Wheat export licences scrapped as poor monsoon hits nation

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SME Times News Bureau | 14 Jul, 2009
In the first signs of worry over a possible drop in grain output due to a poor monsoon, the government has cancelled licences for limited export of wheat barely 10 days after these were issued.

The Director General of Foreign Trade said on Monday that the government decided to "rescind, with immediate effect," its July 3 order that allowed state-run trading firms MMTC and STC to export 300,000 tonnes each.

These firms had not reported any shipment and export contract is unlikely as international prices are ruling well below levels in India. Export of wheat and wheat products was banned in 2007 to conserve domestic supplies and check rising prices. Last year, the government also banned export of non-basmati rice on the same grounds.

But the subsequent record procurement of foodgrain and high farm output had given rise to a feeling that there would be surplus and exports should be allowed. However, on June 27, TOI had reported that the government was deferring a decision to lift the ban on wheat export but would allow shipments of 6.5 lakh tonnes and overseas sale of products such as flour, refined flour (maida) and semolina (sooji).

Market analysts and brokers see the latest move on wheat exports as a measured step, looking at the inflation scenario in the country. At present while the inflation numbers measured by wholesale price index (WPI) is showing a dip, the price rise measured by consumer price index (CPI) is still high, in some cases in double digits.

In calculating CPI, food prices are given a much higher weight than in WPI. So "in case of a monsoon failure, inflation measured by CPI could go much higher, affecting the government's policies,'' said Siddhartha Sanyal, economist, Edelweiss Securities. "So I believe the government is playing it safe," Sanyal added.

In the commodities market, brokers and dealers believe the price of wheat could shoot up soon, mainly because the total supply could be lower than the usual annual demand. "Along with wheat, price of rice could also go up," said the head of a local broking house. "Although price of wheat in the international market is lower than that in India, by banning wheat exports the government is taking no chances on price rise," the broking house head said.

Analysts also pointed out that IMD's monsoon outlook for north and north-western India - the major wheat producing regions - were particularly bad at 81% of the long term average. If the rains are so low, wheat production for the year will be lower.

However, there is a silver lining. "The buffer stock for wheat now is much higher, so we have a cushioning," Sanyal said.

Earlier, a ministerial panel set up during the previous government had allowed export of wheat and wheat products up to 20 lakh tonnes after May 15. But the government, it appears, is unwilling to lift the ban as it wants to play safe in the face of insufficient rains in the major food-producing regions of the country.

Precisely for this reason, the farm ministry has been opposing lifting of the ban. The two ministries have also have differences between on lifting the ban on export of non-basmati rice. The farm ministry is opposed to any bold measure on opening exports of rice, but the commerce ministry is pushing for lifting the 15-month-old restriction on shipments of expensive grain.

The government has procured a record 24.4 million tonnes of wheat in the current season so far. At the start of this month, the government had 33 million tonnes of wheat in the Central pool, almost double the annual requirement for government's various welfare schemes.

The high stocks are leading to storage problems as Central silos are overflowing and grain is having to be stored in the open.