Thursday, February 11, 2016



The probability of minimum 5-6 million tons (mts) of wheat import in 2016 on Government account after 9 years (last import concluded in 2007) by FCI through PSUs is not ruled out both due to apparent and logical reasoning. Apparent analysis —private millers imported about 0.6 mts of wheat primarily from Australia during July –October 2015 and negotiations for further imports from Australia for delivery in April/May 2016 are already gaining speed; India has turned a net importer of corn of 0.5 mts in January 2016 from exporter of 3.5-4 mts a few years back; After 2006-08, PSUs are likely to get back in the business of sourcing large scale import of pulses ; Intensity of import of edible oil is touching 16 mts (up from 14.4 mts of previous year) due to fall in production of oilseeds. Agro output is in distress and therefore whispers of wheat import by Government due to skewed supply demand equation are logical.
Market reports appearing in media are indicative of wheat output of 80-82 mts. Further decline in this crop is not ruled out. Indian wheat production was 90.78 mts in 2014-15 and about 95.85 mts in 2013-14 (CACP Rabi report pf 2016-17). The steep fall in output is attributed to lower seeding by about 5%, continued inclement weather and reduction in yields in Madhya Pradesh, Rajasthan, Uttar Pradesh and Gujarat. FCI’s overall procurement may not exceed by 20-22 mts by May 2016. 
FCI stocks on 1st February 2016 are about 20 mts and estimated at 14 mts on 1st April 2016 as against 17.2 mts in 1st April 2015. Stock depletion during last few months is @ 3 mts per month. Thus, in 2016-17, Government’s demand is minimum 36 mts for official consumption under various schemes plus buffer of 7.5 mts, total of 43.5 mts. To what extent requirement of National Food Security Act is to be supplemented—is not in public domain.  The difference between physical and paper stocks has also to be reconciled. To say the least, Government’s requires around 45 mts (rounded off requirement) or above.
Here is a simple calculation-- supply side of 22 mts (10 Punjab+ 6.5 Haryana+ 6 other states) of FCI procurement and 14 mts of its stocks—total of 36 mts against imminent consumption plus buffer norms of 45 mts This evidences a short fall of 9 mts. Even if FCI acquires some 2-3 mts extra cereal (total apprx 24-25 mts) by crowding out the private trade,   6 mts will have to be accumulated through official imports. Exact tonnage may however crystallize by May 2016---after FCI is done with its procurement. The decision to contract from abroad requires urgency by June 2016 as logistically imports may commence (arrival) by September @1 mts per month minimum so that entire tonnage is discharged at Indian ports by March 2017.
What about private imports which are now subject to 25% duty till 31st March 2016? Will policymakers abolish this duty effective 1st April 2016?   Eliminating duty at harvest time is anti -farmer and therefore politically incorrect.  If duty is removed on 1st April, privates will resort to import of significant tonnage and that will escalate international values and set bullish overtones. Thus government purchases will become expensive.
Should the duty be maintained, then privates will import less and cover their immediate demand from the local market during harvest season. This might result in lesser procurement by official agencies and may compel higher imports. In 2005-07 Food Ministry prevailed upon privates not to enter domestic market during Aril-June ---the period of FCI’s procurement.  Government, in any case, has to allow duty free import for FCI. The timing of notifying “zero duty” will be a pertinent call by the Food and Finance ministries because pursuit of private imports critically hinges upon it.

Fortunately, there is an abundant of surplus wheat available in world market—around 213 mts (and about 71 mts with prime exporters like Argentina, Australia Canada, EU, Russia, Ukraine and USA—source IGC London) Such a humongous volume of import will be sweet music to international traders who are scratching their heads for any emerging opportunities in falling market of commodities.  Wheat prices are subdued and vary between $180-$200/mt fob from France, Black Sea and USA.  Indian private trade is seeking Australian wheat at $215-$220/mt fob or 235 cif (landed) or Rs 15980/mt in Cochin/Tuticorin (without duty) for April shipment from MNCs and other international trade. NCDEX spot price at Delhi is approx. Rs 17000/mt
Private millers sourcing from Australia stipulate that wheat must have a low concentration of ergot – a fungus—as per Indian Phytosanitary conditions. The ergot restriction makes Black Sea shipments risky, leaving Australian wheat in strategic position to capitalize on this new demand. Most likely Government for its own import will relax Ergot stipulation as done in 2005-07 so that Black sea wheat could be accessed cheaper.
Abundant availability of grains and trend of steep depreciation in world currencies—especially of the Russian rouble and Euro for wheat —will keep dollar prices under down ward pressure. Upside will be limited despite such massive imports. This negates the necessity of hedging in the CBOT futures now, but a close watch on price volatility for an alternative view may be kept.
Will Government impose prohibition in private imports of wheat when official import tenders are issued? Will Food ministry restrict non- basmati rice export next year to conserve food grains in the country. These issues are bound to come up for consideration. Trade has to be vigilant of knee jerk reactions of the officialdom –though none of such actions are warranted.India can easily afford such imports now---but policymakers have to configure policy profiles so that recurrence of such imports is done away with.