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Informist, Friday, Oct. 11, 2024

 

By Pallavi Singhal

 

NEW DELHI – With wheat prices rising steadily, the clamour for the government to restart its open market sales scheme, under which it sold the grain in the open market at a fixed price, is growing. However, some market experts believe that even such a step will not bring much relief to consumers as the government does not have adequate stocks to keep prices in check.

 

The government had a stock of 23.80 million tonnes as of Oct. 1, a shade above the buffer norm of 20.52 million tonnes prescribed for Oct-Dec. The stock was down 5.4% on month and 1.0% on year. “The government has too few stocks left to make a considerable impact on supply and prices via OMSS (open market sales scheme),” a representative of a leading trading company said.

 

Of the 23.80 million tonnes, the public distrubution system will need about 10.00 million tonnes between now and March, according to trade estimates. The buffer norm for Apr-Jun is 9.50 million tonnes, comprising 7.50 million tonnes of regular reserve and 2.00 million tonnes of contingency reserve. That would leave the government just 4.00 million tonnes for open market sales.

 

“The government would want to keep about 11.00 million tonnes in reserve instead of 9.50 million tonnes as that would be bringing the reserves down to a bare minimum," said G. Chandrashekhar, commodity market expert and policy commentator. "India is used to excessive surpluses averaging about 17.00 million tonnes on Apr. 1. India needs to be prepared for any weather anomalies, for heat waves or excessive rain in crucial periods which may weigh on the size of the upcoming crop.”

 

The government’s wheat reserves have been falling over the past two years as it failed to reach its procurement targets in rabi marketing seasons 2022-23 (Apr-Mar) and 2023-24, with heat waves reducing the size of the crop. The government's procurement target in 2024-25 was 30.00-32.00 million tonnes. It managed to buy only 26.60 million tonnes, slightly more than the 26.20 million tonnes it procured in 2023-24.

 

The situation was similar in the crop year 2022-23 (Jul-Jun). However, the government had enough buffer stocks then to sell wheat in the open market. It sold an all-time high 9.40 million tonnes during 2023-24 (Apr-Mar).

 

“The government had higher stocks last year on carry-over reserves and reached this level after offloading record stocks," the head of procurement at a leading Indian agribusiness firm said. "This year, while no offloading has happened, the government, through its allocations, has been making it clear that open market sales may not be its biggest priority.”

 

Despite dwindling stocks, the government in September allocated 3.50 million tonnes of wheat to the free grain scheme till March. With open market sales on the back burner and a 40% import duty still in place, industry players see wheat prices rising to as much as INR 33.00 per kg by February. The retail price of wheat was already at INR 31.24 per kg as of Oct. 10, according to data from the consumer affairs ministry.

 

The head of procurement quoted earlier said the only way the market would cool slightly was if the government could offload at least 1.20 million tonnes of wheat a month at a price below INR 25.00 per kg. In the alternative, industry estimates that imports of up to 3.00-5.00 million tonnes, either by private traders or by the government, would be needed to cool prices.

 

The industry continues to hope the government will lower the import duty after the rabi sowing season. "There is about 8.00-9.00 million tonnes still in stock with private traders and industry who are holding on to it," said Ajay Goyal, chairman of the Wheat Products Promotion Society. "Availability in markets is poor and every week you have to pay a higher price to pull wheat out of the system. Stockists have the upper hand and are releasing bits. The government must take into account that supply is scanty."

 

Goyal hopes for a policy decision on reduction of import duty by mid-November. “The Australian crop comes into the market by November-end, and Black Sea wheat will also be available," he said. "Import duty, currently at 40%, should be brought down to 10%, which will be a healthy number.”

 

The global wheat market, too, poses some concerns. Harsh weather is reducing production in major exporting countries, cutting inventories that have already been projected to hit nine-year lows and fuelling a surge in prices, Reuters reported Friday.

 

“If global prices keep rising, the domestic market can also go up by INR 1.00-1.50 per kg... Global prices are hovering at around INR 28.00 per kg right now,” one of the traders quoted earlier said. "This is the right time to import if the government wants to stabilise domestic prices.”

 

According to Chandrashekhar, the government has three options to address the situation. “They can import wheat from Russia under a rupee payment agreement on a government-to-government basis, they can reduce duty and allow private imports, or they can find a 'call options' contract to hedge future risk,” he said.

 

According to traders, the government may opt for further tightening of storage limits. Only last month, it reduced the stock limits for traders and wholesalers to 2,000 tonnes from 3,000 tonnes and for wheat processors to 60%, from 70%, of the monthly installed capacity multiplied by the number of months remaining in the financial year ending Mar. 31.

 

Chandrashekhar, however, said stock tightening should not be done before February, when a good estimate of the crop size will be available. "By that time we will know how the winter rain has been and if there is any crop damage due to the early onset of heat waves,” he said.

 

With the next crop expected to arrive only towards the end of April, industry continues to demand the opening up of imports. With low stocks, any weather anomaly will exacerbate the price risk, they say. “The government will look to bring prices down before the procurement season, which will begin on Apr. 1, as their own stocks will be depleted if prices hover above the minimum support price," a trader quoted earlier said. "They may well be holding their stocks to flood the market towards the end.”  End

 

Edited by Rajeev Pai

 

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