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Informist, Tuesday, Apr. 15, 2025

 

By Pallavi Singhal

 

NEW DELHI – With the central government's wheat purchases in the rabi marketing season 2025-26 (Apr-Mar) surging, most market players expect it to procure more than 28 million tonnes, which they believe would suffice to keep prices of the commodity in check in the latter half of the year. However, if procurement is below 25 million tonnes, it could trigger a return of stock limits and price pressures, industry insiders say. According to them, Uttar Pradesh will be key for the government to reach its procurement target of 31.27 million tonnes.

 

So far in 2025-26, the government has purchased over 6 million tonnes of wheat, or 19.2% of its target, up over 100% on year. Most of the procurement has come from Madhya Pradesh.

 

The Centre is leaving no stone unturned to fill its granaries this season. It first raised the minimum support price for the cereal by INR 150 from INR 2,275 per 100 kg last year. The Madhya Pradesh government then announced a bonus of INR 175 per 100 kg, followed by Rajasthan, which announced a bonus of INR 150. These bonuses come on top of the minimum support price of INR 2,425 per 100 kg.

 

These increases come after three years of low procurement. After record procurement of 43.3 million tonnes of wheat in 2021-22, the government's procurement dropped to 18.8 million tonnes in 2022-23, against a target of 44.4 million tonnes, due to lower production. The next two years also saw low procurement, with 26.2 million tonnes being purchased in 2023-24, and 26.6 million tonnes in 2024-25.

 

PROCUREMENT EXPECTATIONS

"With the government procurement going at a higher pace than expected, it seems they would be able to go up to 28-29 million tonnes. This is up from our earlier estimate of around 24-25 million tonnes," the senior vice-president of a global agri-business company said. With the crop size looking higher on year and the government buying aggressively in Madhya Pradesh, the possibility of higher procurement has risen, the executive explained.

 

The trade expects procurement to rise in Madhya Pradesh and Rajasthan due to higher price realisation for farmers. "If the government can procure anywhere around 5 million tonnes from Madhya Pradesh, 2 million tonnes from Rajasthan, the usual 20 million tonnes from Punjab and Haryana combined, and manage the balance 2-3 million tonnes from all other states combined, it will add up to an easy 28 million tonnes," the grain procurement officer at a multinational chain said. 

 

This year, the government has set a target of buying about 12.4 million tonnes of wheat from Punjab, 7.5 million tonnes from Haryana, and 6.0 million tonnes from Madhya Pradesh. Meanwhile, it is looking to buy about 3.0 million tonnes from Uttar Pradesh, 200,000 tonnes from Bihar, 100,000 tonnes from Gujarat, and smaller amounts from Uttarakhand and Himachal Pradesh as well, taking the total over 31 million tonnes.

 

PRICE DYNAMICS

According to industry insiders, if the government procures at least 28 million tonnes of wheat, it will be able to keep prices stable in the second half of the year when the lean season sets in. This period generally refers to Jan-Mar, when wheat stocks with the Food Corp. of India as well as in milling pipelines tend to be low, with the new harvest yet to begin. This period can see potentially higher prices as supplies dwindle.

 

"We estimate that the government needs about 18.4 million tonnes for public distribution under the free ration scheme," a top executive at an international agri-business said. "Meanwhile, the government stock reserves this year are up by about 3-4 million tonnes. If the government wants the same reserves next year, it will have to procure above 28 million tonnes to intervene meaningfully in the market via open sales during the second half of the year." According to industry players, any intervention by the government which involves less than 9-10 million tonnes via open market sales will not cool wheat prices. 

 

The government had in 2023-24 sold over 9 million tonnes of wheat via open market sales but could sell only 2.5 million tonnes in 2024-25 due to lower stocks in its godowns. Moreover, the wheat auctions, which generally start in July or August, were delayed and only began in December owing to reduced procurement in Apr-Jun and the resultant lower stocks in the Centre's pool. As a result, wheat prices hit record highs last season, reaching a maximum of INR 3,480 per 100 kg on Feb. 20 in the key market of Kota in Rajasthan. The minimum support price of wheat for 2024-25 was INR 2,275 per 100 kg.

 

"I see prices of wheat rising significantly in the second half if government procurement stops at around 25 million tonnes," agriculture economist Deepak Pareek said. "The government may even be forced to open imports of the commodity."

 

The industry also sees a return of stocks limits if the government fails to meet its procurement target. In 2024-25, the government tightened stock limits three times in the nine months between June and March. Towards the end of the year, a wheat trader or wholesaler could not stock more than 250 tonnes. In June, they could store 3,000 tonnes.

 

TARGET RATIONALE

According to the FCI officials involved in procurement, reaching the target of a little over 31 million tonnes of wheat would enable the government to build a substantial buffer stock, which is crucial for stabilising the market in case of a crop shortfall at any time in the future. "After two years of reduced procurement, the government's ability to intervene in the market has been limited," one official said. "With a promising crop outlook, the government aims to not only meet next year's requirements but also stockpile wheat for potential future shortages."

 

According to officials, procuring around 31 million tonnes would result in surplus stock of over 16 million tonnes, exceeding the buffer norm of 7.5 million tonnes as of Apr. 1.

 

To reach the target, however, traders say procurement from Uttar Pradesh would be key, and the government would have to impose movement restrictions on private players. "Wheat from Uttar Pradesh generally travels out of the state to Delhi and Punjab to get higher realisation," said Pareek. "This can only be curbed if movement restrictions are placed."

 

Procurement from Uttar Pradesh has always been a challenge. "Stockists and private traders are extremely active in the state," said Rajat Sharma, a trader from Bareilly. "They have several years of relationships with the farmers who still sell their wheat to trade for quick money. Government will have to be much more active if they want to raise procurement in Uttar Pradesh." 

 

Last year, the government could only procure about 900,000 tonnes from Uttar Pradesh, against the target of 3 million tonnes. Without Uttar Pradesh's contribution, government procurement could miss its target.  End

 

Edited by Rajeev Pai

 

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