The Hindu Business Line : Govt may have to pay over $300/tonne for wheat import

In a spot
Last month STC cancelled a tender after negotiating with overseas suppliers for $263 a tonne.
Now offers from overseas suppliers are most unlikely to be lower than $300 a tonne cost and freight.

G. Chandrashekhar

Winnipeg, Canada, July 3 India’s wheat import programme is in a mess; the country is unsure of how it wants to handle business; and the policymakers are not only far from being market-savvy, their actions betray lack of commercial intelligence.

This should just about sum up the rapidly spreading global opinion about India.

The country must be ready to pay a high price – literally and otherwise – because the Government has no clue how to go about the wheat import business in the most efficient way. International wheat prices are rising to new highs not seen in recent years.

In the last two months alone, the market has spiked by over 20 per cent due to a combination of factors, including tightening global supplies and firming ocean freight rates.

Missed opportunity

Earlier, India missed out on an opportunity to buy at what now seems to be an attractive price – around $263 a tonne. Last month, STC cancelled the tender after negotiating the price with overseas suppliers.

Soon thereafter, the market began to move northward, much to India’s dismay.

After the fiasco of two tenders since April – one by Food Corporation of India and the other by STC of India – the country is back in the market with a 10-lakh tonne tender floated by STC.

The market participants are well aware that India is in a vulnerable position given the less-than-desirable procurement number and potentially explosive price situation in the domestic market.

Canadian prices

A survey done by this correspondent among probable suppliers showed strong indication that offers from overseas suppliers are most unlikely to be lower than $300 a tonne cost and freight.

Senior officials at the Canadian Wheat Board told Business Line that Canadian wheat prices c.&f. India would be in excess of $300 a tonne because of lower wheat crop anticipated at the origin. According to latest acreage data, there is a 10 per cent decline in area under cultivation this season; and depending on the weather conditions, output may fall by as much as 15 per cent. Canadian wheat harvest would take place by end-August.

Landed cost

This means the landed cost of wheat will be not less than Rs 12,500 a tonne; and by the time goods reach a warehouse, it would be over Rs 13,000 a tonne.

Implications

This has several implications. One, the import price will set a benchmark towards which domestic prices will begin to rise.

This is potentially inflationary and would hurt consumer interest as also defeat the very purpose of import itself.

Second, it is bound to upset growers’ organisations – and rightly so.

Indian government would be seen supporting foreign wheat growers while ignoring the demands of Indian growers.

At high prices, India’s import volumes would obviously have to shrink – from 50 lakh tonnes to perhaps 15-20 lakh tonnes maximum.

This again would send bullish signal to the domestic market.

Private investors and stockists who have built inventory stand to gain from these developments. Simply put, the Government’s wavering attitude neither advances farmers’ welfare nor consumers’, but helps speculators reap windfall gains. Meanwhile, courts have been petitioned against wheat imports.

The most unfortunate aspect is that there is none in the government to assume responsibility for the sorry state of affairs.

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