COMMENTARY. With higher output, lower prices and likely import curbs, wheat may go the pulses way

The Indian wheat situation is turning worrisome, not because of the over-optimistic production estimate released by the Ministry of Agriculture recently, but because of the current price levels that provide no encouragement to farmers.

Fraught with possibilities, the wheat may go the pulses way. The policy-makers may soon be forced to impose import restrictions in the form of higher tariffs.

Output, prices

To start with, no one in the trade believes the Government’s crop estimate of 97.1 million tonnes (mt). Eventual harvest number may be much lower, in the region of 92-93 mt — still a large enough crop for the country.

Notwithstanding this, wheat may pose a big logistics challenge for the State agencies including the Food Corporation of India (FCI). Mandi prices are currently at or below the procurement price of ₹1,735 per quintal.

Given this, as we move toward peak harvest and arrival time in the principal growing States of Punjab and Haryana, farmers are likely to offer maximum quantities for official procurement. Already, the Chief Ministers of Punjab and Uttar Pradesh are keen that the government purchases are maximised in the two States.

Procurement operations

On current reckoning, it appears the procurement agencies will end up purchasing 31-32 mt this season. Together with the opening stocks, at the end of the procurement cycle (that is by June), the government agencies may hold well over 40 mt — a humongous quantity by any reckoning.

The challenge is to then liquidate the stocks in the domestic market. There is no choice but to undertake open market sales, say from August onwards. Every month of storage pushes up the cost (represented by warehouse rent, interest and incidentals) and makes the grain more expensive and less competitive. One way to support domestic growers and prop up wheat prices as well as consumption is to restrict the import of the fine cereal.

Wheat imports

Currently, despite a 20 per cent import duty, wheat from the Black Sea region is coming in at an attractive rate of $230-240 a tonne. After adding customs duty, the landed cost just about equals the domestic procurement price. Mills in the southern parts of the country are the beneficiaries of the current policy. Continued imports will mean that South Indian mills will buy less and less of domestic wheat.

While there is a strong case for restricting wheat import by hiking the rate of duty, it is absolutely essential that South-based mills are able to access wheat at import parity. Otherwise, these mills will be at a complete disadvantage vis-à-vis mills in north India.

Southern flour mills

To encourage the southern region to consume more wheat, it is imperative for the government to ensure that wheat is available there at really competitive prices. If this involves a subsidy, so be it. If the government cannot ensure that South-based mills are able to access wheat at competitive rates, then it has no business to tinker with the current tariff.

Over the last four years, the policy-makers have been concentrating on enhancing production; but have not paid adequate attention to boost domestic consumption, although there are welfare schemes such as National Food Security Act. It is important to work on strategies to maximise food consumption beyond rice and wheat, particularly among the vulnerable sections of the population so as to advance nutrition security.

The writer is global agri-business and commodities market specialist. Views are personal.

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