The wheat shortage

The extension of the time limit for duty-free import of wheat by the private trade, from December-end to February-end, is an entirely inconsequential measure though it does reflect the government's continuing discomfiture over the country's wheat budget. If augmentation of domestic wheat supplies through more imports is the objective of this move, as seems to be the case, it is unlikely to be achieved. For, the international wheat scenario has changed dramatically in the past few months due to a sharp decline in wheat production in almost all the major wheat-exporting countries, including the US and Australia. World wheat output is reckoned to have dropped in 2006 by a whopping 33 million tonnes, or 5.3 per cent, and dipping in absolute quantity below the past five years' average. This, coupled with unusually heavy purchases of wheat by countries like India and Brazil and the quantitative curbs put by Ukraine on its wheat exports, has severely constrained wheat supplies in the global bazaar. As a result, wheat prices have spurted in the past few months to levels not seen in a decade. On the other hand, domestic wheat prices have tended to stabilise and, if the futures market is any indication, they might soften further in the weeks to come. All these developments have made wheat imports on private account an unattractive proposition.

This aside, the trend of wheat planting in the current rabi season points to a perceptible expansion in the wheat area. Weather conditions, too, have remained favourable for healthy crop growth thus far. Though it is premature to hazard an estimate of the likely wheat output from the new crop to be harvested in April, a strong rebound in production cannot be ruled out at this stage. No trader would, therefore, take the risk of entering into any fresh wheat import deal now for delivery at a time when domestic prices would heading down to the minimum support price (MSP) level of Rs 750 a quintal. Even in the past few months, the private trade did not import more than some 9 lakh tonnes of wheat, because international prices began hardening around October. The public agencies, of course, have had to buy nearly 5.5 million tonnes though they have had to shell out progressively higher prices for the quantities contracted.

What needs to be realised is that, like last year, the government may not be able to mop up adequate quantities of grain for the public distribution system (PDS) and welfare schemes in the ensuing rabi marketing season as well. Though the official MSP has been hiked this year by a hefty Rs 100 per quintal, private parties including the wheat-based industry are expected again to corner substantial stocks by paying farmers prices that are marginally higher than the new procurement price. Thus, if the government is serious about re-building its depleted grain reserves, it should get prepared to buy wheat at the prevailing market prices rather than the MSP, as it has been doing in the past. In fact, the National Commission on Farmers, headed by Professor M S Swaminathan, had also recommended that a distinction should be made between the MSP and the actual purchase price. That seems to be the only way to achieve the twin objectives of feeding the PDS and keeping the farmers happy to encourage them to produce more.