Government may regret decision on tender

Government may regret decision on tender
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First Published: Tue, Jun 19 2007. 12 13 AM IST
Updated: Tue, Jun 19 2007. 12 13 AM IST
New Delhi: The Union government’s decision to scrap an import tender for one million tonnes (mt) of wheat will prove costly, given the clear signs the country will be forced to buy large volumes from overseas markets just as prices surge to an 11-year high.
India cancelled the tender to import 1mt of wheat in May, saying that prices of around $263 (Rs10,783) a tonne were high. But now policymakers might be thinking this was a mistake as purchases would cost around 15% more now.
With world wheat stocks seen falling to a 30-year-low, erratic weather disrupting the US winter wheat harvest, and drought in Ukraine and Russia, analysts expect little respite for prices in the near term.
“India will now have to pay close to $300 a tonne to buy wheat as prices have been soaring at the Chicago Board of Trade,” said Atul Chaturvedi, president of Adani Exports Ltd, a commodities trading firm which was among the bidders for the tender New Delhi cancelled. “In retrospect, it seems the government should not have scrapped the tender.”
Wheat on the Chicago Board of Trade rose to 11-year high of above $6 a bushel last week. But the market ended mixed on Friday. The July contract settled unchanged at $6.06 a bushel, below Thursday’s contract high of $6.19.
Earlier this month, agriculture minister, Sharad Pawar, said the country would need to import 5mt between August and December to ensure that there was enough wheat in the next crop year beginning April 2008. Government officials have said New Delhi would hold a tender to import 2mt of the grain by the end of June.
“The market is looking extremely tight,” said Rajini Panicker, head of commodity research at Man Financial India. “The fact that India is looking to buy has added support to the international scenario.” Analysts said it would be tough for India not to buy, as global supplies could fall further in coming months.
“The government is indeed interested in importing wheat. The idea is to build large buffer stocks,” said a senior government official.
Though India will need to import wheat, New Delhi isn’t desperate to do so—officials maintain there is enough grain to meet domestic demand until next April. In April 2007, when the current marketing year began, the government had around 5mt of wheat in its bins against 4mt normally. It has since got about 11mt, against 9.2mt a year ago. Moreover, if the country harvests a crop of 73mt as forecast, against 69.3mt last year, the grain situation would be comfortable, given an annual domestic consumption of about 70mt.
Analysts said the government is aiming for a relatively larger buffer stock to keep a lid on prices throughout 2008, and to avoid a similar situation it faced in 2006, when domestic prices failed to come down despite large imports of 5.5mt.
“It is a question of food security and we don’t have the luxury to play around with prices,” said Avinash Raheja, senior vice-president of Commtrendz Risk management. “There could be problems in wheat supply with the Ukraine situation.”
About 60% of Ukraine’s grain fields, or about 10 million hectares (ha), are suffering from drought and at least 800,000ha of grain crops have already died, according to weather forecasters. And a senior agriculture official said the ministry had slashed the 2007 wheat crop forecast by a third to about 12mt from the previous outlook of 18mt.
Analysts said the government should plan its long-term purchases better. “Everybody knows that India is getting into a desperate situation for wheat. For all these risks, there will be a premium,” Raheja said. Domestic wheat prices at local wheat markets have risen 7.6% to about Rs915 per 100kg, from Rs850 in May. REUTERS
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First Published: Tue, Jun 19 2007. 12 13 AM IST