Industry
Mint Primer Our daily bread’s getting hot. Can imports help?
Summary
- Lower production in some states has raised prices. Will the government resort to imports to stabilise the situation?
Despite a record harvest, wheat prices are on the rise. That’s because of lower production in some states, which in turn means the Centre is unlikely to meet its purchase target. Will prices rise further, and push India to allow imports, currently banned? Mint looks at the scenario:
How is the wheat harvest this year?
The agriculture ministry said in February that it expects a harvest of 112 million tonnes (mt) in 2024.That’s a record. However, this is only a tad higher than the 2021 crop, estimated at 110 mt. In 2022 and 2023, climate shocks— including heatwaves and untimely rains—impacted production, leading to a drawdown of public stocks. Harvest in the current year was impacted in some states—notably Madhya Pradesh—due to a warmer winter. Data from the consumer affairs department shows that wholesale wheat prices are currently 5.3% higher year-on-year while consumer prices are up 6.5% (as of 27 May).
Also read: Wheat procurement surpasses last year's figures, hits 26.3 million tonnes
What about public stocks?
Government agencies purchase wheat from farmers for three purposes—supply under the free foodgrain scheme to over 810 million beneficiaries, maintain a strategic stock and use a portion of that to intervene in markets to tame prices. Till 24 May, government agencies purchased 26 mt of wheat, marginally more than last year. However, this is likely to fall short of the target (30-32 mt), for the third year in a row. Procurement is lower than target due to a sharp drop in purchase in Madhya Pradesh. Farmers are selling to private traders instead as premium varieties are fetching them a higher price.
Will India be pushed into allowing wheat imports?
It depends on buffer stocks and how prices move in the coming months. Wheat imports are banned. But the US department of agriculture has forecast that India may end up having to import 2 mt wheat due to domestic demand, a decline in government stocks and weak global prices. If India does decide to import wheat, it would be after a gap of six years.
Also read: Wheat set for biggest weekly gain in one month on supply woes
What about farmer prices?
Farmers get a minimum support price (MSP) of ₹2,275 per quintal from the government. But market prices of premium wheat varieties are significantly higher than MSP ( ₹2,600- ₹3,200 per quintal). Market prices are also higher because some states like Madhya Pradesh and Rajasthan are paying a bonus of ₹125 per quintal in addition to the MSP, partly honouring a promise made to farmers before state elections last year. So, farmers are holding on to their harvest, expecting higher prices in coming months.
How are retail food prices moving?
Data from the consumer affairs department shows retail wheat inflation, at 6.5% year-on-year, is still benign compared with rice (13.3%), tur dal (29%), and potato, tomato and onions (between 43% and 49%). When compared with overall food inflation of 8.7% seen in April, wheat prices have risen moderately. But prices also tend to be lower during the harvest season (March to May) when farmers bring their produce to the market. So, wheat prices may firm up in the coming months as the surge in supplies dries up.
