Wheat markets not overpriced, say millers; warn against cutting import duty

The millers argue that wheat prices at current levels of around Rs 2,700-2,800 per quintal are well justified, given that the MSP of the crop has been raised

On September 13, the central government tightened the stock holding limit on wheat amid a renewed clamour for lowering the customs duty to enable cheaper wheat imports. However, flour millers say the concern over wheat prices is unwarranted and the grain is not overpriced.

Food Secretary Sanjeev Chopra, too, in a press conference on September 19 asserted that wheat prices were well under control. He dispelled rumours of a quick resumption of the open market sale scheme, saying a decision on that will be taken at an appropriate time.

Chopra, assuring that prices of essential commodities won’t jump during the critical festival months, said around 10 million tonnes of wheat were, according to reports received, still with traders.

Flour millers meanwhile warn that a knee-jerk reaction to open up imports or lower the import duty from the current 40 per cent to zero could send a negative signal to farmers, who are about to plant the new wheat crop in the next few weeks.

“Sowing of wheat this year could be bumper, given the extended monsoon and good water level in reservoirs. In such a scenario, if any attempt is made to unusually control prices, it might give the wrong signal to farmers,” said a representative of a large flour miller.

Millers say wheat prices at the current levels of Rs 2,700–2,800 a quintal are justified, given that the minimum support price (MSP) for the crop has been raised in 2024-25 (FY25). The cost of wheat for traders and stockists is almost the same as the current market price of wheat, which strengthens their argument.

According to their calculations, the central government has increased the MSP for wheat by Rs 150, from Rs 2,125 per quintal in 2023 to Rs 2,275 per quintal in 2024. Big wheat growing states such as Madhya Pradesh and Rajasthan have announced an additional Rs 125 per quintal.

Lower procurement

Government procurement of wheat this year, at around 26.8 million tonnes, was much lower than the targeted 34 million tonnes, despite the FY25 marketing season production being higher than the previous year’s by about 2.4 million tonnes, as per official estimates. The drop in procurement shows farmers were getting better prices for their produce outside the official procurement mechanism.

According to the flour millers’ calculations, the average realisation from wheat for farmers this year was around Rs 2,325 per quintal, which was almost Rs 50 per quintal more than the government support price of Rs 2,275 per quintal.

Now, if we include other expenses on this average realised price of Rs 2,325 per quintal, the total purchase cost of wheat comes to around Rs 2,500 per quintal for traders, which includes market fees, commissions, packing of gunny bags, wages, and transportation expenses. To this, an average cost of Rs 27–28 per month is added as storage charges and interest on the wheat already purchased (the procurement season ends mostly around April).

This average cost for the last five months — April–August — comes to around Rs 150 per quintal. When added to the overall cost, this takes the price of wheat at the sellers’ warehouse to around Rs 2,650 per quintal.

When transportation and other charges of bringing the wheat to Delhi are added, the landed cost comes to nearly Rs 2,730 per quintal.

“Therefore, our understanding is that the wheat price currently prevailing in the market is not extraordinary, and there should not be any cause for panic,” Navneet Chitlangia, senior vice-president of the Roller Flour Millers Federation of India, told Business Standard.

The final sale price of wheat currently being quoted in Delhi markets is Rs 2,750–2,850 per quintal, which is exactly the cost price of wheat for wholesalers and retailers after adding cash discounts, packaging, and brokerage.

“If there is no significant difference between the cost price of the sellers and the prevailing price in the market, how can the price of wheat be considered high? If the cost itself is high, then it is natural that it will also affect wheat products – flour, maida, and semolina,” another trader said.

No cause for alarm

Regarding the burden on the common man due to the spike in prices, flour millers say that according to their estimates an average family of four consumes 18 to 20 kg of wheat per month, or about 240 kg in a year. Assuming the price of wheat has increased by Rs 500 per quintal, the food budget for that family has risen by Rs 1,200 per year, or Rs 100 a month.

“In today’s time, if you go to a restaurant, this much bill comes for a single meal,” another miller said.

This calculation of the average increase in a family’s budget focuses on only those consumers who are considered capable of buying it. It does not include the nearly 800 million poor who get 5 kg of wheat per month for free under the Pradhan Mantri Garib Kalyan Ann Yojana and will continue to get it for the next five years.

“We believe that at present the markets are running on actual demand and supply, and before taking any steps these organisations must think about whether the prices are high,” said Rahul Chauhan, commodity analyst at iGrain India.

Government wheat stocks in the central pool, as of September 1, are estimated to be 25.14 million tonnes, compared to 26 million tonnes in the same period last year and 24.82 million tonnes in the year before. This means that although wheat stocks in the central pool are lower than last year, there is no cause for alarm.

“The rains in the Kharif season are good for the upcoming Rabi crops, and due to higher prices farmers’ interest in wheat may increase. But if the import duty is changed, the situation will change soon,” Chauhan said. 

So, for the majority of the trade, wheat markets are not overpriced at present. But no one knows what lies in store. Governments have in the past been sensitive to even minor spikes in food prices.