Who has a wheat problem?

Where has all the wheat gone? That was the question asked at the end of the last wheat marketing season in June 2006, when government procurement plummeted to its lowest level in years, despite a handsome bonus of Rs 50 per quintal being offered above the minimum support price (MSP). The private trade said it had bought only a small quantity, of 3-4 million tonnes, and that deepened the mystery. While the government sought to blame the problem of low production and went in for large-scale imports, the fact is that wheat availability in the open market has remained comfortable, without the government pumping in imported wheat. This has, in a way, strengthened the argument that the price rise in wheat was the result, at least partly, of the scarcity psychosis built up by the government. This hypothesis is supported also by the fact that wheat prices have already begun softening, even if in the futures market more than in the spot market, when the arrival of the next crop is still months away.

If all goes well on the wheat production front in the current rabi season, the wheat situation could see a sea change in the coming year. All indications point to a bumper wheat harvest, which the government estimates at around 74 million tonnes (it was 69 million tonnes last year). The private trade pitches the harvest size much higher, 76-78 million tonnes. This optimism is based largely on an anticipated 7 per cent expansion in wheat acreage and continuing good weather.

What should concern amidst this promise of plenty is that it may again prove difficult for the government to mop up adequate stocks to cater fully to the needs of the public distribution system and all the food-based welfare schemes. This is because the international wheat scenario has undergone a dramatic change due to a sharp decline in wheat output in almost all the major wheat-exporting countries. This has not only eroded wheat supplies in the global bazaar but also pushed up international prices to levels not seen in years. Therefore, it may not be possible for either the government or the private trade to import much wheat in the coming months. Under such a scenario, there is absolutely no possibility of the government being able to feed the wheat-based industry and trade, as it had been doing till a year ago, when subsidised grains were being given even for export. The wheat industry will, therefore, have to fend for itself by picking up the whole year's requirement. That translates into prices much higher than the MSP, and the danger that government buying may once again fall short. Thanks to the entry of several big companies in the wheat product business, wheat- milling capacity has surged to over 15 million tonnes. Besides, there are innumerable wheat chakkis (small wheat-crushing units), which are also likely to snap up sizable quantities. The government will have to play its cards well and be prepared to compete with the private trade in purchasing wheat if it intends not to make a mess of the wheat economy again.