Opinion

Sunny prospects for wheat

A. GOVINDAN | Updated on February 11, 2011 Published on February 11, 2011

Favourable weather, high inventories and firm global prices point to apositive outlook on wheat in India   -  Business Line

India's 2011 wheat production is expected to be around 84 million tonnes (the second advance estimate puts it at 81.7 million tonnes), a new record, provided the weather during the growing season remains normal. Late season rain in major growing areas created favourable soil conditions for planting.

Recent official planting data show that wheat planting in the marketing year (MY) 2011-12 is significantly ahead of the previous year's level, at a record 29 million hectares.

High wheat prices, combined with the recent upward revision in the government wheat support price for the 2011 crop, provided an impetus for wheat planting. Although growing conditions so far have been favourable, factors which could affect the quantity and quality of wheat production include an early or sudden rise in temperature, or rain and hail at the time of harvest.



PROCUREMENT AND PRICES

The increase in the minimum support price (MSP) for wheat last year raised domestic open market wheat prices, despite record production.

As most of the marketable surplus was procured by the government under the price support operation, open market availability was limited, keeping prices high during the lean marketing period. To contain the price rise, the government recently announced additional allocations of wheat and rice, for the below poverty line and above poverty line categories.

Although the government did not impose any stocking or other restrictions on private participation in wheat procurement last year, unlike in previous years, the trade was hesitant to enter the market in a big way due to constant changes in the government's market intervention policies.



FOOD SECURITY ACT

Wheat consumption in the coming years will significantly be influenced by the government decision on implementing the National Food Security Act, the Congress party's election promise, which is at present in a limbo.

The National Advisory Council (NAC), headed by UPA Chairperson, Ms Sonia Gandhi, has suggested the government provide 35 kg of wheat or rice a month to priority households (46 per cent of rural population and 28 per cent of urban population, or around 45 per cent of the country's total population) at a subsidised rate of Rs 2 per kg for wheat and Rs 3 per kg for rice.

For the general category (44 per cent of the rural population and 22 per cent of urban population, or about 35 per cent of the country's total population), the NAC has suggested supplying 20 kg of foodgrains at a price not exceeding 50 per cent of the current support price.

However, an expert panel set up by the Prime Minister, headed by Mr C Rangarajan, Chairman, Prime Ministers' Economic Advisory Council (PMEAC), to examine the NAC recommendations, has suggested that legal entitlement should be restricted only to the “priority households”.



STOCK SITUATION

Government-held wheat stocks, which stood at 21.5 million tonnes on January 1, 2011, are projected at around 14.5 million tonnes on April 1, 2011, marginally below the April 1, 2010, stocks of 16.1 million tonnes, but well above the government's desired minimum buffer stock level of four million tonnes and strategic reserves of three million tonnes.

With the government wheat procurement likely to remain high at over 24 million tonnes in MY 2011-12 because of the hike in the support price and likely larger production, government wheat stocks could swell to around 36 million tonnes as on June 1, 2011.

The large stocks in recent years are not so much the result of higher output as they are of policy measures and market forces which together have raised the public sector's role in the marketing of wheat and rice.

As a long-term measure, the government will have to augment its own grain storage capacity and encourage private participation in building grain storage facilities for its own use or for leasing it out to the government.



EXPORTS UNLIKELY

Despite large carryover stocks and outlook for a record wheat crop, the government is unlikely to lift the ban on wheat exports in the near future due to domestic food inflation concerns, with the exception of small quantities to neighbouring countries such as Nepal and Bangladesh due to geopolitical reasons.

Although the Government has permitted exports of 200,000 tons of wheat through government parastatals in August 2010, according to trade sources no exports have taken place so far. At an f.o.b. price of over $300 per tonne, there is unlikely to be much demand for Indian wheat in global market, despite world wheat prices skyrocketing in recent months, following lower production in Russia, Canada, and some other countries and an export ban by Russia.

High domestic wheat prices during the past two years vis-à-vis global prices prompted some south Indian flour millers to import small quantities of wheat in containers, mostly from Australia, officially placed at 160,000 tonnes in MY 2008-09. Although limited imports continued in MY 2010-11, they are unlikely to continue in MY 2011-12, as global prices are slated to rule high in the coming months.

Domestic wheat shortage and higher prices forced the government to lower the duty on wheat imports by the private trade to 5 per cent in June 28, 2006, and later to abolish the import duty indefinitely.

The zero import duty regime is unlikely to be repealed in the near future due to food price inflation concerns. Since February 9, 2007, wheat exports remain banned with the exception of small exports to Bangladesh through public sector trading companies and limited quantities of wheat products. Concerned about food price inflation, the government is unlikely to relax wheat export restrictions in the foreseeable future.

(The author was Senior Agricultural Specialist at FAS/USDA, American Embassy,New Delhi, for over three decades. )

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Published on February 11, 2011
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