Wednesday, November 12, 2014




The issue is “hoarding of dead stocks vs realization of market related worth of about Rs. 10000 crores.”  
Tejinder Narang

After exporting about 14 million tons (mts) wheat from 2012 till May 2014, India stands isolated in the world market despite excess hoarded stock in central pool of about 17 mts as of 1st October 2014 after accounting for buffer/security norm of 14 mts. 


Internationally tradable price of Indian wheat is $235 pmt fob now while Government/FCI would estimate it at $265-$270 based on current MSP and logistics. An Indian private trader will quote $285 fob from open market. This, in short, represents the impossibility of going forward.  


Wheat futures prices tracked by CBOT (Chicago Board of Trade) fell by 22% in last one year (see chart), which cannot be attributed solely to supply-demand divergence or drop in crude oil values.  The primary reason for this sharp reduction can be nailed down to Russian –Ukraine (Black Sea nations) conflict of November 2013 and subsequent sanctions/countersanctions.  

These two countries export about 35mts wheat annually against 28-30mts exported by USA.  Ukraine alone exports 20 mts of corn. Thus Black sea countries are determining factor in price discovery of grains which has direct bearing in quotes at CBOT. Logically, bilateral and multilateral geo-political tensions should have curtailed these nations’ capabilities to export, while opposite has transpired.

Post conflict financial fetters applied by US and EU led to 30% and 55% depreciation in Russian and Ukrainian currencies respectively. The entire agro complex is thus rattled by lower prices of wheat and corn which have pulled down soybean, sugar, edible oil, ethanol values. Russia/Ukraine also offer blended version of milling and feed grade wheat which can be as low as $210-$220 fob.  

Unless there is a considerable appreciation in the currencies or grain supplies in this region are choked due to harvest losses, draught or war, revival of  prices to the level of 2012-13 (around $350 fob) is not foreseen. On the contrary higher world output will keep the downward pressure in wheat prices. Pakistan has imposed 20% import duty on 5TH November 2014 to stem wheat imports by its private traders fearing further fall in future values to protect its domestic supply. Import of one million tons is expected from Black Sea by Pakistan in 2014-15.

The Government is very quick in mopping up stocks but dithers in liquidating huge inventory. The moot point is whether India wants to remain a silent spectator of market movements or makes an effort to capture a part of commodity cake by proactive action.  For the last 25years, various Indian Governments pursued a policy of an inert observer. Seldom is an initiative taken to match the market unless market rises to our expectations. Keeping dead stocks means nil accountability of officialdom.  Pricing of stocks on marked to market basis means answerability. Why not take a professional opinion on pros and cons of “hoarding of dead stocks vs realization of 85-90% or market related payment”?  

If the Government is in the business of grains then the Government must mean business to minimize losses of sunken public funds and prevent rot. Does WTO matters? Yes it does. Set aside temporal ego and abide by the peace clause of WTO Bali conference which insulates India till 2017 and settle the matter in the larger national interest. All will have win—win agreement.
The Prime Minister has urged Secretaries of the Ministries to come up with novel ideas of good and deliverable governance. Food Secretary twittered on 3th November 2014 year wise stocks with FCI as of 1st October 2014 from which it can be inferred that FCI has around 6-7 million tons of wheat of 2013-14 crop.  This tonnage will become three years old by April 2015, just four months away. It is incurring carrying cost and exposed to poor storage. It is preferable to sell new crop to Indian consumers while old one can be disposed of abroad. “Swacch Bharat” concept is not merely limited to cleaning the premises but also to de-clutter space where the possibility of rot and debris exists.  

For the old crop evaluation, exclude taxes. Taxes are not exportable. That is the international norm. Recall at London Heathrow airport, VAT is refunded. Discount the carry cost of another two years, if it remains unsold.  Old crop can be pared suitably by 10%. Match the world price under WTO peace clause and earn $1.6 to $1.7 billion (Rs10000 cr) by activating exports. If similar subsidy is being considered for the private sugar mills, why not for publicly funded grains!!

Indian Government twice lost valuable opportunities, first in last quarter of 2012-13 when it dithered in offloading wheat slightly below $300 fob and then again in the last quarter of 2013-14 to sell at about $270.00 fob and now lack of action can lead to another precipitative fall to about $ 200.00 pmt FOB.  Isn’t it better to realize $235.00 – 240.00 as of now then to   keep on perpetuating losses by hoarding? Any temporary spikes in the prices should be taken advantage of provided authorities are ready with right policy frame work.




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