Procurement price of wheat set to be hiked

Procurement price of wheat set to be hiked
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First Published: Mon, Feb 12 2007. 01 40 AM IST
Updated: Mon, Feb 12 2007. 01 40 AM IST
New Delhi:  The government has decided to announce its final procurement price for wheat in February for the first time ever, as it tries to cope with depleted foodgrain stocks, rising prices and increased competition from private trade.
A meeting of state food secretaries, scheduled for Monday, will decide on the new price along with a reworked procurement offensive ahead of the wheat harvest.
A formal announcement may, however, be delayed to avoid any problems with the Election Commission as Punjab is scheduled to go to the polls on Tuesday.
Officials predict an increase in price, from the Rs750 a quintal fixed in October 2006, which is already the highest in the past 12 years, as well as some aggressive steps to pre-empt private traders from securing large quantities of wheat.
People familiar with the procurement plans suggest that the government may also decide to implement long-standing suggestions to delink the minimum support price (MSP), which is the minimum price guaranteed to the farmer, from the procurement price, bringing the latter on par with market rates.
Currently, there is a single MSP for wheat announced ahead of the sowing season. Closer to the harvesting season towards the end of March, the government sometimes announces a price hike to try and make it more attractive for the farmers to sell their produce to its agency rather than to the private sector.
Last year, “we raised the price from Rs650 to Rs700 too late on March 24, when the marketing season was over. By then, private traders had picked up all the stocks. The price should ideally be raised by February-end,” said T. Haque, chairman of the Commission for Agricultural Costs and Prices.
“Last year, we were able to procure only 9.2 million tonnes, mainly from Punjab and Haryana, although we needed 12-15 million tonnes,” he said.
As a result of procurement shortfalls, the government was compelled to import 5.5 million tonnes of largely inedible wheat from Australia at an inflated price of Rs1,100 per quintal.
Haque added that if the Food Corporation of India (FCI), the nodal agency handling public distribution and stocking of foodgrains, is able to pick up larger stocks, this would dissuade traders from hoarding and speculation, thereby controlling inflation.
This year, people familiar with the matter said the state machinery will be revitalized to ensure procurement is substantially higher.
Precariously low wheat stocks—the buffer stock is likely to be just over four million tonnes by 1 April, just about even with expected demand—are lending great urgency to the government’s attempts to secure more wheat. Also adding pressure are state elections in Punjab and Uttar Pradesh, two of India’s major wheat producing regions.
“The thrust is on putting the farmer first and streamlining procedures, especially in Uttar Pradesh where only 5,000 tonnes of wheat were procured by FCI last year,” said an agriculture ministry official who did not want to be quoted.
Having learnt its lesson, the government appears to be taking few chances. The MSP for wheat was already raised to Rs750 before the sowing season, prompting farmers to bring 28.18 million hectares of land under wheat.
But thanks to declining wheat productivity over the last eight years (from 27.8 quintals per hectare in 1999-2000 to 26.1 quintals per hectare in 2005-2006), government estimates for wheat production are now pegged at just 72 million tonnes.
The weather hasn’t helped either. Although winter rain has now set in, temperatures over the last two months were unseasonably high.
Sunder Singh, a wheat farmer in Punjab’s Alawalpur district, said, “if they don’t raise the price, they won’t get any wheat. A hot November and a dry and short winter will lead to a decline in the crop.”
UP is currently India’s largest wheat producer, followed by the two northern states of Punjab and Haryana, with an average annual production of 24 million tonnes annually, but ranks third in terms of government procurement.
This can largely be blamed on inefficient government machinery, set against aggressive private traders who often tie up with farmers in advance, especially when the crop is expected to be average or normal.
“Most of us invariably sell our wheat to private traders because they lift the grain straight from our doorstep, pay us higher rates and down payment of cash,” explains Jaideep Brar, a wheat farmer in Rampur, Uttar Pradesh.
“Government procurement is mired in red tape and inconvenience. This year we are expecting a lower crop than last year. We will sell to the government only if we get market rates.”
If the government radically streamlines its procurement strategy this year, it will trigger a fierce battle for grain among private traders as well.
According to S. Raghuraman, head of research with agribusiness portal, AgriWatch, last year private traders bought around three million tonnes of wheat, but new buyers are expectedthis year.
“This is a strategic moment,” said Raghuraman.
“But I think the government is over-reacting. If they raise the price right now, it will show their anxiety. They want to convey to the public that they are on top of the situation and are taking corrective action well in time,” he said.
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First Published: Mon, Feb 12 2007. 01 40 AM IST