NEW DELHI: Two years of high priced imports in 2006 and 2007, one year of record output at 78.5 million tonnes and now, slam dunk into subsidised
exports of massive central stocks. The United States department of agriculture (USDA’s) February prognosis on India’s wheat glut situation and the necessity to subsidise exports from overflowing central reserves in May or even earlier may be set to prove prophetic.
Persisting reluctance from traders and flour millers to make large buys from UP, the largest wheat producing state, despite plunging support prices (between Rs 70-130 per tonne) has begun to spell out just that. According to current estimates wheat production this season could be only 76 million tonnes compared to earlier projections of 78.5-80 million tonnes.
Despite that, trade projections are that central buys will be higher than the targetted 24 million tonnes by almost two million tonnes, thanks to few buyers and the clear possibility of distress sales by farmers at the crucial election time. Last year, wheat output was 78.5 million tonnes and procurement by the government was 22.6 million tonnes.
Interestingly, the latest USDA report has pegged Indian wheat output at 78.6 million tonnes for 2008-09, compared to the government’s estimate of 77.78 million tonnes. That is some two lakh tonnes over its earlier estimate, a record output for the second consecutive year.
“Untimely inclement weather will not impact the total output of wheat but will impact the quality of produce in Punjab and Haryana. That could lead to around two million tonnes of poor quality wheat from these states. We are unlikely to purchase from either state due to higher prices (ruling at MSP of Rs 1,080 per tonne) and poor quality. Even if taxes are reimbursed, poor quality wheat means a much shorter shelflife. Gujarat and UP have much better quality crop. So, there is increased pressure on the FCI to buy,” emphasises D P Singh of the All India Grain Exporters Association.
“That means that the government will have to pick up more wheat than earlier targeted from these states to prevent distress sales. State agencies will also have to buy heavily. It will lead to godowns that are bursting at the seams and hike up pressure manifold on the government to open up exports early,” he adds. A recent EgoM decided in principle to revoke the two-year old export ban but no specific date has yet been set.
Ironically, for two years running, in both 2006 and 2007, the government’s miscalculation on wheat output and procurement from UP led to high priced imports. What that could cost the exchequer is anybody’s guess, at this juncture. According to one wheat trader who procures for bigger companies, the timing is still “too premature” to project the extent of subsidy per tonne on wheat exports that the government may be forced to give in order to force out the commodity. But, the fact that subsidy will have to be given is virtually “a foregone conclusion”, he said.
The Centre’s refusal to tap into market output intelligence to clarify its own estimates on wheat is threatening to be yet another marked example of delayed and over cautious government policy bringing farming gains to nought.
With global wheat prices plunging of late, traders see little possibility of prices firming up by May in time for massive Indian exports to gain. “We see no chance of global wheat prices firming up by May, irrespective of what analysts said earlier.
Source : The Economic Times