COMMENTARY. Allowing wheat imports at zero duty is a well-informed decision

Critical comments from certain interest groups on the government’s recent decision to allow wheat import at nil duty is not just amusing but also seems to be removed from reality.

Let’s get the facts clear. That the Agriculture Ministry’s production estimate of 93.5 million tonnes (mt) for 2015-16 might be overstated to the extent of 5-6 mt is now fairly evident going by procurement and stock data as well as market price behaviour.

The government managed to procure just about 22 mt versus the target of 28 mt. As of November 1, the Central Pool had only 19 mt, far below the 30 mt stock exactly a year ago.

If one were to account for disappearance (consumption demand) from November 2016 to March 2017, wheat stocks at the beginning of the next season on April 1, 2017 would touch a multi-year low and be well below 10 mt.

The earliest wheat harvest starts in Gujarat, by end-March, and the harvested quantity should be modest.

The crop will be ready in major growing States — Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and Rajasthan — by early April. In other words, we still have three months to go.

Meanwhile, the India Meteorological Department has come up with a forecast of a mild winter. If the winter is less severe than normal, the wheat crop is sure to be affected.

It is well known that Indian wheat is at the limit of heat tolerance. Even a 1.5 degree Celsius increase above the normal day temperature will reduce yields markedly. Last but not the least is the risk of unseasonal rains and hailstorms during harvest.

We had unfavourable weather for three consecutive years — in 2014, 2015 and in 2016. There is no guarantee that adverse weather will not return in 2017.

On the whole, the production target of 96.5 mt for 2016-17 seems to be ambitious. At this point in time, it is premature to speculate on the harvest size but it would be an achievement if production touches 90 mt.

The market has taken cognisance of all the risks — inventory, production, weather — and it is reflected in market prices. Wheat prices on the spot and futures segment have breached the psychological barrier of ₹2,000 a quintal.

Rates have spurted by over 10 per cent from September with a further upside price risk clearly visible. In view of the above, it is clear that the decision to permit wheat imports at zero duty is a well-informed one.

The Agriculture Ministry may still stick to its estimate of 93.5 mt, but the market clearly has other ideas.

Is the liberal import policy hurting growers? Hardly. The next harvest is three months away and public stocks have been falling rapidly and availability tightening. Flour mills in South India are the worst hit because of high transport cost from producing centres to consuming destinations.

Is the zero import duty forever? Certainly not, and it cannot be. Even as imports bring some relief to industrial users such as flour mills and consumers, the policymakers are sure to monitor the progress of the wheat crop and review the status, possibly by mid-March.

If the prospects appear promising and if prices move down markedly from the current high levels, nothing can prevent the government from imposing a customs duty on wheat imports.

Any apprehension that wheat import at zero duty will compromise growers’ interest is misplaced. The government can use tariffs to effectively regulate and even reduce the volume of import depending on the exigencies of the situation.

Any tinkering with the duty structure — imposing duty as demanded by certain lobbies — at this point in time will encourage speculative forces in wheat and hurt consumer interest.

The author is a global agri-business and commodities specialist. Views are personal.