CLICK THE LINK BELOW FOR FULL VIEW OF THE PAPER
OR
FIVE MILLION TONS WHEAT IMPORTS IMMINENT---
MARKET ESTIMATES VARY WITH GOVERNMENT PROJECTIONS
Tejinder
Narang
Media reports mention that there is a “question
mark” on the wheat production estimates for 2015-16. One cannot fault
Government for lower output this year, which could be due to combined effect of
two successive droughts and some policy related issues. Their impact cannot be
apportioned any way. But the matter of concern is that official data appears to
be at variance with market conditions.
Advance estimates of about 94 million tons of
wheat still remain unchanged for 2015-16. Last year wheat output was about 86
million tons and FCI/ state Government agencies procured 28 mill tons while
official purchases are limited to about 23 million tons this year –a gap of 5
million tons. Other probable factors that point to steep fall in production
are— murmurs emanating from FCI that OMSS (open market sale scheme) to private
players may not be serviced this year (last year 7 mill tons were disposed due to excess availability); private import
contracts of more than 0.5 mill ton are already concluded despite duty of 25%; lower
sowing coverage area from 31 million hectare(mha) previous year and now about
29 mha; yield drop due to drought, could be less than average of 3 metric tons
per ha; market prices in Delhi/Uttar
Pradesh in harvest season—when the supplies are considered ample-- are up from MSP of 1525/qtl to 1600+/qtl and
down southern India around Rs 2000/qtl; Thus these are definite indicators of low
output. Market estimates it at 84 million tons-- about 10 million tons less
than the official assessment. This necessitates
that overall wheat supply demand may be correctly configured so that timely
action to supplement the shortfall by imports is taken.
India’s
annual “food” consumption (excluding seeds, feed and wastage) given by NCAER in
2012-13 was 82 million tons and “even if” we take 1% increase in usage, it is
projected at 85 mill tons on non-compounded basis. The accompanying chart details “Indian Wheat
Budget” with comparison of deemed official estimates and rationale of market
perception for grain available for human consumption. A back of the envelope
calculation is that country may have to resort to import of about 4.8 or 5 mill
tons if trade sentiments are accounted for.
Nation's wheat
budget
|
2015-16
|
||
s. no.
|
item
|
Official estimate (mill tons)
|
Market estimate (mill tons)
|
1
|
Total production
|
94
|
84
|
2
|
Less --12.5% for
seed/feed/ wastage
|
82.25
|
73.5
|
3
|
Central pool
stocks on 1.04. 2016
|
14.5
|
14.5
|
4
|
Total available
for food use (2+3)
|
96.75
|
88
|
5
|
*Consumption for
"food use" minimum
|
82
|
85.3
|
6
|
National stocks
on 1.04. 2017 (4-5)
|
14.75
|
2.7
|
7
|
Minimum buffer/
reserves on 1.04.2017
|
7.5
|
7.5
|
8
|
Import projection (7-6)
|
(-7.25) or Nil
|
4.8
|
*NCAER estimates 2012-13 were 82 mill tons. 1%
increased taken p.a
|
The positive side of lower procurement is that
excessive stockholdings create burden on national exchequer, lack of storage
space leads to wastage and pilferage while the flip side is higher market
prices, consequential inflationary pressure in the economy and adds to the
compulsion of import failing which fundamental need of the citizens is at a
great peril.
World stocks of wheat are abundant at 225 million
tons; French/Russian wheat can be accessed below $200/mt fob; sea freight rates
are much cheaper than those available in 2006-07 (last Indian official import).
Import price ranged around $310-$330 (cost and freight) in 2006-07, and $/Rs
rate was 41-42—that is at Rs 1350/qtl-- while MSP was Rs 750/qtl. In 2016-17,
import at current rate of exchange, (without custom duty) may not exceed Rs
1400/qtl against MSP of Rs 1525/qtl.
Surely if the Government declares shortfall in
this year production with intention of import for FCI—which is well factored in
the international market—there could be some more spike in international prices.
This is inevitable and cannot be avoided.
If
policymakers intend to cut down the role of the government in managing the
commodity (the less the government, the better it is) and do not wish to offer
7 mill tons of wheat through OMSS this year, then it may facilitate “ease of
doing business” for the private players, including India based MNCs—by removing
or curtailing the import duty of 25%.
More
than a million tons of wheat has already been traded for the flour millers in
2015-16 and so far in 2016-17. Most of these imports have been serviced for the
flour millers in Southern India from France and Australia. There are some
obvious advantages of import by private players—it will be need based and in
small lots as compared to large volume of single transaction by the state
trading enterprises; government funding will be avoided; international prices
will have to compete with domestic market and vice versa; excessive stocking /wastage/pilferage
on government account will be prevented.
Large scale wheat imports are imperative this
year. It is to be seen whether Government steps in or enables private trade to
fill in supply/demand shortfall. Parallel imports both by Government and
private parties may best be shunned to prevent hyper volatility in the
international prices.
No comments:
Post a Comment