The government's plan to export five million tonnes of wheat from its reserves through private traders to clear warehousing space ahead of the new wheat procurement season, which begins on April 1, seems unlikely to succeed. Formidable constraints of time and logistics are involved in exporting massive quantities in the next few weeks. In any case, the stocks on offer are two years old and are, therefore, difficult to sell without discounts in the international market. Further, these have to be sourced by exporters from godowns in Punjab, which means additional freight costs for carrying these stocks to ports. Worse still, the minimum bidding price of Rs 14,800 a tonne seems high. The United Nations Food and Agriculture Organisation (FAO) has projected that world wheat production will swell this year by 4.3 per cent to 690 million tonnes, making wheat the second largest global crop on record. This will considerably improve the supply of wheat globally and push its prices down. The Indian announcement of large exports, moreover, will depress international prices. The minimum export prices at which the shipments of Indian wheat might be viable would be around $315 a tonne, whereas similar US wheat is at present traded at below $300 a tonne.
At the domestic level, harvesting of an anticipated bumper wheat crop has already begun in Madhya Pradesh, Rajasthan, Gujarat and Maharashtra, pulling the prices down from the peaks touched at the end of February. Once the fresh wheat from the country's breadbasket of Punjab, Haryana and western Uttar Pradesh hits the mandis in a few weeks from now, domestic prices will tend to drop to the level of the minimum support price (MSP) of Rs 13,500 a tonne, further discouraging private traders from seeking older wheat from the government's coffers at a higher price. Sourcing of fresh wheat from states such as Uttar Pradesh, Rajasthan or Gujarat for exports will make better sense.
Since this is not the first time that the government has mistimed the export and import of key agricultural commodities, it is clear that no lessons have been learnt from past mistakes. The government has been beset with a severe storage space crunch owing to excessive stockholding for several years. Even in the beginning of February, when global prices hadn't yet entered the bearish phase, the official wheat inventories amounted to nearly 31 million tonnes, just shy of three times the required buffer stock of 11.2 million tonnes. It was also fairly evident by then that the next rabi harvest would be plentiful and that the storage problem would worsen further. Yet, the government chose, imprudently enough, to keep its grain coffers shut to private trade. Now that the peak rabi marketing season is just round the corner, the government would be well advised to shed its monopolistic tendencies in foodgrain procurement and bring private trade back into the foodgrain business by lifting all curbs on stockholding as well as on domestic and external trade. This will only ease the government's self-acquired burden of managing the bulk of the marketed grain surplus during the post-harvest marketing season.
