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G. Chandrashekhar

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Mumbai Feb. 14 In a pre-emptive move to plug the possibility of outflow, the Union Government has banned export of wheat. The decision has been taken in the backdrop of a less-than-satisfactory outlook for the ensuing wheat crop and growing concerns over prices.

The Agriculture Ministry's latest estimate for the 2006-07 season rabi crop is 72.5 million tonnes (mt), down from the initial estimate of 74.0 mt and production target of 75.5 mt. Last year, wheat output was 69.5 mt.

Though production this season is anticipated to be higher by 3 mt as per the second estimate, there exists the possibility of further downward revision in crop size if weather conditions turn unfavourable.

Harvest of early sown crop in major growing States is likely to commence early this season — as early as mid-to-late March as against the normal mid-April.

Taking cognizance of the prospects of wheat crop and anticipated early arrivals, open market prices have already begun to soften. Those holding inventory are unloading stocks in the market. Declining prices could theoretically open a small window of opportunity for exports.

For instance, export orders for Indian wheat could be procured at around $200 a tonne free-on-board, equivalent to Rs 9,000 a tonne. If domestic purchases were effected at or less than Rs 8,500 a tonne, there would be export parity.

The Centre does not want to take any chance with wheat availability and prices, having faced both consumer ire and political criticism in the last several months because of tightening supplies and rising prices.

The ban on export is a clearly intended to prevent even a small quantity of the grain from leaving the country. With the approach of harvest season, wheat market is expected to correct down. With procurement rate fixed at Rs 750 a quintal, open market price inclusive of taxes would be around Rs 850 a quintal or even lower depending on local tax structure.

Internationally, wheat prices have been ruling rather firm following lower production in major origins and declining stocks during 2006-07.

The country would have to import sizeable quantities of wheat - as much as 40 to 50 lakh tonnes during 2007 in order to augment supplies and control inflation. Import prices could be as much as $235-240 a tonne (cost, insurance, freight) equivalent to landed value of about Rs 10,800 a tonne.

Duty-free import of wheat is allowed till February 28. One can expect the Finance Minister to extend the duty-free regime for at least six more months.

The quantity of procurement by Food Corporation of India will also be keenly watched. There is hope in the policy circles of mopping up as much as 15 mt; but the prospects look doubtful.

If wheat prices spike and turn unfriendly towards consumers, there will be pressure to delist the commodity from futures trading, just like two of the pulses urad and tur.

More Stories on : Wheat | Exports & Imports | Agricultural Policy | Economy

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Wheat export ban — a pre-emptive move

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