Engages spot exchanges for sale through open market scheme.
Faced with states’ reluctance to taking foodgrain from the central pool, the Food Corporation of India (FCI) plans to sell wheat under its open market sales scheme (OMSS) through online spot exchanges. The step by the government-owned grain procurement agency is aimed at clearing the central pool’s massive stocks before the next season begins.
On Monday, FCI signed an agreement with the National Spot Exchange (NSEL), a Financial Technologies-promoted spot commodity platform, for liquidating wheat stocks online. A similar agreement with the NCDEX Spot, an NCDEX-promoted spot commodity trading platform, is due to be signed soon.
Under the agreement, NSEL will start weekly auctions from next Wednesday, at a floor price of Rs 1,252.15 a quintal for ex-godown sale in Delhi.
“Unlike in March and June when 1,700 tonnes and 2,800 tonnes, respectively, were sold, FCI has not fixed any quantity this time. But we are hopeful the sale will be huge this time due to off-season demand,” said Anjani Sinha, managing director and CEO of NSEL.
Prices, allocation
Then, price wes a major reason for the “not-so-encouraging” response from the flour mills. This is because prices in the spot market were lower than FCI’s floor price. But spot prices are now higher at Rs 1,280-Rs 1,290 a quintal. Hence, the response would be very encouraging this time, said Sinha.
NCDEX Spot could not participate before due to an FCI rule limiting the amount that can be sold through online exchanges. “FCI has since amended this clause, which will help us take part in online wheat sales,” said Rajesh Kumar Sinha, head of NCDEX Spot.
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Against the buffer norm of 14 million tonnes, FCI held 10.287 mt of wheat its own godowns across the country, while the commodity’s stock in the central pool (including that with state agencies) was 27.777 mt on October 1. The central agency managed over 60 mt foodgrain during 2009-10.
Such high stocks forced FCI to store wheat in plinths, resulting in spoilage of some quantity, mainly in Punjab. K V Thomas, Union minister of state in the ministries of agriculture and consumer affairs, food & public distribution, said nearly 18,000 tonnes wheat was spoilt due to waterlogging.
Later, on a Supreme Court direction, the government decided to sell wheat at Rs 2 a kg for people below the poverty line. Still, state governments could not lift the quantity allocated by FCI, resulting in a huge surplus.
The storage problems can be addressed in two ways, through increase in capacity and allocation. The increase in warehousing capacity is a long procedure. Hence, the allocation has been increased substantially in the past two months.
The government has also increased allocations for above poverty line families at a subsidised rate. It has allowed an additional allocation at Rs 8.45 a kg to the states.
“If state governments were to lift the allocations, FCI will not face the storage problem as acutely as it did last year,” said Siraj Hussain, chairman.
Maharashtra Roller Flour Mills Association President Gopal Lal Seth Mohata said buying through spot exchanges was costlier by Rs 100-125 a quintal due to mandi tax, octroi and high transportation cost.
Since wheat was not adequately available in the open market, we would pass the additional cost to consumers, he added.