Bulk sale of subsidised wheat banned on suspicion of diversion

Written by Sandip Das | Banikinkar Pattanayak | New Delhi | Updated: Jul 28 2012, 07:41am hrs
The government on Friday banned the sale of subsidised wheat to bulk consumers such as flour mills under the open market sale scheme (OMSS), apparently suspecting that some buyers were diverting it for exports. Wheat exports which were subdued since it was allowed last September have doubled to two million tonnes since June, surprising policymakers.

Fridays food ministrys order prohibiting sales, however, allowed offtake of the contracted quantity of the grain until Thursday. Although the ministry says the decision was triggered by the huge gap between the subsidised price under OMSS and the open market price, a government source told FE: We suspect diversion of grain from OMSS. But it is difficult to say how much is being diverted for exports. We are looking into the issue.

The ministry order has also suggested that wheat price under OMSS be raised by 10% to Rs 1,285 per quintal, although the hike could be effected only after clearance from an empowered group of ministers.

Chandigarh Roller and Flour Millers Association president Vinod Mittal criticised the clampdown, saying such an abrupt move could adversely impact the processing industry.

The OMSS was launched in 2008-09 to sell excess wheat and rice stocks to bulk buyers in the open market. While Food Corporation of India (FCI) had allocated 1.3 million tonnes of wheat to bulk buyers during July-September 2012, the corporation has approved the sale of 7.55 lakh tonnes of food grain after completing the tendering process. The sale is taking place at a rapid pace as the prevailing market prices are higher than OMSS reserve prices in all the states, the order noted.

India produced a record 93.9 million tonnes of wheat during 2011-12 while FCI has procured close to 39 mt of grain from the farmers. With the huge rise in procurement in the last few years, FCI has wheat stocks of 49 million tonnes, which is far above strategic reserve and buffer stocks norms.

India, the world's second-largest wheat grower, ended a four-year ban on wheat exports in September 2011 as two successive years of bumper harvests boosted inventories to multi-year highs. But exports remained subdued as domestic prices were ruling higher than global rates, thanks to high state-fixed benchmark price of the crop. The OMSS subsidy, along with a surge in global prices on fears of a US drought, has made exports attractive now.

US wheat futures for September delivery settled at $8.84 a bushel on Thursday, up 41% since mid-June, as concerns of the worst drought since 1988 gathered pace. While Indian wheat prices are ruling around $290 a tonne, freight on board, compared with around $325 for the US wheat.

There is hardly any wheat left for flour millers as the government has procured substantial volumes from the open market. And whatever is left in the open market, exporters are lifting it. The flour millers will find it extremely difficult to source the grain, said Veena Sharma, secretary, Roller and Flour Miller Federation of India.