Prices begin to rise as MNCs come up with higher offers

M.R. Subramani

Current scenario

Prices have

rebounded on demand from the private sector.

Helping buyers

currently are arrivals from Punjab and Haryana.

Farmers, flour

mills both in wait & watch mode

Chennai, April 17

With multi-national and fast moving consumer goods (FMCG) companies lapping up all the wheat arriving in different markets at higher prices, farmers have begun to hold on to the stocks.

"Multinationals such as ITC and Cargill are buying wheat at prices which are higher by Rs 35 than the minimum support price (MSP) fixed by the Union Government.

As a result, other buyers such as flour mills face problems in buying stocks," said Mr Vinod Kapoor, President of Wheat Products Promotion Society.

Though wheat prices tended to decline as harvest began to just a little above MSP, they have rebounded on demand from the private sector.

For the current year, the Centre has fixed the MSP at Rs 650 a quintal.

"Prices are definitely in the range of Rs 685 in view of buying by these companies," said Mr Kapur. According to Mr Pramod Kumar, Executive Director, Belgaum Roller Flour Mills, the arrivals currently are low and prices for delivery in the South were Rs 975 a quintal.


"Last year during the same time, the prices were below Rs 850. The fact is all the arrivals are being absorbed," he said. "The demand is high because the pipeline has been empty for the last couple of months."

Mr Anirudh Agrawal of Agra Flour Mills said prices in Uttar Pradesh mandis were ruling around Rs 740 a quintal. "The MNCs are increasing the rates by Rs 10 a quintal than prevailing market prices. Arrivals are low in markets such as Mathura and Kosi," he said.

What has resulted from this is that the growers have now begun to hold back the stocks.

Wait and watch

"In places where the mandis are on the main roads or have good transport links, the farmers are holding the stocks. Only in remote mandis are farmers selling," Mr Agrawal said.

"Basically, the growers are waiting and watching. As a result, the industry, particularly flour mills, are also adopting the same strategy. The demand from the MNCs will have to slow down at one point," Mr Kapoor said.

If that happens, the industry expects the prices to crash and farmers to resort to panic sales.

Wheat from Punjab and Haryana are finding their way to the Delhi market, which could help buyers meet part of their demand and also lower their procurement cost a bit.

For example, wheat for mill delivery in Uttar Pradesh is costing Rs 825 a quintal, whereas delivery from Lawrence Road in Delhi could come to Rs 780-785 only.

Buffer stock

In between all this, the Food Corporation of India has been able to procure wheat for buffer stocks. "It is able to buy from mandis where the MNCs and FMCGs are not operating. They have been able to buy at MSP in interior mandis in Haryana and Punjab," industry sources said, adding that the FCI could have procured around 30 lakh tonnes by now.

Hectic buying and lower arrivals have led to suspicion on how much wheat production could actually be this year. "We think production is around the same level as last year ," Mr Agrawal said.

"We think production could be 5-10 per cent lower than the Centre's estimates," Mr Kapoor said.

As per the Union Agriculture Ministry's revised projection, wheat production could be 73.06 million tonnes (mt).

The quality of the arrivals is said to be satisfactory.

Mr Promod Kumar said arbitrage available on the futures market was also keeping the prices high. "People are buying in cash and selling in the futures as June prices are higher," he said.

On Monday, wheat dara was quoted at Rs 770-772 a quintal in New Delhi, down from Rs 775-780 during the weekend. On the NCDEX, wheat for June delivery was quoted at Rs 857, while on the MCX, it ruled at Rs 883.

Mr Kapoor said the Centre should step in to take measures such as importing more wheat or regulating the purchases.

"The period until early next week will hold key. It should give a direction to the market," he said.

(This article was published in the Business Line print edition dated April 18, 2006)
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