The Union government has decided to go in for a fresh round of tenders to import at least 1 million tonnes (mt) of wheat to make up the shortfall in procurement even though, at $370-375 (Rs15,392-15,600) a tonne, international wheat prices are at an 11-year high.
“We may float a fresh tender in two to three weeks’ time as the government may initially go for 1mt of import, though there is a mandate to import 5mt,” said a senior food ministry official, who did not wish to identified.
With total procurement at 11.1mt,?the?government needs to import another 4.5mt of wheat to have an adequate level of food stocks. Domestic prices of foodgrains, as measured by the wholesale price index for the week ended 4 August, are growing at an annual rate of 8.72%, while the overall inflation rate is 4.05%.
With an estimated production of 74.9mt, India is the world’s second largest producer of wheat; it produced 69.6mt last year.
In July, India imported 0.5mt of wheat at $317-330 a tonne to curb inflationary pressures. Earlier, when the State Trading Corp. of India Ltd (STC), the agency for import of wheat, floated a tender in April, firms had quoted $270 (with one deal valued at $263 a tonne). The government, however, cancelled the tender on the grounds that prices were too high.
To ensure no misstep this time around, senior officials from the food ministry and STC visited Egypt last week to understand how the wheat-deficit African country handles its imports. Egypt imports 5-6mt of wheat, which largely happens on a mo-nth-to-month basis and it does not necessarily resort to publicly floated tenders.
According to analysts, however, even while prices may soften a bit due to the recent slowdown in the world market, there is little chance of a big downturn in international wheat prices.
“I wouldn’t go in for import at this time of the year as prices are very high,” said Sanjay Kaul, director of National Commodity & Derivatives Exchange Ltd’s Institute of Commodity Markets and Research (ICMR). Kaul says the government should also have hedged wheat in the international market earlier.
In March, as first reported by Mint, the government had indeed evaluated the option of hedging exposure in options or futures at the Chicago Board of Trade, the leading global commodity futures exchange, and was aiming to take futures for around 2mt, which would have helped India import at around $315-330 a tonne.
However, the proposal went nowhere. Analysts also expect bids to come from only a handful of countries, such as Ukraine, Kazakhstan and Canada, besides some other nations in the Black Sea region.
India does not allow wheat from the US because of its failure to satisfy phytosanitary norms and a supplier such as Argentina will prove expensive because of the high freight costs involved.
For Australian wheat, India will have to wait till the year-end, when its harvest is concluded. Rajni Panicker, head, commodities research, Man Financial Commodities, says that even waiting till the year-end may not help.
“Australian wheat hits the market by October-November, but there is no guarantee that the prices will soften as there has been a dry spell in Australia. In such a situation, it is difficult to say whether it is worthwhile to wait.”
According to a senior government official, the fault lies in the way India goes about imports. “We still have to import 4.5mt and I feel we should go on importing on a month-to-month basis in smaller quantities, something like what Egypt is doing. This will also ease pressure at ports and railways and the international community will know we are serious about importing. In doing so, we may also negotiate good prices,” he said.