Rupee fall may save FCI from price blues

Might earn around Rs 3,720 crore on export of 2 mt of wheat, despite dipping prices in international markets

The fall in the Indian rupee has come as a boon to state-run Food Corporation of India (FCI), allowed recently to export 2 million tonnes (mt) of wheat, even as global prices are no longer attractive.

Wheat prices in the international markets have dropped by almost five per cent from $320 per tonne in May 2013 to $305 per tonne in July. In some places, wheat varieties like the Black Sea wheat from Ukraine are selling as low as $220 per tonne.

In the first lot of 4.5 mt of wheat exported by the Corporation last year, the average price realisation was around $311 per tonne. This was done in two phases — first 2 mt were exported and then another 2.5 mt were allowed. As the average value of the Indian rupee against the dollar during that period was around 55, FCI made a neat realisation of almost Rs 7,000 crore.

The money earned was good enough to recover the procurement, storage and transportation cost, estimated to be around Rs 17,000 per tonne. In fact, as some officials said the FCI was expected to make a slight profit of Rs 320 crore from wheat exported in the first lot.

However, by the time the government cleared the proposal to export another lot of 2 mt of wheat from the central pool in August 2013, both the international market conditions and the value of the Indian rupee had changed dramatically.

The price of wheat in the international markets had dropped by almost five  per cent, while the value of the currency has dipped by almost 13 per cent.

Officials said assuming that the second lot of around 2 mt of wheat was to get exported at a base price of $300 per tonne – the process has not started yet as the cabinet cleared the proposal only on August 9 — the FCI would get around Rs 3,720 crore as the exchange rate has firmed.

If the international price falls further to around $280 per tonne, the FCI’s realisation would come down to Rs 3,472 crore, assuming the exchange rate at 62.  At both these prices, the FCI would be able to make some profit largely because of fall in the rupee.

“All these numbers are based on two assumption — the rupee hovers around 60-62 against a dollar and buyers quote a price of $280-300 per tonne for Indian wheat. However, the Corporation would make a loss if it sells wheat at a price below $280 per tonne despite firming up of the Indian currency,” said an official.

India started exporting wheat from the central pool for the first time in more than seven years in 2012 as stocks bulged in state warehouses because of successive years of bumper harvest. India’s wheat production in 2012-13 is expected to be 92.46 mt, marginally less than last year.