Why get fixated about wheat export prices

Tejinder Narang | Updated on April 17, 2013

Bureaucratic inflexibility has led to rotting inventories.

Saddled with overflowing wheat stocks, we have lost the chance to export them at good prices.

Wheat stocks with Food Corporation of India (FCI), reported at 24 million tonnes (mt) as of April 1, 2013, are expected to touch 62 mt by June 2013 (equivalent to the US’ annual wheat production) — after an estimated rabi procurement of 44-45 mt in the next 75 days.

Similarly, the 35 mt of rice stock now available with FCI equals the annual rice output of Indonesia — the world’s third largest producer of rice. India will have about 95 mt of cereals in the official inventory within the next two months.

If the Food Security Bill is legislated, procurement will increase from 52 mt to 61 mt. “Maximum” official reserves may be raised from 32 mt to 40 mt. There will still be a surplus of 55 mt (Rs 110,000 crore — $20 billion).

Procurement and storage of a disproportionate volume of grains (98 per cent of market arrivals are cornered by Government agencies, according to the rabi report for 2013-14 put out by the Commission for Agriculture Costs and Prices) rather than its efficient disposal — year after year — has been accepted as the “new norm”. This is despite the fact that this is the sixth record harvest (94 mt) of wheat in a row, against consumption of 82 mt.

None can dispute the pressing need to ship out at least 10-12 mt (Rs 15,400 crore or $2.8 billion) of wheat in 2013-14 in world trade of 140 mt. Otherwise, the grains will be crushed under their own weight.


Only five million tonnes wheat could be shipped by the private sector and central public sector units in 2012-13. After about six months of such activity, export of FCI wheat through three PSUs, namely, PEC, STC and MMTC has all but stopped. The two tenders of April 4 and 5, 2013, were a flop. Some tenders have been cancelled. Participation has come down to 2-3 contenders instead of 8-10 parties earlier.

Between January and April 10 2013, central public sector undertakings invited bids for 3 million tonnes and contracted 1.7 million tonnes or 57 per cent of tendered tonnage — a dismal performance indicator. The speed of evacuation has slackened, while the strategy should have been otherwise.

A possible reason is the anticipated good harvest in the Northern hemisphere from June onwards. World prices are trending below $300 per tonne — the lowest limit set by Indian authorities. The new Indian crop is available in market at around $295 fob and may decline up to $280 in May-June.

Intriguingly, bids received “above” $300 per tonne fob in March 2013 were also rejected by CPSU. Offers “between” $290-300 were simply ignored. This negates the accepted principle of price discovery. Daily rice oscillations in Chicago Board of Trade (CBOT) are 10-15 cents per bushel or $4-6 per tonne.

With an acceptance of $4-6/tonne below $300 (when the carry cost is $50 per tonne, per annum) almost 2 mt additional wheat could have been contracted for $580 million tonnes (Rs 3,200 crore). The Government will have to carry excess stocks for the next two years at an additional expense of $100/tonne — which is penny-wise, pound-foolish.


Another policy initiative of the Government to ship out five million tonnes of three-year-old crop (2011-12) from Punjab (now in FCI godowns) through private exporters at Rs 14,840 per tonne is unworkable.

This costs $318-320 against US SRW (Soft Red Winter) wheat at $ 275 fob. Crop of 2011-12 vintage could have been rationally offered at MSP of Rs 13,500 per tonne for ensuring price parity — but it is too late now. How can old and new crop be priced equally? Specifications of old wheat can be liberally defined, too.

Feed millers and flour millers of South Korea, Vietnam, Indonesia, Malaysia, UAE, Qatar, Yemen, and Ethiopia, who want to customise their cleaning and processing systems for compatibility and blending with Indian wheat, will again be left high and dry, as in 2001-05.

Neither can port operations in India be upgraded with silos, so long as Government continues to be a reluctant player.


Excessive inventories of about 55 mt with the Government as monopoly buyer, is the height of economic inefficiency, contributing to higher fiscal and current account deficits and inflation. Any debate or decision on open-ended or selective procurement is riddled with complex political and electoral overtones, especially in an election year.

The only plausible remedy at this juncture is to create a favourable policy environment for accelerated wheat exports. (Rice export of about 7 million tonnes may be feasible from the open market.)

Persisting with $300 per tonne fob “plus” for PSUs and Rs 14,840 per tonne for private trade cannot be defended. Export markets shall not absorb padded up local taxes, bonuses and carrying costs. The Cabinet Committee on Economic Affairs and the Extraordinary Group of Ministers have voiced their approval of any decision to dispose of surplus stocks below economic cost. Business flexibility should be the norm, not bureaucratic inflexibility.


Black Sea countries (Russia, Ukraine and Kazakstan) are collectively poised to export 25-30 mt of low priced wheat at $230-250 between August and December 2013. US’ new corn crop of around 270 million tonnes due in July onwards will also exert downward pressure.

Unless authorities move in sync with the market, wheat shipments will be reduced to a trickle.

(The author is a grains analyst.)

Published on April 17, 2013

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor