The Hindu Business Line : Scrapping of wheat tender: System needs review

Mumbai, Dec 26 It is becoming increasingly difficult to fathom what is the policy of the Government insofar as wheat imports are concerned, or worse, whether there is a policy at all. The latest episode of scrapping a tender floated by STC on ground of high international prices has once again showed the country in poor light. The view that more often than not the Indian Government is on a fishing expedition, rather on serious business exploration is gaining ground.

According to reports, the decision to scrap the latest STC tender was taken because the prices quoted were too high ($460 to $590 a tonne). Did the Government expect wheat suppliers to quote prices lower than the market rate and without building a risk premium for dealing with a country known for its flip-flop?

Indeed, the timing itself was inappropriate. If we want wheat to arrive before the beginning of the next season in April 2008, world prices indeed are rather steep. Forward prices from July and beyond are seen easing from the current high levels on the expectation of a rebound in world wheat output following an anticipated 4 percent expansion in area.

But what takes the cake is the Commerce Secretary’s reported statement that there would be no more wheat imports this year because the amount of buffer stock is reasonable. If the amount of buffer stock was reasonable or adequate to meet the requirements, there was no need to allow STC to float the tender in the first place. Surely, the level of inventory was known to the government even when STC floated the tender.

Trade representatives are rather amused by these developments and see Indian policymakers as a confused lot. Many believe, even within the Government there is lack of clarity. There are at least four ministries involved in the matter of wheat imports – Agriculture, Commerce, Finance and Food; and coordination among them is perhaps sorely lacking. Add to this, poor market intelligence and conflicting suggestions, and you have a ready recipe for loss of direction, commented a trader.

Current fundamentals of the wheat market are rather tight. Russia has imposed a stiff export duty, while Argentina has placed a ceiling on exports. Australian export surplus has shrunk. Wheat from the US is unwanted in India unless suppliers agree to meet rigorous phyto-sanitary checks.

Despite Government’s pious expectations, it is becoming increasingly clear that the next wheat crop due for harvest by April 2008 would not be as much as 74.8 million tonnes (mt) of 2007. By how much would the 2008 crop be lower remains to be seen. If the experience of 2007 is any guide, a lower wheat crop would further reduce the chances of procurement. Actual procurement ended up at a mere 11 mt despite claims of a big crop and informal restrictions on corporate procurement. It may be inevitable that wheat imports would continue in 2008.

Planning for import in the second half of 2008 should actually begin now. The way tender system operates deserves a serious review.

Indeed, it would make immense commercial sense to set off a dialogue with supplier countries such as Russia to buy on Government account and seek exemption from export tax. Commercial intelligence about global market dynamics needs to be bolstered.

Tracking price changes and trade flows as also interpreting the data need special skills. Regular interaction both jointly and severally with major international suppliers to review global market conditions would help.