The country is at the risk of a ‘wheat shock’. Prices of wheat have escalated over the last two months — from around ₹1,750 a quintal to over ₹2,000 a quintal recently. And, come to think of it, the next harvest is over four months away! Rising prices are a cause of concern for policymakers, regulators and consumers alike.

The starting point for the problem is the Agriculture Ministry’s estimate of 93.8 million tonnes (mt) for 2015-16 harvested in April-May 2016 (marketing year 2016-17). Given the soil moisture conditions, planted acreage and weather conditions during the growing period, the government estimate is seen as overstated to the extent of 5-7 per cent. Harvest could at best be 86-87 million tonnes, nearly unchanged from 86.5 million tonnes of the previous year.

The level of production is also reflected in the quantum of wheat procurement in the Central pool – 23 million tonnes this season versus 28 million tonnes in the previous season. No wonder, public stocks are at multi-year lows. As of early November, wheat stocks in the Central pool were an estimated 19 million tonnes, down from 30 million tonnes same time a year ago. This has sent out a clear signal to the market, of tightening stocks at all levels.

Indeed, wheat exports have declined to a mere 1.7 lakh tonnes in the first six months of the current fiscal with little prospect of revival. To be sure, in 2015-16, the country shipped out 6.7 lakh tonnes of the fine cereal.

Turning net importer

If anything, we are turning into a net importer this year. Wheat flour mills located in the southern parts of the country have resorted to imports following record world harvests (over 740 million tonnes) and consumer-friendly prices. Private forecasts suggest India may well end up importing up to 20 lakh tonnes in 2016-17 fiscal to augment availability. Interestingly, ocean freight from Australia to South Indian ports is lower than internal transport cost from, say, Punjab to Tamil Nadu.

Far from being sudden, these developments have been taking place over the last several weeks and even months; but there has hardly been any recognition of the emerging situation or any policy response, once again highlighting the lack of commercial intelligence, future outlook and forward guidance within policymaking circles. With the onset of the rabi planting season, progress of sowing needs a close watch. Wheat is usually planted in 29-30 million hectares.

Soil moisture conditions in the principal growing regions (Punjab, Haryana, western Uttar Pradesh) are sub-optimal. So, winter rains are crucial for crop growth. It is a matter of consolation that the recent spurt in wheat prices is likely to send a positive signal to growers.

Weather factor

Importantly, Indian wheat is at the limit of heat tolerance. During the growing period, especially January and February, day temperature has to be cool and crop-friendly. Otherwise, yields risk a fall.

Another factor is inclement weather close to harvest time. In each of the last three years — 2014, 2015 and 2016 — North India experienced unseasonal rains and hailstorm during March-April that affected the harvest size and quality of various crops.

The next wheat harvest will be in April 2017. Until then, the country has to manage with available stocks, modestly augmented by imports. So, prices are likely to remain firm with an upward bias. If anything, the recent weakness in the Indian rupee is pushing the landed cost of imported wheat higher. Outlook for the rupee is bearish. Withdrawing the 10 per cent customs duty on import can possibly bring some relief.

Demonetisation of high-value currency has created a cash crunch that can potentially delay planting. The recent move to liberalise withdrawal limit for growers and registered mandi traders is, of course, a welcome step.

Coming soon after the ‘dal shock,’this looming wheat shock once again shows how policy responses lag market developments, leading to fire-fighting after allowing the fire to spread.

The writer is a global commodity specialist

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