The top priority for the government would be to procure enough wheat to meet its requirement of about 240 lakh tonnes. (Representative Image)
The Secretaries to Union government working from Krishi Bhawan would be worried about the turn weather will take over the next two months. The government needs at least about 240 lakh tonnes of wheat for meeting its requirement for the Public Distribution System (PDS). Therefore, at least this much wheat must be procured in the Rabi Marketing Season beginning from April 1, 2023. It may not be a given this year.
The wheat prices have been ruling high since the harvesting of last year’s crop in April-May 2022 and now they are at an all-time high. Even in wheat-growing regions of northern states, the market price is in the range of Rs 2,800-3,000 per quintal. As per Agmarknet, the wheat price in Bengaluru on January 23, 2023 was Rs 3,800 per quintal. Wheat flour (atta) is retailing at Rs 38-40 per kg, and except for the rich, most households would be feeling the pinch as inflation in rice is also in excess of 10 percent.
Price Signal
It seems that even at the time of sowing Rabi crop, the farmers were not convinced that at the time of harvest, the prices will rule much higher than the minimum support price (MSP) which is Rs 2,125 per quintal for the Rabi Marketing Season 2023-24. As a result, the sown area under wheat is only marginally higher (0.4 percent) than last year. Wheat has been sown on 34.1 million hectares against last year’s 33.98 million hectares.
From their previous experience, they may have concluded that the prices will come down due to heavy arrivals in April and May 2023. The ban on the export of wheat in May 2022 would also have persuaded them that the government will not allow prices to remain at such a high level. Some of them may have even been anticipating the imposition of a stock limit on wheat under the Essential Commodities Act (EC Act) to bring the prices down.
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Since April 2019, the duty on imports of wheat is 40 percent. Trade circles expect that if the government is not able to meet its target of procurement of wheat (at least 240 lakh tonnes), the import duty on wheat may have to be reduced to zero.
On January 1, 2023, the stock of wheat in the central pool was 171.70 lakh tonnes. It is estimated that the offtake under PDS from January to March may be about 39-40 lakh tonnes. So, on April 1, the stock may be about 140 lakh tonnes. The buffer norm for April 1 is 74.6 lakh tonnes.
Due to higher prices in the market and poor availability in some regions where wheat is not grown (e.g., south and north-eastern states), there is a persistent demand that the government should release at least 20 lakh tonnes of wheat under the Open Market Sale Scheme (OMSS). In the past, only the bulk consumers of wheat have mostly been eligible to participate in the tenders for the sale of wheat under OMSS.
It has been the endeavour of the government to encourage bulk consumers to purchase their requirement of wheat from the open market. But in the period from December to February, they got used to getting wheat from the government under OMSS as they save on storage, transportation and interest cost. Moreover, they are able to obtain wheat from the local warehouses of the Food Corporation of India. Therefore, logistically, OMSS is very convenient for them.
As a result, OMSS has been a highly preferred option for bulk users, especially flour mills. In 2018-19 and 2019-20, the government sold 82 lakh tonnes and 36.36 lakh tonnes of wheat, respectively, under OMSS. In 2020-21 and 2021-22, the sale was 24.98 lakh tonnes and 70.93 lakh tonnes, respectively.
In February 2022, the government fixed the price of wheat under OMSS at Rs 2,200 per quintal. Even if the government decides to sell wheat under OMSS this year, it is possible that the price may be higher as the market prices are about Rs 3,000 per quintal. This translates to a subsidy of about 26 percent to flour mills and other bulk users. There is little possibility that the flour mills will reduce the price of atta, maida and suji even if they get wheat at Rs 2,200 per quintal. It would not be practical for the government to fix a maximum retail price for these items. This could be the reason for the reluctance of the government to sell wheat under OMSS.
The top priority for the government would be to procure enough wheat to meet its requirement of about 240 lakh tonnes. If prices continue to rule high, the import window for private trade may be opened at a lower duty. But this decision will have to wait till July when wheat procurement will be over. The government would be very reluctant to import wheat for its own requirement of the PDS. Under the circumstances, it is highly unlikely that a decision on the export of wheat will be taken before July.
Siraj Hussain is a former Union Agriculture Secretary. He is Advisor, Food Processing FICCI. Views are personal and do not represent the stand of this publication.