Govt in a soup on wheat deal

The government is paying a higher economic and political price for importing wheat.

In the process, multinational traders have made money by purchasing wheat in forward deals when prices were low and offering it at the prevailing international price, which is higher.

The government is buying 7.95 lakh tonnes of wheat from multinational traders at an average price of $389 a tonne. The grain will be supplied from Russia and the other CIS countries.

It is also learnt that the commodity will be red wheat, which is harder and used by millers for making bread. The imported wheat will come unpacked and the government will have to spend Rs 750 a tonne for packing and other costs.

Wheat in the international market is currently offered at around $400 a tonne. It is understood that multinational traders purchased huge stocks in advance when prices were lower in the world market, anticipating demand from India.

Agriculture Minister Sharad Pawar kept on saying that the government would import 5 million tonnes for buffer stock.

The rates at which multinational companies bought wheat from the international market is not known. But during the end of May when the government cancelled the wheat tender, negotiated by State Trading Corporation at $263 a tonne, and later decided to import the grain, global prices went up by 10 per cent.

The government had given sufficient hints of importing wheat and the market only rose, anticipating the Indian demand. A month later, India purchased 5.11 lakh tonnes at $325 a tonne.

"We were buying from the international market as this is our business and we were doing this even when India was not in the market," said a multinational trader. Foreign traders sell wheat to many countries such as Japan, China and West Asian countries, among others.

The government had decided to buy wheat options for 2 million tonnes in March. It, however, rejected the idea as the offers were too high. Unlike the government, multinational traders are efficient in hedging.

Even as the government is buying wheat at such a high rate, local market prices are stable as millers have stock for some more time.

Biscuit makers ITC and Britannia purchased 8.1 lakh tonnes and 1.48 lakh tonnes respectively from the open market up to June. Multinational companies also bought wheat in the domestic market, with Cargill purchasing 2.83 lakh tonnes.

Indian farmers are expected to have stocked more than a million tonne of wheat.

As imported wheat is for buffer stock, whenever the government sells it in the open market, it will have to provide a subsidy like the one offered for imported pulses.