The Hindu Business Line : Indian wheat bucks world price trend

AFTER record production and stock build up in 2004-05, global wheat production and consumption are expected to remain in a state of balance in 2005-06. Large availabilities in several key-exporting countries including Europe and the CIS should help maintain a competitive global market in the new season.

In recent weeks, international wheat prices have changed little in the wake of generally favourable weather conditions and comfortable inventory.

However, the story in India is different. Despite harvest of over 70 million tonnes (mt) wheat and procurement of 15 mt by Food Corporation of India, wheat prices have firmed up even at the peak marketing period.

Although world wheat output is forecast lower at 604 mt in 2005-06 (versus a record 625 mt in the previous year), world consumption is estimated at 607 mt, with the opening stock for the new season placed at 136 mt as per latest assessment of the London-based International Grains Council (IGC).

Feed use of wheat is projected to fall by 2 mt from last year's high level, while the decline in food use is also quite small, despite another downturn in China where rising incomes are shifting demand towards meat, vegetables and fruits, IGC report pointed out.

Bucking international trend, wheat market in India has been rising. Despite remote possibility of exports, quotes in the futures exchanges show a disconcerting level. For August, the price is in excess of Rs 800 a quintal. Considering that the procurement price is Rs 640 a quintal, forward prices currently quoted on the bourses are far from consumer-friendly.

In frontline States such as Punjab, taxes, duties and other levies add to up to as much as11 per cent and more. There is strong case for withdrawing unproductive levies at local levels. It is now widely recognised that large speculative funds are flowing into the wheat market.

Wheat growers have sold off their produce and speculators are out to make a killing. Futures trading provides a lucrative mechanism for traders and speculators to not only manage their price risk, but also earn profits.

It is the consumer who will eventually have to bear the brunt of price rise. There is suspicion that some overseas interests and multinational corporations operating in the country may have contributed to the unseasonal price spike. Their idea is to crack the Indian market open by painting a spectre of shortage and lobbying for imports.

The latest development also brings into sharp focus the vulnerability of Indian wheat production. Although the Indian market is largely insulated from global influences, rising consumption demand (following income and population growth) domestically means that wheat production must rise by around 3 mt annually so as to meet incremental needs, keep prices under check and indeed, explore export opportunities.

However, in the last five years, output has been fluctuating and has fallen short of the target. This is cause for concern.

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