Informist, Thursday, Jun 27, 2024

By Sayantan Sarkar and J. Navya Sruthi

NEW DELHI/MUMBAI – Though the Centre remains coy about cutting import duty on wheat, market participants have been urging it to allow shipments from abroad to maintain the demand-supply balance in the domestic markets. While imports are not banned, the 40% duty is hefty enough to dissuade even powerful traders.

A couple of weeks ago, the government said there was no proposal to lower the import duty. At a conference on Monday, however, Food Secretary Sanjeev Chopra said the Centre would explore all options, including a duty cut, to keep the domestic wheat market stable.

Millers in north India hold the view that there is no harm if the country imports wheat as that will ensure adequate availability of the staple grain during the festival season, which commences around the middle of August. Mills in some states, especially in the central region, have more wheat stocks, some of which are held back for sale during the festival season at higher prices. This is a challenge for other millers with low stocks, a north Indian wheat miller said.

"Allowing imports will open up another avenue for millers to cater to domestic demand," said Sanjay Puri, president of the North Indian Flour Millers Federation. "If there are no imports, mills will have to purchase from the Food Corp of India's open market auctions or from traders and farmers."

On Monday, the government imposed stock limits on wheat for wholesalers, retailers, and processors, and asked these entities to disclose their wheat stock positions every Friday on the portal of the Department of Food and Public Distribution. The stock limits will be in place till Mar 31. "Traders are holding back (wheat) stocks when there is no dearth in the market," Chopra said at the press conference. "They should release some stocks, which would ensure ample availability."

However, according to Nityanand Roy, team lead on the grain desk at Agriwatch, the government may still have to import 2.00-2.25 mln tn of wheat as production this year is likely to be tied with consumption. The shortfall in the domestic market this year could be around 1.40 mln tn, he said, and with stockists holding back wheat, it could even rise to 2.40 mln tn.

Market participants said August would be the right time to place import orders for wheat. If the government allows wheat imports in August, shipments will reach the country before Diwali, when demand for the staple grain soars, Lavish Shah, an Indore-based trader, said. "There is no point importing wheat after August," Shah added. Traders are urging the government to lower the import duty for a short window in Aug-Sep, as farmers start sowing wheat again in October.

According to the government's third advance estimate, India produced 112.9 mln tn of wheat in 2023-24 (Jul-Jun), against 110.6 mln tn produced in 2022-23. Market participants, however, are not as bullish on the production for 2023-24. They expect output to be at 105-106 mln tn. In 2023, the country consumed a little over 104 mln tn of wheat. Food Secretary Chopra also said on Monday that consumption of wheat is growing in the country.

Moreover, the FCI's wheat procurement in rabi marketing season 2023-24 (Apr-Mar) is set to fall short of the target set by the government. The procurement, which ends Sunday, so far is at 26.60 mln tn against the target of 30.00-32.00 mln tn. Informist earlier reported that crop damage in Madhya Pradesh, one of the top producers, and higher private purchases have resulted in lower procurement by the government agency this year.

While government procurement is running low, all eyes are on the Centre's welfare schemes. The government needs 18.4 mln tn of wheat to distribute under the free food grain scheme to over 810 mln beneficiaries. Dharmendra Jain, president of the Rollers Flour Millers Association, said even if wheat production touches 108 mln tn this year, it will be sufficient to distribute free grain and carry out open market sales scheme auctions. The government also said last week that wheat stocks are sufficient and the Centre will carry out market interventions as and when necessary.

As for prices, Agriwatch's Roy said imports are unlikely to lower domestic prices. "Wheat prices could rise to 2,800 rupees per 100 kg in domestic markets in October due to rising demand during the festival season," he said. Even with imports, prices are not likely to slip below the minimum support price, he said. In the benchmark market of Indore, Madhya Pradesh, wheat prices were at 2,600-2,625 rupees per 100 kg on Wednesday. The minimum support price for wheat for rabi marketing season 2024-25 was raised by 7% to 2,275 rupees per 100 kg last October.

If India does import wheat, it would not affect farmers or lead to a fall in domestic prices, analysts said. “Imports will balance prices, not lead to any downfall,” Ajay Kedia, director at Kedia Advisory, said. Importing 2.00-3.00 mln tn of wheat would not affect any farmers, said G. Chandrashekhar, commodity market expert and policy commentator. “It will bring relief to consumers without affecting farmers.”

According to Chandrashekhar, "Prices of wheat on CBOT (Chicago Board of Trade) have softened. Therefore, it's a good time to import." At 1645 IST, the most traded September wheat contract on CBOT was up 0.2% at $5.62 per bushel (1 bushel = 27.2 kg). In May, wheat futures contracts on CBOT hit a 10-month high. Prices rose nearly 3% from the previous close to $7.1675 per bushel.

Also, farmers are unlikely to switch from wheat to other crops as major growers in northern India, including Punjab, are known for producing wheat and cannot shift to pulses that are mostly grown in western India, Kedia said. He added that the government is likely to raise the minimum support price of wheat this year, which will prevent farmers shifting to other crops in northern India. End

US$1 = 83.46 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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