The Food Corporation of India (FCI) started its wheat procurement operations on Thursday. Since new arrivals have hit the markets in Madhya Pradesh (MP), procurement was started from the state. When contacted, FCI Chairman Shiraz Hussain confirmed that in the current rabi season, FCI was targeting to procure 31 million tonnes (mt) of wheat. In the last rabi season, 28.35 mt of wheat was procured.
FCI is procuring wheat at the minimum support price (MSP) of Rs 1,285 a quintal. The MSP was Rs 1,120 last year. The MP government has declared an additional bonus of Rs 100 for procurement.
However, with higher MSP and high railway freight, the cost burden for FCI will shoot up substantially. “Flour mill quality wheat is traded at Rs 1,280 a quintal in Delhi mandis, but since concessions for foodgrain will not be available in railway freight now due to the new freight rate notification, the overall cost will be much higher and the market price of wheat is not expected to fall from the current level,” said Devendra Vora of a Navi Mumbai firm, Friendship Brokers.
The country is expected to produce a record 88 million tonnes of wheat this rabi season. The government has allowed two mt of exports but according to industry estimates, till February-end only 800,000 tonnes of wheat has been exported. However, Vora said there has been a rise in demand from Indonesia and the two-mt target is likely to be achieved in the next one-two months.
High procurement is expected to bring back storage and subsidy problems. The government has increased the credit limit for FCI to Rs 44,000 crore, but storage could be a big problem. According to data provided by the Economic Survey 2011-12 released on Thursday, “The stock position of foodgrain in the central pool as on February 1 was 55.2 mt, comprising 31.8 mt of rice and 23.4 mt of wheat.” This is much higher compared to the minimum requirement of buffer stock of 25 mt for wheat and rice together.
This year, once wheat procurement is over by June, the total stock of wheat and rice in the central pool is expected to cross 72 mt. Higher stock with the government poses a challenge to FCI operations, given the shortage of storage capacity.
FCI has a covered storage capacity of 30 million tonnes (owned and hired) as on February 1, while the state agencies have covered capacity of 15.35 mt which is being used for storage of central pool stock of foodgrain. The government has already approved creation of about 151 mt of storage capacity through private entrepreneurs and central and state warehousing corporations. This totals to 60 mt, about 12 mt short of requirement for storing estimated stock of 72 mt by June this year.
