The govt buys too much wheat, sending prices spiralling
Business Standard / New Delhi Aug 29, 2012,
A sudden spurt in the price of wheat in the past few weeks, even as the government is sitting on a virtual mountain of food, confirms fears that ill-advised grain procurement and stockholding policies are sucking the markets dry of supplies. Today, barely three months after the harvest of an exceptionally bountiful wheat crop – nearly 94 million tonnes – markets all over the country, including in the wheat-producing northern states, are facing an acute shortage of wheat. Flour-milling units in the south are reportedly on the verge of closure. The price of wheat as well as of its mass-consumed products like atta, maida and suji has increased upwards of 20 per cent in a month. The price of bread, too, has surged in many places.
The reasons for this mayhem in the wheat market are evident. Government agencies went on buying wheat in the post-harvest peak rabi marketing season till they mopped up most of the marketable surplus. Total wheat procurement, as a result, rose to an all-time high of nearly 39 million tonnes, amounting to over 41 per cent of the total harvest. Then the trade-unfriendly policies, especially the frequent clampdowns through needless stockholding limits and other curbs, have squeezed the private sector out of the wheat market. The government has since been supplying wheat to bulk consumers and wholesale traders through its open market sales scheme. However, the wheat release under this scheme, too, has now been cut down to a trickle, worsening the situation.
Not satisfied with causing the wheat crisis, the government has chosen to respond to it in a bizarre manner. Reportedly, the food ministry intends to wait till the crop prospects for the next year become clear before taking a call on releasing more wheat for the domestic sector. The next crop is not due to be harvested till April 2013. Meanwhile, the government’s grain coffers are brimming over with an unsustainably high wheat inventory of nearly 46 million tonnes, more than double the quantity needed for the buffer and strategic food reserves — so much so that it is liberally allotting the subsidised wheat for export through public sector units. While the logic of exporting wheat is understandable as international prices are high, what defies rationale is why the domestic market should be starved simultaneously. Given that food inflation is already in double digits, any move that can push it up further is unwarranted.
The entire set of food management and procurement policies needs a relook. This crisis shows that the practice of unlimited procurement of grains by edging the private sector out of the market has lost its validity. Government intervention needs to be confined to preventing prices from sliding below the minimum support price (MSP). It should go in for commercial purchases only if the stocks mopped through this route fall short of the expected requirement of the public distribution system and the food buffer. This would protect the interests of both grain producers and consumers without inflating the food subsidy bill.
Business Standard / New Delhi Aug 29, 2012,
A sudden spurt in the price of wheat in the past few weeks, even as the government is sitting on a virtual mountain of food, confirms fears that ill-advised grain procurement and stockholding policies are sucking the markets dry of supplies. Today, barely three months after the harvest of an exceptionally bountiful wheat crop – nearly 94 million tonnes – markets all over the country, including in the wheat-producing northern states, are facing an acute shortage of wheat. Flour-milling units in the south are reportedly on the verge of closure. The price of wheat as well as of its mass-consumed products like atta, maida and suji has increased upwards of 20 per cent in a month. The price of bread, too, has surged in many places.
The reasons for this mayhem in the wheat market are evident. Government agencies went on buying wheat in the post-harvest peak rabi marketing season till they mopped up most of the marketable surplus. Total wheat procurement, as a result, rose to an all-time high of nearly 39 million tonnes, amounting to over 41 per cent of the total harvest. Then the trade-unfriendly policies, especially the frequent clampdowns through needless stockholding limits and other curbs, have squeezed the private sector out of the wheat market. The government has since been supplying wheat to bulk consumers and wholesale traders through its open market sales scheme. However, the wheat release under this scheme, too, has now been cut down to a trickle, worsening the situation.
Not satisfied with causing the wheat crisis, the government has chosen to respond to it in a bizarre manner. Reportedly, the food ministry intends to wait till the crop prospects for the next year become clear before taking a call on releasing more wheat for the domestic sector. The next crop is not due to be harvested till April 2013. Meanwhile, the government’s grain coffers are brimming over with an unsustainably high wheat inventory of nearly 46 million tonnes, more than double the quantity needed for the buffer and strategic food reserves — so much so that it is liberally allotting the subsidised wheat for export through public sector units. While the logic of exporting wheat is understandable as international prices are high, what defies rationale is why the domestic market should be starved simultaneously. Given that food inflation is already in double digits, any move that can push it up further is unwarranted.
The entire set of food management and procurement policies needs a relook. This crisis shows that the practice of unlimited procurement of grains by edging the private sector out of the market has lost its validity. Government intervention needs to be confined to preventing prices from sliding below the minimum support price (MSP). It should go in for commercial purchases only if the stocks mopped through this route fall short of the expected requirement of the public distribution system and the food buffer. This would protect the interests of both grain producers and consumers without inflating the food subsidy bill.
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