Costly wheat and the cloud over our daily bread | Mint

Costly wheat and the cloud over our daily bread

Photo: Reuters
Photo: Reuters

Summary

According to official figures, daily retail wheat flour prices as on 1 February were 22% higher year-on-year, while wholesale prices were a staggering 31% higher

Wheat prices have stayed stubbornly high in India, despite several steps by the government including an export ban last year and a recent announcement of open market sales. In a pre-poll year, the size of the winter harvest, beginning April, will be critical. Mint takes a close look.

How have wheat prices moved?

According to official figures, daily retail wheat flour (atta) prices as on 1 February were 22% higher year-on-year, while wholesale prices were a staggering 31% higher. In fact, consumer wheat prices have been inching up through 2022 after a heat wave cut production and pushed the government to ban exports in May. Overall, retail food inflation softened of late, as it dipped to 4.2% in December from a high of 8.6% in September. But cereal inflation at 13.8% year-on-year in December continues to be uncomfortably high. Any hope of prices cooling now rests on the size of the 2023 harvest which will hit the markets in April-May.

How is the new wheat crop shaping up?

Planting data from the agriculture ministry show that wheat has been sown in over 34 million hectares, higher than the five-year average area of 30 million hectares. The crop is likely to be higher than107 million tonnes estimated by the government for the 2022 harvest. However, key risks remain—if the crop will be afflicted by a heat stress like last year in March/April, during the crucial grain filling stage, remains to be seen. The size of the crop and post-harvest wholesale prices will determine if the government can meet its procurement target for the supply of wheat to food subsidy schemes.

Graphic: Mint
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Graphic: Mint

What about government stocks?

In the beginning of January, the Food Corp. of India held a stock of 17.1 million tonnes of wheat—the lowest in six years—but higher than the operational and strategic buffer norm of 14 million tonnes. End-January, the government announced open market sales of 3 million tonnes to cool market prices, which means the Centre does not have any excess stocks currently.

So, what steps can the government take?

Traders expect the government to announce a bonus to farmers to ensure procurement does not fall short. With wholesale prices around 2,800 per quintal, the gap with minimum support price of 2,125 per quintal, is big. Without a bonus, farmers may sell their crop in the open market. The gover-nment may also set stock limits on private trade to ensure they don’t mop up supplies. In 2022, after wholesale prices crossed MSP, government procurement fell to just 19 million tonnes, a drop of 53% compared to the year before.

Will the export ban continue?

Most probably. In fact, traders feel that if procurement falls short, the government may cut the existing 40% duty to allow imports. However, if at all India enters the global market as a buyer, international prices will surge. The worries over wheat supplies and soaring prices, however, point to a larger crisis: the impact of climate change on India’s fragile food surpluses. Farmers are often advised to grow less of input-intensive crops like rice and wheat, but adverse climate events can put a spanner on those plans.

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