New Delhi June 13 Even as the current rabi marketing season draws to a close with official wheat procurement of around 110 lakh tonnes (lt), there is a debate raging within the Government on the merits of floating a domestic purchase tender for the Central pool.
Inflationary impact
Opinion on the proposed purchase tender by the Food Corporation of India (FCI) — as opposed to its familiar open market sale scheme — is now divided. Food Ministry officials feel that a domestic tender may have an inflationary impact since "we would be withdrawing grain from the market". Moreover, it may not be politically feasible, given that in the event that bid prices are above the minimum support price, the Government would be accused of benefiting traders over farmers.
UP factor
But there are sections within the Finance Ministry that favour FCI floating tenders to invite delivery of wheat at its godowns, especially in large consuming-cum-producing states such as Uttar Pradesh. "UP alone has an annual public distribution system (PDS) requirement of 20 lt, whereas its contribution to procurement would barely touch 5 lt this season. For a State producing over 250 lt, the balance PDS needs can be met through a tender that will channelise surplus wheat from within UP to its various FCI depots," they say.
Sourcing cost
The above route would not only reduce FCI's cost of sourcing and distribution of wheat, but also address the problem of poor mandi infrastructure. "There are many wheat growing areas in UP or Bihar where you do not even have mandis. The FCI depots would, in a sense, emerge as mandis for tapping this marketable wheat," the officials point out. They further underplay any possible inflationary impact. "Such a fear was justified last year, when the country had a poor crop and any move to procure extra wheat from a domestic tender would have pushed up prices. But that does not hold true this year, which has witnessed a bumper harvest," they add.
Batting for import
The Food Ministry officials, however, counter that if indeed there is a bumper crop, "the best thing is to leave the market to itself and not unnecessarily stoke price sentiments through an open market tender". It would be better to meet any procurement shortfall through import rather than domestic purchase tenders, they argue. As on April 1, wheat stocks in the Central pool amounted to 45.63 lt. With procurement of 110 lt, total availability, at 155 lt, would exceed the estimated offtake of 120 lt for the fiscal.
Poll gamble
That would leave closing stocks of 35 lt, against the stipulated buffer norm of 40 lt. With national elections scheduled for early 2008, the Government is not keen to take a gamble on next year's crop and has already announced plans to import 50 lt for beefing up its stocks.
Related Stories: More Stories on : Wheat | Agricultural Policy
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