India: on the wheat trail: state granaries under strain, private traders make hay

At Punjab’s Rajpura mandi, private traders are busy buying the wheat crop brought in by farmers at marginally above the minimum support price (MSP). Traders have been super-active in the mandi, one of the largest centres of wheat trade in the country, and their daily purchases often exceed the official procurement by the state-run Food Corporation of India (FCI).

That is quite unusual for the state, where government procurement has conventionally been the most robust in the country and private traders used to have only a marginal role.

At the state’s Khanna mandi, touted as Asia’s biggest grain market and also at Taraori in Haryana’s Karnal district, this reporter saw similar exuberance being exhibited by private traders last week to beef up their wheat stocks.

What explains the enthusiasm of private traders is a looming supply crunch of the grain, which they feel will be in evidence by July-August, given the havoc an early onset of summer has played on the ripening crops in the main wheat-growing regions, including Punjab, Haryana and Uttar Pradesh. The traders anticipate that FCI, mindful of a tight stock position, will likely refrain from its customary open market sales this year.

A supply constraint could not have come at a worse time for India, as the export market for the grain is already booming and may remain so in the coming few months, owing to the Russia-Ukraine war which has altered the dynamics of global wheat trade. And Indian wheat is highly competitive globally.

Government functionaries have in recent weeks been vocal about an unprecedented opportunity to scale up India’s wheat exports in the current geopolitical context. Commerce and industry minister Piyush Goyal said a few days ago that shipments of wheat by the country “could even touch 15 million tonne (mt)” in the current year, much higher than the initial target of 10 mt and almost double the level seen last year. As late as Saturday, finance minister Nirmala Sitharaman told the media in Washington that the World Trade Organization (WTO) may relax its norms to facilitate export of wheat from India’s state granaries, given the supply shortage being faced by many countries.

But will India have enough wheat stocks to ship out such large quantities of the grain?

This is how the figures stack up: The ‘opening stock’ of wheat with the government (FCI) stood at 19 mt on April 1, 2022, which, though much higher than the buffer requirement of 7.5 mt, was way lower than the year-ago level of 27.3 mt.

As on Sunday, official procurement of wheat in the current season stood at 12.67 mt, down by a third on year. Given this pace and the feedback from assorted market participants, this year’s procurement would at best be 25 mt, and could be even lower at around half last year’s purchases of 43.34 mt.

Supposing FCI will procure 25 mt of wheat this year, its stocks would rise to 44 mt. However, of the current stocks, a sizeable quantity of almost 10 mt was purchased from Madhya Pradesh last year and the bulk of it is understood to be of quality that doesn’t conform to FCI’s specifications due to loss of lustre. That leaves FCI with less than 40 mt or so for PDS supplies under the National Food Security Act and for the free ration scheme (PMGKAY), which has recently been extended till September. NFSA supplies require 26 mt of wheat and the PMGKAY requirement is in excess of 10 mt.

So, the supply situation is really grim. By the end of the year, the FCI may even be struggling to keep the buffer, let alone intervene in the market via open market sales to boost the supply of grains. No wonder private traders are stocking up now, eyeing the lucrative export markets and helping the mandi prices remain above the MSP.

Mandi arrivals of wheat in Punjab and Haryana peak during the last two weeks of April. As on last Wednesday, only 67,000 tonne of grain was procured from farmers in Haryana’s Taraori mandi, including purchases of 11,500 tonne by private traders. “We are expecting another 5,000 tonne of grain to arrive in the market in the next couple of weeks before we wind up this year’s purchase session,” Pramjit Nandal, the official in charge of the market, said. In 2021, more than 0.1 million tonne of wheat was procured from this mandi. Under the scorching afternoon sun, a handful of farmers were waiting for their wheat crop to be cleaned by labourers.

About 200 km away, at Rajpura mandi in Punjab, around 56,000 tonne of wheat was procured by last Wednesday and exactly half the purchases were done by private traders. A mandi official said procurement at the mandi may finally reach around 62,000 tonne against the 2021 level of 96,000 tonne. “Currently, private players are buying wheat here at `2,020-2,030 per quintal against MSP of Rs 2,015 per quintal. Private traders were conspicuously absent here because of higher mandi taxes and other levies that account for 6.5-8.5% of the purchase cost,” the official added.

About 50 km away from Rajpura, in Khanna mandi, one of the biggest grain markets in Asia, out of 61,795 tonne of wheat procurement till Thursday, as much as 44,330 tonne was purchased by private traders.

“We have never seen so much interest of private trade in wheat procurement as in the past few days,” Mani Panjni, an official with Punjab’s department of food and civil supplies, said. Private trade earlier used to rely on the FCI’s open market sale scheme (OMSS), via which it uploads excess wheat stocks in the market after a procurement session is over. In 2021-22, FCI sold 7 mt of wheat under OMSS to bulk buyers.

Ajay Vir Jhakar, chairman, Bharat Krishak Samaj said: “If the government does not intervene in the market (through stock holding limits), domestic wheat prices could cross Rs 2,500 per quintal in the next few months.” He, however, said that PDS supplies may not be disrupted, even with the current level of stocks and production.

So far this season, FCI has purchased 6.69 mt of wheat from Punjab mandis, on a par with last year’s level, while purchases in Haryana was just 3.42 mt against 6.4 mt a year ago; In Uttar Pradesh, the purchases as on Sunday stood at a measly 68,000 tonnes, against the year-ago level of 0.53 mt, while the procurement in Madhya Pradesh was 2.48 mt against 4.48 mt a year ago.

“Private players have stepped up wheat purchases because they fear that the OMSS may not happen this year because of a possible scenario of inadequate stock levels,” Siraj Hussain, former agriculture secretary, said.

“The private trade is buying wheat in large quantities now because they sense an opportunity to export. Production hasn’t been impacted because of higher temperature in March,” GP Singh, director at Karnal-based Indian Institute of Wheat and Barley Research, said.

Tags: purchases, stocks, Market, Punjab, mandi, wheat crop, grain, price, trade