Amid relative slowdown in demand, the export of government wheat will remain unviable unless the mandated floor price is brought down, a latest report of the USDA said.

Last month, the Centre had allowed export of additional 5 million tonne wheat (of 2011-12 crop) from its godowns via private trade to ease storage burden. The export allocation was to be done via bidding process with floor price set at $274 per tonne (Rs 14,800) plus 12.5 per cent state taxes.

“The government approval of exports of an additional 5 million tonnes via private trade appears unviable unless the mandated floor price is reduced, which would increase the implied export subsidy,” the US Department of Agriculture (USDA) said in its grain report.

Besides, Food Corporation of India (FCI)’s requirement of 100-percent advance payment for the consignment, even before wheat is lifted from the warehouse, is likely to be another major disincentive for the private trade to source the FCI wheat for exports, it said.

Given the historically unprecedented pressure of massive grain stocks and lack of sufficient storage space, the USDA emphasised that “the government will have to explore measures for improving the viability of exports of government wheat”.

Market sources, however, report the government may contemplate open auction of FCI wheat at lower floor prices without end-user conditions such as the auctioned wheat could be bought either by local millers or exporters.

At the current floor price, the total cost of government wheat for private trade is estimated at Rs 17,600 ($326) per tonne after accounting for the cost of moving the wheat from the warehouse to seaport and unloading and FOB (freight on Board) charges, the USDA explained.

“Trade sources report that the government’s floor price for old crop wheat is too high to be viable for exports due to weak international prices and expected availability of new crop wheat at lower prices,” the report noted.

Given the record crop, the new wheat is expected to be available in Uttar Pradesh at around Rs 14,800-15,700 ($274-291) per tonne at FOB seaport. Also, the new crop is likely to be better than the year-old government-held wheat, it said.

The government has already allowed exports of 4.5 million tonne wheat through public trading agencies. But wheat exported via PSUs is currently selling much lower, around $305 per tonne delivery in the current month, it said.

The report also warned that expected foodgrains stocks of 90 million tonne by June 1 on higher procurement would pose an unprecedented storage crisis for the government. The current storage is estimated at around 71 million tonne.

Wheat production is expected to surpass last year’s record of 93.90 million tonne in 2012-13 crop year (July-June).

(This article was published on April 8, 2013)
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