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| A wheat mountain | | Govt should lift stock limits and encourage pvt trade to buy more wheat, or face a wheat mountain |
| Business Standard / New Delhi Mar 12, 2009, 00:05 IST |
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The green signal given by the empowered group of ministers for revoking the two-year-old ban on wheat exports, after the general elections are over in May, seems a belated step that falls far short of what needs to be done to prevent official foodgrain inventories from mounting to unsustainable levels. Without easing the stifling controls and restrictions that have been imposed on the private food trade, including stock limits, the opening up of exports will be of little avail. In any case, not only is the timing of the proposed re-entry into the export market flawed, the quantity of wheat allowed to be shipped abroad (reported to be around two million tonnes) is also too little to make a serious dent in the size of the grain inventory. With the domestic prices of wheat being far higher than the ruling international prices, there is little scope for exporting wheat without hefty subsidisation. Though it is true that global prices have begun to harden, it is doubtful whether they will rise to the extent of making the Indian wheat globally competitive.
In fact, domestic wheat is slated to become costlier in view of the increase in the minimum support price (MSP) by 8 per cent to Rs 10,800 a tonne, from April 1. The effective economic cost of wheat (MSP plus levies and overheads) will then be Rs 14,500 a tonne. By way of comparison, global wheat prices are ruling at around $190 (or roughly Rs 9,500) a tonne, inclusive of cost and freight. Even if this gap narrows a bit, heavy subsidies are inescapable for any kind of export.
The Central grain pool may hold 13 to 14 million of wheat on April 1, when the next wheat procurement season begins, against the buffer stock norm of 4 million tonnes. If the fresh harvest turns out to be close to the last year’s record of 78.4 million tonnes, as is widely anticipated, the official foodgrain agencies may again have to procure between 22 and 23 million tonnes of wheat. The total wheat inventories by May-end may, therefore, could swell to 33 million tonnes, against the estimated annual requirement of around 12 million tonnes to meet the needs of the public distribution system (PDS) and grain-based welfare programmes. It is easy to see that exporting two million tonnes will not solve any problem. In such a situation, the government should immediately lift stock limits on wheat and encourage the private trade to buy as much wheat as possible soon after the harvest, to reduce the state procurement agencies’ burden. Otherwise, be prepared for another government-created wheat mountain.
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