Wheat prices to drop on govt move to offload 4 lakh tonne

The government will offload 4 lakh tonne wheat in the open market in February and March, prior to fresh crop arrivals, to stabilise retail prices. Such sales were discontinued since February 2006 owing to depleted stocks in the government grain pool.

Spot prices in Delhi are currently ruling at Rs 1,010-1,020 a quintal, while March and April futures are quoting at Rs 968 and Rs 915 a quintal, an indication that prices will soften in the coming months.

Food Corporation of India (FCI) will sell the stocks in the open market, primarily at consumption centres where prices of wheat and atta are still ruling high. FCI has been asked to work out the modalities for carrying out this market intervention operation.

The open market sales scheme of the FCI was originally conceived as a measure to trim the mounting foodgrains stock. The stocks were sold to private traders, exporters and wheat processors. This, coupled with the liberal allocation of wheat to states via public distribution system (PDS) and welfare schemes, trimmed the government's grain inventories from 64.8 million tonne in June 2002 to 15.1 million tonne by October 2005.

The wheat stock had fallen by then to 10.2 million tonne, below the minimum buffer stocking norm of 11 million tonne for October. Subsequently, wheat inventories continued to plummet and touched the minimum level of 1.5 million tonne on April 1, 2006.

The gradual draw-down of inventories forced the government to stop open market sales of wheat. Only exporters, who had prior commitments, were continued to be supplied wheat.

Induction of wheat in consumption centres to manage retail prices was tried out in December 2005 and continued till February 2006. The FCI was directed by the food ministry to release 1.8 lakh tonne of wheat in December 2005. This was followed by an additional release of 1.5 lakh tonne in the first week of January 2006 and the same quantity in February 2006.

The failure of market intervention to bring down prices prompted the government to import about 5.5 million tonne of wheat after a gap of around seven years.

Imported wheat was, however, meant strictly for re-building the depleted stocks and maintaining supplies for PDS and welfare schemes.

It is not yet clear whether the FCI will sell imported wheat or domestically procured stocks through open market sale.