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Massive wheat procurement ignites call for CCI intervention

Panel says CCI should look into this takeover of the grain trade as it has made FCI the biggest hoarder of wheat

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Excess procurement of by the government agencies has stirred up a demand for intervention by the Competition Commission of India (CCI) as the state is creating near monopoly over the grain trade.

The murmurs have become shriller ever since the Commission For Agriculture Costs and Prices (CACP), the government’s nodal agency for setting price of farm commodities, said that should look into this official takeover of the grain trade as it has made the state-run (FCI) the biggest hoarder of wheat in the country.

The observation was made in CACP's latest report on price policy for rabi crops for 2012-2013.

India’s wheat stocks as on September 1 were estimated to be around 46. 16 million tonnes, almost 230% more than the required. On the other hand, overall food grains stocks (which also comprise rice and coarse cereals) was estimated at 71.87 million tonnes, much more than the required 21.2 million tonnes.

In the 2012-2013 wheat crop marketing season, state agencies procured around 38.11 million tonnes of wheat from the farmers till middle of July, which was almost 95% of the total market arrivals.

Share of Food Corporation of India (FCI) in these direct purchases might be less, but it does point towards the total takeover of grain trade by state-run agencies either within the Central government or in the states.

FCI’s own share in total wheat procurement across the country has been around 13-20% in the last five years, but in many places state agencies procure on behalf of the FCI.

Experts said this massive procurement and inadequate release of stocks in the open market has created a situation of mear monopoly in the country’s wheat market, leaving very little for private trade.

Public monopoly is as bad as private monopoly, hence CCI should immediately look into matter, the CACP said in its report.

“In Haryana, Uttar Pradesh and Punjab, government is selling wheat from its inventories at a rate which is higher than the rate in southern India, which goes against the basic economic logic as commodities in producing areas should be priced lower than none-producing areas,” said Veena Sharma, secretary of Roller Flour Mills Federation of India Secretary told Business Standard.

She said the logic given by government is that taxes in Punjab, Haryana and in Uttar Pradesh are higher than southern states which make the cost of purchases more. However, by keeping abnormally high prices, the government is discouraging the growth of value-added industry in the country’s main wheat producing states, she said.

The government on its part said that it has already allocated around 8 million tonnes of wheat for sale in the open market to bulk consumers like flour millers and biscuit makers in a bid to check rising prices.

Of this, around 1.3 million tonnes has already been sold and another 1 million tonnes will be sold in the next few weeks.

A senior panel of government officials has also decided to release a minimum 2-2.5 million tonnes of wheat in the open market every month from October onwards to quell the price rise.

Ramesh Chand, director of National Centre for Agriculture Economics and Policy Research, however disagreed with the proposition that government is holding large quantities of wheat and this makes it a fit case for CCI to investigate.

“It’s a free market and anyone who pays more price could purchase wheat and in this case it is the government. So, there is monopoly. Besides, the government can create a monopoly in public interest,” Chand said.

He said it is only courts which can direct the government to release more quantities of wheat in the open market.

India harvested a bumper wheat crop of 93.90 million tonne in the 2011-12 crop year (July-June).

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