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Sharad Joshi

It was by coincidence that I read the news about the Agriculture Minister, Mr Sharad Pawar’s statement abandoning all plans for import of wheat on the very day I received a typed demi-official letter from him stoutly making a case for import this year of some 50 lakh tonnes of wheat. In hindsight, the letter makes tragic-comic reading.

The gist of the letter is as follows:

The Minster of Agriculture had stated how kind the UPA Government had been to wheat farmers as it hiked the Minimum Support Price (procurement price) by Rs 230 (sic) per quintal — of which a full Rs 100 was increased in the current year alone, as against its predecessor, which had increased it by only Rs 50.

The Minister admits, not in words but in a statistical Table, that in spite of its tight-fistedness the NDA Government had satisfactory procurement and was never required to import wheat; while the UPA Government, in spite of its munificence and a bonus of Rs 100 per quintal, could garner only 19 lakh tonnes of the total increase of 55 lakh tonnes production in the current year and was forced to import.

What explains the paradox of good procurement response to a “grudging” NDA Government and the poor response to a “generous” UPA Government? The answer is self-evident. The NDA prices were more in tune with the market realities, while Mr Pawar’s generous bonus of Rs 100, taking the procurement price to Rs 850 per quintal was based on a wrong reference to the Chicago Board of Trade (CBOT) quotation.

The Minister states that the CBOT price for March 15, 2007, was Rs 744 only and that approving a bonus of Rs 100 was a sign of prudence.

What he does not mention is that the CBOT price of March 15 had no relevance to the procurement operation in India, which takes place in the months of April and May. He, further, failed to notice that the CBOT price is, necessarily, as in the US, F.O.B., not to be compared with the procurement price, which obviously is c.i.f. The cost of insurance and freight comes to Rs 50-100 depending upon the port at which the cargo is disembarked.

If the Minister has taken into account the April-May CBOT prices and also the c.i.f. factor, the indicated procurement price would have been around Rs 1,150 per quintal, justifying a bonus of Rs 400 per quintal. This became clear at the beginning of the procurement season when the private traders offered around Rs 1,100 per quintal, which was consistent with a sensible reading of the CBOT data.

The Minister, in his letter, for once praises the NDA Government for following open market policy, which benefited farmers and takes credit for having continued that policy in 2006-07. But he adroitly skips the issue of why the open trade policy was abandoned in the current year. If the Government had not suspended taking open positions in the wheat futures market on February 28, 2007, the Minister could have had the advantage of referring to the NCDEX sentiments for fixing the procurement price rather than using the irrelevant CBOT quotations.

On the other hand, the CBOT quotations would have been relevant in deciding on the two international tenders invited by the Government after it decided to import over 5 million tonnes. If on this occasion as well, the Minister had referred to the CBOT prices, which showed a buoyant sentiment, he would have, in the national interest, decided to accept the bid of $263 per tonne. Instead he chose to refer to monthly report of May 24, 2007, of the International Grain Council (IGC), which works under the aegis of the Unctad, which predicted a fall in wheat prices as a result of an increase in production. The tender was consequently scrapped.

When fresh tenders were called and the Empowered Group of Ministers decided to import at $389 per tonne based on various reports of further decline in prices. The CBOT readings were to the contrary. The crop estimates for the coming year are optimistic. The UPA Government has denied itself the use of an untrammelled domestic futures market.

It is only by coincidence that the decision of the Government to give up all plans for import seems justifiable. Certain questions remain unanswered though:

How come the international market was rife with rumours that India was in the market for import of at least 2 million tonnes?

Why did the Minister talk recently of the need to import for even the next year, thus adding fuel to a market already on fire?

How come the Minister based his decision on three different sources of information on three separate occasions in the same year? Was it a case of finding a source of information that suited the decision taken in advance?

Is it clear to the policymakers at least in September 2007 that CACP based procurement prices are exorbitantly expensive and that the domestic futures markets are the best guidelines for farmers to take decisions regarding sowing and marketing as well as for the Government?

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