Export surplus wheat now!.

The problem of plenty in India's wheat stocks needs to be addressed urgently through export of 'additional' 10 million tonnes (mt), as recommended by CACP to the finance minister recently. But the government has taken some uncalled-for decisions . Firstly, it should not have hiked wheat's MSP due to the humungous inventory it is carrying.

Secondly, if some token increase was to be given, this could have been in the form of a bonus, as reluctantly suggested by CACP (Rs 40/qtl subject to liquidating 15 mt of wheat), which does not attract local taxes.

Instead, the government now will have to bear the brunt of higher food subsidy, higher wheat inflation, and rotting stocks for the next two years at least, if not three.

A bonus, instead of raising MSP, would have at least saved the Centre from high and irrational taxes and statutory levies imposed by states. Soon, Madhya Pradesh and Chhattisgarh, latest entrants in the big procurement business will learn this trick, and start milking the Centre, as Punjab and Haryana have been doing for years.

And all in the name of food security! Now, wheat is reported to have even higher acreage than last year, incentivised by higher MSP.

This means in April 2013, one should expect another bumper harvest of wheat exceeding 94 mt. One will not be surprised if procurement of wheat touches 40mt and overall grain stocks with the government in June/ July cross 100 mt with wheat stocks alone touching 65 mt. Maximum offtake of wheat in 2011-12 was 24 mt.

If this remains constant, the government will be saddled with extra wheat stocks of 41 mt. Economic cost of excess holdings will be $14 billion or around. Rs 78,000 crore.

As the world market becomes aware of these massive surpluses, the pressure on the government to destock will intensify and international prices of wheat will turn extraordinarily bearish by June-July , when crops from other origins will also be available for trading. Our own crop starts coming in the market in April.

So, we have three to four months to act and achieve best possible results. CBOT wheat March futures have already slid by $50 since November 2012, and any further reduction will make our wheat uncompetitive. Last year (Oct '11-Sept '12), India became the world's largest exporter of rice by achieving shipments of 10 million tonnes, pushing Thailand and Vietnam behind because of our open policy of export by involving private trade. India has a similar chance today to export 10 mt.

But this cannot be exported by PSUs alone, given the short time the export window is likely to remain open, and the speed at which government undertakings move. But this target exports can be achieved if synergies of private trade are amalgamated with FCI.

But as per existing policy, Indian exporters cannot access FCI stored wheat! A price analysis shows net realisation to government in about 30 tenders, with average fob value of $315/mt, is around Rs 15,000/mt for the latest crop.


Source : economictimes.indiatimes.com