The Food Corporation of India’s (FCI) decision not to undertake open market sales of wheat to bulk buyers this fiscal because of low stock levels has forced flour millers to buy grain from traders at higher prices.
In the last decade, because of robust procurement of wheat, FCI has been selling surplus wheat stock in the open market after the procurement season (April-June) are over at a reserve price which covers Minimum Support Price (MSP), transportation and other costs.
In FY22, FCI had sold more than 7 million tonne (MT) of wheat in the open market for which price was fixed around 8% more than the MSP of year of procurement of the grain.
This fiscal, FCI had fixed the reserve price of wheat at Rs 2,200 per quintal till October 2022 against the MSP of Rs 2,015 a quintal.
With the FCI’s decision to discontinue OMSS because of a plunge in wheat stocks because of lower procurement this season, floor millers are depending on private traders to buy their wheat requirement.
“We are currently sourcing wheat around Rs 2,300 a quintal in Delhi against the MSP of Rs 2,015 a quintal,” Ajani Agarwal, president, Roller Flour Millers Federation of India, told FE.
He said that prices are expected to rise in coming months because of tight supply situations compounded by FCI’s inability to sell grain in the open market this fiscal, first in the last decade.
Meanwhile, wheat prices across many mandis witnessed a sharp spike last week to cross a record Rs 2,300 a quintal-mark, due to slower supplies and robust demand. The prices are now 14% above MSP.
According to officials, wheat supplies to mandis have declined in recent weeks as traders are holding on to stocks purchased from the farmers by paying a premium over the MSP in anticipation of export possibilities.
In the current Rabi marketing season (April-June) for 2022-23, wheat procurement by the government agencies dropped by more than 56.6% to only 18.78 MT against 43.34 MT purchased from the farmers in the previous year.
The government placed curbs on exports of wheat in May, even as the global markets looked very remunerative to exporters.
The move was in view of local supply constraints.
Domestic supplies of wheat have been impacted by lower production because of the heatwave witnessed in March, considered as the maturing stage of the crop.
On July 1, wheat stocks in the central pool stood at 28.5 MT against the buffer norm of 27.5 MT, the lowest since 2008.
According to agriculture ministry data, wheat output in the 2021-22 crop year (July-June) declined by around 3% on year to 106 MT from 109 MT.
According to traders’ estimates, wheat production this year is around 98-99 MT while the US Department of Agriculture’s Foreign Agricultural Service has estimated India’s wheat production at 99 MT.
With the annual domestic consumption estimated at 86-88 MT, the stock situation is getting tight.