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New Delhi: Wheat prices have remained stubbornly high in India, despite various measures taken by the government, including an export ban last year and a recent announcement of open market sales. In a year leading up to the election, the size of the winter harvest, starting in April, will be critical. Mint takes a close look.
How have wheat prices moved?
According to official figures, daily retail wheat flour (atta) prices as of February 1 were 22% higher year-on-year, while wholesale prices were a staggering 31% higher. In fact, consumer wheat prices have inched up through 2022 after a heat wave reduced production and forced the government to ban exports in May. Overall, retail food inflation has softened of late, falling to 4.2% in December from a peak of 8.6% in September. But grain inflation, at 13.8% year-on-year in December, remains uncomfortably high. Any hope of cool prices now rests on the size of the 2023 crop due to hit markets in April-May.
How is the new wheat crop shaping up?
Planting data from the Ministry of Agriculture shows that wheat has been planted on more than 34 million hectares, more than the five-year average area of 30 million hectares. The crop is likely to exceed the government estimate of 107 million tonnes for the 2022 crop. However, key risks remain: whether the crop will be affected by heat stress like last year in March/April, during the crucial stage of grain filling, remains to be seen. The size of the harvest and post-harvest wholesale prices will determine whether the government can meet its procurement target for the supply of wheat to food subsidy schemes.
What about government actions?
At the beginning of January, Food Corp. of India had a stock of 17.1 million tons of wheat, the lowest in six years, but above the operational and strategic buffer norm of 14 million tons. At the end of January, the government announced open market sales of 3 million tons to cool market prices, which means that the Center is currently not overstocked.
So what measures can the government take?
Traders hope the government will announce a bonus to farmers to ensure purchases do not fall short. With wholesale prices around $2,800 a quintal, the gap with a minimum support price of $2,125 per quintal, that’s great. Without a bonus, farmers can sell their crop on the open market. The government can also set stock limits on private businesses to ensure they don’t run out of supplies. In 2022, after wholesale prices crossed the MSP, government procurement dropped to just 19 million tons, a 53% drop compared to the previous year.
Will the export ban continue?
More likely. In fact, traders feel that if the acquisition is not enough, the government can reduce the existing 40% tax to allow imports. However, if India enters the global market as a buyer, international prices will rise. Worries about wheat supplies and rising prices, however, point to a bigger crisis: the impact of climate change on India’s fragile food surpluses. Farmers are often advised to grow fewer input-intensive crops like rice and wheat, but adverse weather events can put an end to those plans.