After starting on a brisk note, wheat procurement by the Food Corporation of India (FCI) and other state agencies for the 2010-11 crop marketing season has slowed down. This is in part because of the high prices being paid by private traders and in part because of some loss in production, particularly in UP, which has seen an intense heat wave. As on Monday, FCI and state agencies have procured just a little more than 22 million tonnes (mt) of wheat, against 23.24 mt procured during the same period last year.
There is still some time before the procurement officially stops across the country. But if initial signs are any indication, wheat procurement this year could fall below the targeted 26 mt. Market watchers say that aggressive buying by state agencies in some states is encouraging farmers to hold on to their produce in anticipation of a further rise in prices.
Equally significant are private purchases. As more than 80% of the wheat produced in India in the last two years has been procured by state agencies, inventories with private traders are very low, leaving them with no option but to purchase the grain at high prices. This is beginning to have a wider impact. Wheat and wheat product prices in some retail markets, particularly in UP where state procurement is low, are showing signs of rising. In the last three months, wheat prices in the open market of UP have risen to Rs 1,280 per quintal from Rs 1,160-1,170 per quintal three months back.
Though procurement is falling, there is absolutely no cause for worry as state warehouses are overflowing with grains procured during the last two seasons. As on May 1, foodgrain stocks in state godowns totalled almost 34 mt, far more than required by the government to meet its social obligations and also in excess of the buffer norms.
This drop in procurement has in fact come as blessing in disguise for the government, which is grappling with an acute space crunch. But this shouldn?t cloud the need for effectively minimising stocks via strong market-based interventions and the easing of export norms. The bottom line is that inventories are still way above the requirement.
sanjeeb.mukherjee@expressindia.com