Three-year-old wheat should be auctioned to traders who can export or blend it with the new crop.

Government lifted five-year-old prohibition on private wheat exports in September 2011. Merely 0.6 million tonnes (mt) of wheat has been shipped till April 2012 - averaging 0.1 mt per month - due to poor price parity internationally - while nonbasmati rice exports have crossed more than 4 mt during the period. Total production of wheat this year is 93 mt against annual consumption of 80 mt including seeding for next year.

By July, government agencies would have stocked - in and out - 50 mt wheat and private sector will have a floating pool of 60 mt. Local prices are Rs 1,000 per tonne below minimum support price (MSP) and may further decline as Uttar Pradesh, Rajasthan and Madhya Pradesh are stuffed with huge tradable surplus. Currently, Indian fob quotes are $266-272 per tonne that compare well with current prices overseas.

International Grain Council (IGC) is forecasting fall in world wheat output by 19 mt (676 mt versus 695 mt last year) due to weather problems in EU, injecting firmness in the market. More rupee depreciation is foreseen (with S&P's negative outlook) that shall aid sustainability for exports. Monsoon is expected to be normal.

Major competition for Indian wheat will come from Russia, Kazakhstan and Ukraine that collectively produce around 100 mt per annum. Black Sea crop, scheduled to arrive in July 2012, is now offered at $250 fob per tonne. The three countries are aiming at a total of 36 mt shipments. Chicago Board of Trade (CBoT) has notified commencement of trading of Black Sea wheat in their future exchange from June 6, 2012.

This will enable fair amount of directional price transparency and guidance to Indian traders. How can price aggression of Black Sea wheat be met to accelerate rate of export growth? That 'recipe' needs publicprivate partnership policy. Some thoughts: Food Corporation of India (FCI) will be compelled to offload massive stocks in the open market or through public distribution schemes (PDS) schemes to create space for coming kharif crop of paddy/rice from October-November 2012.

This scenario is indicative of super-surplus availability of wheat domestically, bearishness and enhancing export competitiveness. Exporters can intelligently position themselves.

There is a significant tonnage of old vintage wheat with government agencies that may not be fit for human consumption due to poor or lack of warehousing, covered and plinth (CAP) storage or open yards. Its distribution to human beings is disease-prone.

Stocks beyond three years old (2009-10 and earlier) can readily be classified as 'feed wheat'. These lots of may be identified and disposed of domestically in a tendered auction promptly. Trade can consume it locally/export them as feed wheat or blend them with new crop and price them appropriately to match competition.

Black Sea exports are generally a blend of milling and feed wheat. About 25-30% world wheat trade of 140 mt is of feed wheat for livestock. Feed wheat fetches about $25 per tonne less than milling quality. During 2002-04, FCI named damaged grain as 'lustre-loss wheat' and facilitated disposal of 6mt: 4 mt via export and 2 mt internally.

'Lustre-loss' was priced at Rs 3,950 per tonne against milling wheat at Rs 4,500 per tonne, to ensure rapid disposal. The carrying cost for these damaged or unpalatable grain itself is Rs 3,100 per tonne or more and are a burden on the exchequer. Four benefits - clearing the space occupied, stimulating exports, revenue generation and mitigation of national loss - shall accrue by this single decision. Why let damaged grain continue as a drain on economy indefinitely? Any subsidisation or tax rebates, even if thought of, may be WTO noncompliant and politically-inconvenient.

About 4-5 mt wheat export this year to south-east and west Asia can be strategised by a combination of these factors where it finds ready acceptability, coupled with freight advantage. Iran's anticipated demand of 2-3 mt due to their lower output this year can be activated only after contentious issue of 'karnal bunt' is mutually resolved. This quarantine matter requires quick resolution.

Rajasthan and Madhya Pradesh have started gifting bonuses over MSP, buttressed by physical procurement. Next year, Bihar may follow suit. Wheat production is growing and proving to be more rewarding. National Food Security Bill may not be operationalised this year and stocking of damaged grains cannot be extended indefinitely. Policymakers need to prioritise action on this front. Better late than never.

Source : economictimes.indiatimes.com