New Delhi: Despite prospects of a bumper crop and sizeable stocks, India will likely be tapping world markets for wheat in a big way again this year and could once again pay dearly for its needs.
Indian firms might start scouting the market by mid-May, when purchases by state agencies from farmers taper off and output estimates become clear.
Farm Minister Sharad Pawar has given strong indications that the government will be proactive on imports this year, after scrambling for costly purchases last year as output and stocks fell.
But traders said the government appeared to be erring once again by perking up global wheat prices with its buy signals and by fuelling domestic prices by paying farmers unprecedented rates to build stocks.
“It is panic reigning supreme in the corridors of power in New Delhi,” a business paper said in an editorial on Tuesday, referring to the sharp increase in procurement prices.
Pawar told parliament the government will raise the price it pays farmers by Rs1,000 per tonne to Rs8,500 for the wheat it needs to rebuild its buffer stocks.
The government is expected to buy 15 million tonnes to raise stocks. It hopes to have stocks of 4-4.5 million tonnes on 1 April, made up mainly of imported wheat.
The buffer stocks are used to sell grain to the poor at subsidised prices and meet the needs of welfare schemes. But stocks fell last year as the government managed to buy only 9.2 million tonnes from farmers against the targeted 13 million.
Traders and analysts said the government moves smacked of panic after last year’s failure to tie up deals.
“With these knee-jerk moves, the government has willy-nilly sent out a message that all is not well with the current wheat crop,” said a business paper editorial.
Government officials maintain the country’s wheat production will rise to more than 72.5 million tonnes from last year’s paltry 69.4 million tonnes, despite unusual rains in February.
But grain traders say that even if official claims were to be believed, the country would need to import big volumes as prices would flare up with farmers getting healthy prices under the government procurement plan.
India, Asia’s fourth-largest economy, has grown at an average pace of over 8 percent in the past three years and is expected to expand by 9.2% in the year to March 2007.
Robust growth pushed inflation to a two-year high of 6.73% in early February. Government data last week showed the wholesale price index rose to 6.46% in the week to 3 March, despite a series of tax and tariff cuts.
The government cut customs duties on edible oils, allowed duty-free imports of pulses and banned futures trading on wheat and rice to control inflation, but without much result.
“The government will have to move cautiously as the prices will rise sharply if they don’t ensure good volumes in the market after procurement,” said Vinod Kapoor, an executive member of the Wheat Products Promotion Society.
He said the government would be able to build stocks with purchases in Punjab, Haryana and Uttar Pradesh but will not be able to check prices because the volume of wheat for sale in the open market will come down.
Imports Only Option
“It goes without saying the government will have to import 3 to 5 million tonnes of wheat this year, they have no other option,” Kapoor said.
A New Delhi-based US attache said on 26 February that despite higher wheat production in 2007, the overall wheat supply situation is likely to remain tight and 3 million tonnes of imports are needed in the the 2007 crop year.
“In the final analysis, production may not be 72.5 million tonnes, but somewhere close to 70 million tonnes,” said an official with a domestic state-run trading firm.
Wheat production over the last three years is averaging around 71 million tonnes while the country’s more than 1 billion people annually consume close to 74 million tonnes.
India, for the first time in six years, imported 5.5 million tonnes of wheat in 2006 as stocks fell after a poor crop and domestic prices rose.
“The open market prices of wheat have already increased with the government raising the procurement price,” said R.K. Mohan, president of the Tamil Nadu Flour Millers Association.
“In northern India, prices have gone up by Rs500 per tonne to Rs9,000, it will push up prices in the south.”
Mohan said government will have to import up to 3 million tonnes in 2007 at any cost.
Analysts say world wheat prices are expected to soften after May since the global crop this year was likely to be better than last year.