The last 12 to 13 months have been tumultuous for the wheat market, particularly in India for many reasons.The procurement of wheat by the Food Corporation of India was as low as 47% of the 43.44 million tonnes it procured in 2021. How is the current fiscal playing out for the flour mills in India and what is the outlook for the next fiscal?
In this podcast, Subramani Ra Mancombu speaks to Pramod Kumar Jain, President, Roller Flour Mills Federation of India, to understand how the current fiscal has been for the industry.
(Host: Subramani Ra Mancombu, Producer: Jayapriyanka J)
The last 12 to 13 months have been tumultuous for the wheat market, particularly in India. This was due to three reasons. One, there was huge export demand for Indian wheat in view of the Ukraine war. The second was due to a heat wave that swept across the country in March-April. It affected the yield and in turn, the production was affected badly. Three, the procurement of wheat by the Food Corporation of India was as low as 47% of the 43.44 million tonnes it procured in 2021. Among the industries that were badly affected by this tumultuous wheat market in India were members of the Roller Flour Mills Federation of India. The flour mills industry has gone through a roller-coaster ride during the current fiscal but it’s expecting a better 2023-24
We have with us Mr. Pramod Kumar Jain, President Roller Flour Mills Federation of India, to share his views on what happened in this fiscal and what is likely to happen going forward.
M R Subramani: Sir, how has the current fiscal been for the flour mills industry? What sort of problem did Mills face with regard to raw material availability?
Pramod Kumar: I think this year was a roller coaster year. Never in our history of flour mills, we have faced a situation like this year. So, in the beginning, what happened because of the Russia and Ukraine war was wheat prices jumped across the world and there was a surge in the export of wheat from India right from December onwards.
Subsequently, what happened was the Ministry of Agriculture estimated a very high crop in India. So, in the month of February and March because of the heat wave, the crop came down. But the Agricultural Department never agreed to that. And exports surged in the months of February, March, and April when most of the wheat was cornered by the exporters and stockists, who knew that prices will further go up because India was selling wheat during the harvest at a huge discount. So, neither miller could get hold of the wheat nor the government.
Subsequently, prices in the month of April and May touched a record high. And we gave a representation to the government to ban the export or control or regulate the export of wheat, either through a tariff or through quantity. So, by the time they did it, the market caught fire and millers could not get the wheat. Most of the wheat was at the ports, or it was held by the dealers in their own account. So, we took out a representation to the government on May 11. Suddenly, the government understood the problem. Because the procurement was at an “all-time low”, prices started surging.
The government banned the export of wheat on May 13, and only people with LCs signed earlier were allowed to export, which happened for the rest of the year, I think we exported close to 7.5-8 million tonnes and our crop was 15 million tonnes lower than the previous year or lower than the estimate approximately. You know government figures are a little different than our figures. And after another 15-20 days, the government banned the export of wheat flour. Then after banning the export of wheat, prices crashed in India, because wheat was available to traders, and farmers at the ports.
So, at that moment of time, large trading houses consolidated their position and they knew the government had no stocks or traders were having a difficult time. Small traders could not hold on to the wheat as it was all cornered by the larger trading houses. So subsequently, then after August-September, when the demand started rising and prices of wheat went on going up continuously from 22 rupees, when they banned export, and till December January the wheat increased daily to touch 32 rupees. And I think the government could not do anything because they did not know what is happening and they did not have sufficient stocks. Adding to this problem because the procurement was low, the government reduced the allocation of wheat in PDS and in PMGKAY by almost half. So, there was no wheat available even in the PDS system. Demand became more.
You know, everybody knows that wheat is also diverted into the open market and somehow finds its way into the market and the people who were habituated to consuming wheat and or atta had to buy in the market. So, there was an unprecedented demand for wheat in the country. So that is how it happened and the government went on promising that they will intervene in the market, reduce the import duty, or bring him stock declaration. But the government also did not do anything actually. And post-December, everybody was expecting because if the PMGKAY wheat was key was continuing, the government had no way to give. And international prices were higher than wheat prices in India.
So, there was no point in allowing or reducing the import duty the government realised. I think the government calibrated it very well. And after December, they announced the policy but for whatever political reasons because of elections and other things, the government could not take a decision in the month of December, and it caught fire again. And by the time February, they announced the open world open sale policy. So, we have seen prices from Rs 20 to Rs 25. So, this is what the industry has gone through.
And also actually did you post up to that once the government tenders came in? You know, nobody believed that the government will come with such awareness. So, the government announced the open sale of 3 million tonnes and people could not believe it. And subsequently, when they announced the tender, it was for the full 3 million tonnes? Actually, you know, there are a lot of traders playing in the market, especially large companies, a strong case and they were having a free run in the market. And I think it is like a surgical strike what the government did it and they really beautifully well, and prices came down from Rs 32 to Rs 23. If you see it from the fresh tender, the prices went down coming down, especially as at least in most of the states in India, the prices stabilized.
M R Subramani: That’s a good summing up of the situation, what you have faced this current fiscal now, how is the current crop that is being harvested? What is your view of the crop, given the fact that the agriculture ministry is now saying that it’s forecasting a record 112 million tonnes?
Pramod Kumar: So our view on the crop is that I think the area has gone up by at least 2-3 per cent. And there are so I think the rains have been extremely good. Though there was initially little fear of heatwaves, I think it’s subsided. And I think we should have a record crop grown at 110 million tonnes.
M R Subramani: So what gives you the confidence that the crop is going to be right, but half of it is right because what we hear from the ground is that there has been an early harvest and there has been no damage due to weather concerns?
Pramod Kumar: There is no damage. So actually, we have also received new varieties of wheat from Madhya Pradesh and Maharashtra the quality is extremely good. The size of the grain, the moisture, everything is perfect.
M R Subramani: So how do you see the procurement of wheat by FCI and other government agencies this year? And how much wheat do you think the government will need for its welfare programmes in the coming fiscal?
Pramod Kumar: I think based on what the allocation they have right now. It’s around 1.6 million tons. They will require around 21 million tonnes. If they reinstate the rice portion back in the PDS, probably they will require 24-27 million tonnes of wheat. And I think the government will open with as low as eight or 9 million tonnes this year. Probably they will be the lowest opening stocks that we’ll have. And I think based on the arrival and the mandi prices, I think the government should be able to procure around 30-32 million tonnes easily.
M R Subramani: So you see that happening without any problem this year?
Pramod Kumar: I don’t think so (there will be any problem). Because see, one the crop is much more than last year around 6 to 7 million tonnes more than last year. There are no exports and because of the open sale continuing and prices are subdued everywhere. Today, MP mandi prices are around 2,000 rupees or 2,050 rupees, which is much lower than the MSP. So, in Punjab and Haryana, they have no option. I don’t think so. I think they will sell to the government.
M R Subramani: And how do you see the global wheat market panning out this year?
Pramod Kumar: I think you know, initially there was a panic because of the Ukraine war. Ukraine and Russia are among the largest producers of wheat or largest exporters of wheat in the whole world, especially since it is strategically located catering to Africa and Asia, where the bulk of the world population lives. So I think there is a realignment that had to happen. So, all the supply lines were disrupted. Everything is coming back to normal. The Australian crop was quite good. I mean, we don’t track much of the
international market but according to people, both Russia and Ukraine will have good production. That’s how you can see the massive prices, see prices already you know, under control.
About the State Of The Economy podcast
India’s economy has been hailed as the bright spot amid the general gloom that seems to have enveloped the rest of the world. But several of its sectors still stutter about even while others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups. Tune in!
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