BL Explainer: Why wheat prices are high, despite record production?

The center on June 12 imposed restrictions on processors, storers and traders capping the amount of wheat they could hold, after a 16-year gap, ostensibly to check higher prices. The government further announced the offloading of 1.5 million tonnes of wheat on the open market from official reserves from June 28, citing an 8 percent drop in prices on the market squares (mandis) in one month.

Why are control measures required in the main harvest season (April-June) when the country “claims” to have record production?

Since general elections are scheduled in the country in 2024, the government is concerned about inflation in staple foods – wheat and rice. Grain retail inflation reached 12.65 percent last month. The rise in wheat prices in the harvest period also indicates that there may be another increase in January-February 2024 with the arrival of the next crop from March.

What is the supply and demand of wheat for the year 2023-24?

The Ministry of Agriculture has wheat production for 2022-23 (July-June) at a record high of 112.74 metric tons. However, a private company, commissioned by the Roller Floor Millers Federation of India (RFMFI), estimated production at 102.89 metric tons, after accounting for 1.35 metric tons of crop losses after unreasonable rains and hailstorms in March.

Based on Niti Aayog’s wheat consumption estimate of 97.12 metric tons for 2021-22, consumption in the current fiscal year could be more than 100 metric tons. But the US Department of Agriculture put India’s domestic consumption at 108.1 million tons. It is not clear if the country has a surplus of wheat or if there is a shortage.

What are the prices of wheat?

Average Mandi (agricultural crop market yard) prices for all India were $2,196/quintal on May 15th, $2,225 on May 22nd, $2,277 on May 29th and $2,307 on June 5th , and $2,295 on June 12 and $2,310 on June 19. Mandi prices usually have a direct impact on wholesale and retail prices, although there is a time delay.

Will offering 1.5 million tons for sale on the open market bring great prices?

Not likely, as the market acts mainly on the supply and demand factor. In May 2022, amid falling wheat purchases, the government redirected grain allowances under the National Food Security Act (NFSA) and other welfare schemes by requiring people to take rice instead of wheat. Up to 7 thousand tons/month of wheat was withdrawn in the process, which also affected the prices because the majority of consumers instead of suddenly changing their eating habits, preferred to get the grains from the open market. This distortion in the market has not been restored despite the purchase of 26.2 million tons of wheat this year compared to nearly 19 metric tons in 2022.

Is the reserve price of 2125 riyals per quintal for selling wheat insufficient?

no. During the previous six rounds of auction when market prices were higher, the pan-India average bid price bid by dealers/millers was above the reserve price of $2125/quintal per round.