The Hindu Business Line : Wheat a mess

Utter confusion marks New Delhi's response to the rapidly deteriorating wheat situation. With output considerably lower than initial forecasts, official procurement far below target (11 million tonnes versus 15 m.t.), farmers refusing to fall for the bonus bait, and prices stubbornly high even at this time of the year (wheat dara is at Delhi Rs 940 a quintal), the Government is truly in a quandary. It has none but itself to blame.

For, far from being an overnight phenomenon, the situation has been deteriorating for some time; yet, policymakers refused to see the ground reality and take prompt action. Production estimates and demand forecasts are unrealistic. The role of speculative funds has been glossed over. Wheat import efforts were messed up the last two months; two tenders were called off on untenable grounds; and sadly, there is none to assume responsibility for the fiasco. In the global marketplace, the country is fast becoming a laughing stock and its import plans a joke. Pulls and pressures continue to be exerted to further open the market by diluting quality norms. Policymakers are toying with different ideas, but none foolproof. Meanwhile, consumers continue to pay a high price for their food, including of course wheat. If anything the price situation could worsen in the last quarter of the year. Imports of 40-50 lakh tonnes are inescapable, and were so even a couple of months ago. But the food managers were hoping that `somehow' the situation would take care of itself. It has, and will, not.

Markets do not move on basis of government's fancy ideas; it moves on the basis of demand-supply fundamentals. Clearly, the food managers got the market signals on production, procurement, prices and role of market forces all wrong.

In the commodity market it is axiomatic that when the fundamentals — demand and supply — are tightly balanced, even a small change in either or both has a disproportionately large impact on prices. In the case of wheat, the Government's reading of both demand and supply was off the mark. This yet again shows up the utter lack of research and commercial intelligence within the Government. Also, perhaps, trade interests — both domestic and overseas — influence policy decisions. Crystal gazing into the future of the commodity market and forecasting prices require special skills, something the Government demonstrably lacks. All suppliers now know well India's desperation to import several million tonnes. There is nothing to suggest that world prices will in the coming weeks turn consumer-friendly. At around Rs 41 to a dollar, a strong rupee helps lower the landed cost in rupee terms. But from current levels, further upside to the rupee is rather limited, while global wheat prices have. India would probably end up importing at Rs 11,000 a tonne about 50 lakh tonnes. A repeat of 2006. Haven't we learnt anything?