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Wheat purchase to create problem of plenty

Wheat purchase to create problem of plenty
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First Published: Tue, Mar 17 2009. 09 30 PM IST
Updated: Tue, Mar 17 2009. 09 30 PM IST
New Delhi: Lack of granary space and stock carried over from last year could pose problems for the Union government when it starts buying wheat early next month.
“A carry-over stock (of wheat) of over 13 million tonnes (mt) will be more than three times the buffer norm. Add to this the strategic reserves... wheat stocks will be in plenty,” said S. Raghuraman, head of trade research at Agriwatch, a Delhi-based research body. “With a limited storing capacity, I wonder what will happen when the procurement is in full swing in May-June,” he added.
Since India’s wheat production is expected to cross 77.8mt by the year ending March, a problem of plenty is imminent. If the government doesn’t act on time, a lot of wheat will rot, Raghuraman said.
The Centre buys foodgrains from farmers and distributes them to the poor at subsidized prices.
The government stores a buffer wheat stock of 4mt every year to meet exigencies, and since 2008, has been maintaining a strategic reserve of 3mt to help avoid inflationary tendencies and reduce dependence on imports. The stock of wheat carried over from last year is expected to stand at around 13.40mt on 1 April, according to official data.
The Union government buys wheat at a minimum support price (MSP), which is typically a reference price for private traders.
The Congress party-led United Progressive Alliance government has increased the MSP on wheat by 71% since 2003-04 and intends to pay Rs1,080 for 100kg this buying season between April and July.
The Food Corporation of India (FCI), the central procuring agency, has a capacity to store 24.18mt of grains in its 1,451 godowns.
On 28 February, the total stock of wheat, rice, coarse grains and sugar was 37.1mt, of which wheat contributed 15.2 mt, official data shows.
Raghuraman said the government’s wheat stock may cross 30mt on 1 July.
An FCI official, who declined to be identified, said: “More storage will be created with the help of Central Warehousing Commission (a Union government warehousing agency). For Punjab, (chief minister) Parkash Singh Badal has assured us that more storage space will be provided.”
Punjab and Haryana contribute at least 90% of the wheat the government buys for the central pool.
The foodgrain is then sent to several states and sold at subsidized rates through the public distribution system.
Since this is an election year, experts such as Raghuraman expect the government to buy more than usual—even from states that do not contribute much to the Central pool such as Uttar Pradesh and Madhya Pradesh—to pull in farmer votes.
“What the government can probably do is to stagger the time period for procurement so that while considerable amounts are lifted by state agencies, enough capacity is created within FCI godowns,” said an analyst with a private trading company, who didn’t want to be identified.
Madan Sabnavis, chief economist at National Commodity and Derivatives Exchange Ltd, said: “There is very little the government can do in the short run. In fact, it should focus on the medium- to long-term solution of creating more storage capacity.”
He said it is always better to have more wheat than less and any suggestion that dissuades farmers from growing wheat will be counterproductive.
“The cyclical behaviour of the crop suggests there are good and bad years and during bad years, one faces problems of imports and rising prices. So it’s better that the government focuses on improving infrastructure,” Sabnavis said.
Raghuraman suggested immediately removing a ban on wheat exports.
“In principle, a statement has been issued by the government that India can set aside 2 million tonnes of wheat for export. But to make exports viable, the government will have to announce subsidies because the Indian wheat is costlier internationally,” he said.
As an incentive, he also suggested introducing a transport subsidy that complies with the World Trade Organization norms on trade.
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First Published: Tue, Mar 17 2009. 09 30 PM IST