SHUN POLITICAL EXPLOITATION OF WHEAT CROP
In February/March 2015 unseasonal rains poured in India’s wheat growing regions. The issue at hand is of “estimating” the quantity and quality of nation’s wheat crop that is due for harvest anytime now. In the process, truth has become a casualty while over speculation is swaying the sentiments. This time conjecturing is done more by the concerned State governments rather than traders.
The apparent logic is-- if open declaration of massive loss/damage is announced by the Chief Ministers, it strengthens their case for Central relief for vote banks politics—especially when farmers are involved. State governments of MP, Rajasthan, Haryana, Punjab and Gujarat are all affiliated to BJP and therefore irrespective of the ground realities, the case for central assistance for emergency relief on account of “wheat in rainy days” called “nature’s calamity” can be favourably considered. Waiver of any farm loans will be in addition to this relief. Even Congress party, led by Sonia Gandhi is ardently campaigning for funding farmers. Controversial land acquisition bill is another compulsion for the BJP to demonstrate pro-farmer leanings and payment of such compensation will be helpful in this respect.
The recent assessment of Agriculture ministry (FE 4TH April2015) of wheat crop damage to 6.3 million hectare or about 18-19 million tons of wheat (average yield of 3 metric ton/ha), out of total expected output of 95 million tons or about 20% damage is at variance with 4-5% damage indicated by the Agriculture Minister himself. The grain has matured prior to untimely showers and thus loss /damage/ quantity mitigation should be minimal after a delayed harvest. The concept of damage—total loss or lower quality parameters –remains unclear. On the contrary, the surplus like situation of wheat is reflected by the NCDEX futures on 10th April 2014 at about Rs. 1424/qtl versus MSP of Rs 1450/qtl. Prices traded at future exchange are lower than MSP which suggests abundance availability of good quality wheat in open market. Future prices can slide down further when new crop hits the marketing yards (Mandis). The government estimation of damage to crop is incorrigible as this is not verifiable by dynamics of the market. Why make trade nervous for political bargaining between the Centre and the States in the name of farmers.
Assuming (without admitting) that crop is badly hit, the chart below gives the upsurge in wheat production in 2013-14 in some states since 2010-11 when output was around 87 million tons. The continued hike in MSP (Minimum Support Price) supplemented by bonuses given by some States has also shifted acreage to wheat. In MP and Rajasthan, acreages which could have been better utilized for oilseeds and pulses may have gone for wheat too due to open ended procurement and ever increasing MSP. MP that harvested around 14 million tons in 2013-14, is likely to produce about 15-16 million tons of wheat. If there is some shortfall in some States, this can be compensated by other areas thereby keeping the national output unaltered.
The next question is what happens to the procurement. Even though FCI may prune down direct purchases, State Government Agencies (SGAs) will ensure that maximum tonnage is procured on behalf of Central Government to take care of farmer’s interests. Mandi taxes are 14.5%, 10%, 8.5% and 8.2% in Punjab, Haryana, UP and MP respectively over and above the MSP. This revenue indeed has to be earned and therefore even somewhat compromised quality of wheat will also be procured by SGAs. Except keeping the moisture content unchanged to 14% maximum which is the right decision, Food Ministry has accepted procurement of Lustre loss wheat and relaxed shrivelled/shrunken/broken percentage. Under such circumstances, 28-30 million tons of procurement is expected as in earlier years.
Lustre loss quality was procured ubiquitously in 2001-2004 and even exported by FCI. For the common man it hardly matters if the wheat is lustre loss (in outer appearance) or not, because he is concerned with quality of flour which can upgraded if required by appropriate blending with superior quality of wheat
MP government has reacted in a manner as if entire wheat crop is of substandard quality which has unnerved flour millers especially in South of India. In addition to their normal annual import of 50-60000 metric tons of Australian Premium White (APW) wheat in containers for specialised flour production, millers sensing uncertainty have reacted by covering about 100000 metric tons in bulk cargos of 25-30000 tons each. Price ranges $265-$270(C&F-cost and freight landed at Indian ports) ---or around Rs 16600-Rs 16800 per metric tons-- as against Indian wheat available in south at Rs 18000-18500 per metric ton. Commercially such imports are fully viable and thus justified. (This also indicates that South Indian market is more sensitive to crop quality of MP rather than Punjab/Haryana/UP). FCI prices are based upon outdated concept of MSP and cannot be paired with international values. Only if open market values drop to the level of competition, imports will taper down and finally halt.
World market is flush with about 900 millions of wheat. So long as corn prices are determined by lower crude prices and also because wheat/corn prices are intertwined, wheat values too will remain bearish. Temptation to import more grain, in falling market, shall remain-- though total quantum may not exceed 0.2 million tons which is minuscule to the total Indian availability of about 115 million tons including carry in stocks of FCI.
Apart from this political posturing on the current wheat crop between the Centre and States, Indian Government has to ponder what is to be done with excess of high priced wheat hoarded in open and unhygienic warehouses. The current policy of incentivizing more production, storing more and selling less defies common sense.