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G. Chandrashekhar

Mumbai, Sept. 16 The entire wheat import episode that has unfolded over the last six months shows the Government in such poor light that not only the trade and industry but also farmers and consumers will stop trusting information flowing out of the various Bhawans in New Delhi.

Desperate attempts are on to contain the political and related fallout of the decision to import nearly 8 lakh tonnes of wheat at what is seen as an astronomical price. To put in perspective, the latest purchase is at the market price and the global market is at a record high. To be sure, as it is not above the market price it is unfair for anyone to allege any price manipulation.

Whether the country should have purchased wheat at such a high price (Rs 16,000 a tonne) is the point of debate; and that debate will continue for some time going by the heat the transaction has generated across the political spectrum.

But what comes out clearly is that most of the agencies associated with the Government, including the STC of India, have no clue of what is happening in the international market. Commodity markets are extremely volatile by their very nature. Agricultural commodities in particular are sensitive to rapid changes in demand-supply fundamentals.

The role of speculative funds in impacting futures market is something most Indians do not understand. Add to this, the famous Indian bureaucratic delays. Markets are like time and tide; they do not wait for anyone, much less for the Indian government.

No wonder, the country paid a high price, both literally and figuratively.

When large purchase decisions are made based on inadequate information about market dynamics by so-called experts whose understanding of the market is obviously limited, and the situation is compounded by delays, the results will be nothing but disastrous.

On several occasions in the past Business Line has pointed out the utter lack of research and commercial intelligence capability within the Government. When the Government seeks to become a trader in the global marketplace, it must act like any savvy trader – gather the latest and most comprehensive information about the market and take a trading call without delay.

In the blame game that has been let loose, there are reports that the Government was misguided by STC of India which in May/June believed world wheat prices would decline. Reports from London-based International Grains Council (IGC) and the monthly reports of the US Department of Agriculture (USDA) have been relied upon.

No one realised there was always a time lag between the contents of these reports and their actual publication; and markets can dramatically change in the meanwhile.

STC’s commodity research capabilities are suspect. It lacks the expertise to forecast or have a scientific outlook on commodity price movements. At the operational level of physical imports it has experience; but to go by STC’s advise on global markets is to court disaster.

Interestingly, another little known name that has come up is NCMSL (National Collateral Management Services Ltd) on whose reports the Food Ministry seems to rely. Agencies such as STC and NCMSL in turn rely on reports from agencies such as IGC and USDA. One is not sure what kind of scientific market outlook and inferences on prices such second-hand analysis can offer in making big purchase decisions.

Worse, there are press reports quoting the Agriculture and Food Minister blaming IGC report and CBoT (Chicago Board of Trade) futures prices for misguiding India.

The so-called experts within the Government and outside perhaps did not know that August is usually a treacherous month as far as weather in the northern hemisphere is concerned. There is enough evidence to show that weather aberrations during August and occasionally September have caused tremendous unsettling effect on agri-commodity markets worldwide. Indeed, most international trading houses exercise extreme caution in making commitments at this time when crop conditions are not crystallised.

But the Centre in general and Food Ministry in particular ought to know more about what is happening in the world market. The government is relying on information from agencies whose credentials are suspect who in turn depend on international reports that are already in the public domain.

So, where is the value addition or strategic decision-making?

In some sense, one must welcome the controversy the latest wheat import purchase has unleashed. There has to be more transparency in the decision-making system within the Government; at the same time such decision must be based on comprehensive information including usage of price forecasting techniques such as fundamental and technical approach.

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

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Govt misguides itself over wheat imports due to poor market research

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