Govt cancels wheat export tender

Floor price fixed by EGoM far more than highest price offer amid global oversupply

In a setback for the Food Corporation of India (FCI), the government has cancelled the hitherto sole wheat export tender for the current financial year, due to low price offers from importers.

The tender was floated jointly by three state-owned trading companies – MMTC, PEC and STC. It kept the floor price at $300 a tonne, as decided by an Empowered Group of Ministers (EGoM) in July. The tender was floated in the first week of September and opened early this month. Government-owned FCI was to supply the wheat scheduled to be exported through these trading companies.

According to a senior FCI official, the highest price bid was $269 a tonne, 10 per cent lower than the floor price.

“FCI was expecting a premium over the current price in the global market. On receipt of the low price bids, we approached the ministry (food and consumer affairs) for a decision. The ministry has decided to cancel the tender,” said the official.

In the benchmark Chicago Board of Trade, wheat is quoted at $257 a tonne, slightly higher than the $233 a tonne at the time of floating the tender last month. The floor price of $300 decided by the EGoM came with an okay for wheat export of two million tonnes for this financial year, after successful shipment of 4.5 mt in 2012-13. The floor price was decided based on the average realisation of last year.

This year, though, is different. Wheat prices are ebbing due to a global surplus. The EGoM is to meet next week and the ministry has decided to recommend a reduction in the floor price. If the panel approves, a new tender will be floated next month, with a lower floor price. “We hope to then get a good response,” said the official.

FCI got a hefty $40 a tonne premium last year. Against the prevailing  $267 a tonne globally, the ‘India’ brand of wheat got an average of $305 a tonne. Encouraged, the EGOM fixed its higher floor price for export this year.

A recent report by the Food and Agricultural Organisation of the United Nations showed a 6.8 per cent increase in global output, at 704 mt this year. This is expected to keep global prices under pressure through the year.

Against the mandatory buffer norm of 4.1 mt, wheat stocks in FCI’s central pool were 36.1 mt as on October 1. FCI has been struggling to manage foodgrains procured from farmers, due to shortage of storage facilities. Exports were meant to ease this pressure.