Faced with the possibility of wheat sold through open market sale scheme (OMSS) getting back into the procurement system, the government has decided to temporarily wind up its sale of wheat for bulk consumers by March-end in key wheat growing states of Punjab, Haryana and Uttar Pradesh.

The government?s annual procurement of wheat is expected to start from April 1.

Although there is a marginal difference between procurement price of wheat and sale price of wheat offloaded through OMSS for bulk consumers like flour mill owners, there is a possibility that wheat stored from last year could enter the procurement process instead of new crop in Punjab, Haryana and western Uttar Pradesh, which contribute more than 80% to the central foodgrains pool.

?We will continue with sale under OMSS in states which do not contribute wheat substantially to the central pool,? sources said. The government had allocated 2.08 million tonne of wheat for sale to bulk buyers under OMSS for sale between October 2009 ? March 2010.

Of the allocated amount a High Level Committee (HLC) set up by the food ministry had approved sale of 1.17 million tonne, of which 1.07 million tonne has already been lifted by private flour millers and bulk buyers.

?The gap between approved quantity and lifting by bulk buyers would be bridged over the next few days as we have been clearing one tender per week,? an official familiar with OMSS tender process said on the condition of anonymity.

However, sale of wheat under the open market scheme for states has been badly hit because of poor demand from states that cite infrastructural bottleneck as the reason for low demand. ?Only 3.56 lakh tonne of wheat have been lifted by the states out of the total allocation of almost 2.07 million tonne,? sources said. The government has allocated over 4.2 million tonne of wheat to be sold under OMSS during October 2009 – March 2010 to bulk buyers as well as states.

Though initially, the sale of wheat for bulk buyers was scheduled to start from October, but the process got delayed because of low demand from flourmill owners who wanted the government to reduce its sale price sell to below the prevailing market rates. In November 2009, the pricing mechanism worked out by the HLC consisting of officials from the food and commerce ministries included cost of purchase by FCI along with additional carry forward, storage and freight cost etc.

In Delhi , the cost of wheat worked out was Rs 1,437 a quintal while in Kerala it worked out Rs 1,789 per quintal, which was far above the prevailing market price and the government could sell only 30,000 tonne of wheat.

Subsequently, the empowered Group of Ministers (eGoM) had to reduce the offer price of wheat by around Rs 200 per quintal.

E-auction on pilot basis from Friday

The government would sign a formal agreement on Thursday with MCX promoted National Spot Exchange (NSE) and NCDEX spot exchange for launching a pilot project for e-auction of wheat under OMSS in Delhi and Andhra Pradesh.

Although the government intends to wind up sale of wheat under OMSS for bulk consumers by March 31, the spot exchange platform would provide FCI a system other than current tendering process to sale food grains in the market. NSE would handle e-auction of wheat in Delhi while NCDEX spot exchange would use its platform in Andhra Pradesh.