Food on the table: Why wheat prices are high
Summary
- A looming El Nino can further pinch pockets if monsoon rains turn out to be lower than normal. Mint explores.
With government purchase of wheat falling short of target, consumers may continue to bear the brunt of high cereal prices in the coming months. A looming El Nino can further pinch pockets if monsoon rains turn out to be lower than normal. Mint explores.
What’s happening with wheat supplies?
Official estimates in mid-February put wheat production at 112 million tonnes (mt) in 2022-23, higher than the 108 mt in 2021-22. But these figures were released before unseasonal March rains damaged the crop in Punjab, Haryana and Uttar Pradesh. This is likely to result in actual production turning out to be lower than official estimates, and closer to what India produced two years back—110 mt in 2020-21. Alongside the dip in production, availability of good quality wheat is a concern—a reason private players are purchasing wheat at a premium over the minimum support price (MSP) in some states.
What about Centre’s procurement?
Government purchases of wheat at MSP is likely to fall short of target. The Food Corporation of India is expecting to procure 26 mt of the new crop, against the target of 34 mt—a shortfall of 24%. Government stocks will be sufficient to meet requirements under the public distribution system and for strategic reserve purposes. But its legroom to undertake open market sales to cool prices will be crimped. Market prices in coming months will provide an indication of actual production and availability. While prices are likely to remain elevated, inflation in wheat could still be lower than last year.
What is the trend in wheat price movement?
After reaching a high of ₹2,800 per quintal in December last year, wholesale wheat prices fell closer to the MSP ( ₹2,125 per quintal) in end-February—after the government sold stocks in the market. But in May, prices have started to climb again ( ₹2,300 per quintal in Delhi). Currently, retail wheat flour (atta) prices are 11% higher compared with last year.
Is wheat the only point of concern?
No. After years of benign cereal prices, India has been battling high cereal price inflation which pushed the Centre to restrict exports of wheat and rice. The rest of 2023 will depend on how the south-west monsoon pans out. After four years of normal-to- excess rains, sub-par rains this year could dent output, including for rice, pulses and oilseeds. Lower than normal rains during the second half of the monsoon (August-September) can also hurt planting of winter crops due to a lack of moisture in the soil.
What can the government do?
It is likely to continue restricting cereal exports. But if wheat prices climb further, it can impose stock limits on private trade. From July 2021 to June 2022, India exported more than 10 mt of wheat. The continuing ban on exports will meet domestic consumption (105 mt). But if actual production turns out to be lower than that, prices will continue to rise. Thankfully, global wheat prices are currently at their lowest levels in a year, which can come to India’s rescue in case it has to import the grain to meet any domestic shortfall.