What is this year’s wheat production? The Ministry of Agriculture (MoA) maintains it is 93.62 million tonnes (mt) output, according to its third advance estimates put out on May 3.

The Food Ministry has been consistently whittling down its estimates of total procurement by government agencies in the ongoing marketing season, first from 44 mt to 35 mt, and then to 30-33 mt. But now reports, both from the field and the media, suggest a figure well below 30 mt. Actual procurement so far is only 25 mt, against over 33 mt at this time last year. Meanwhile, domestic prices (NCDEX June contract) have risen to about Rs 16,000/tonne ($290), against the official minimum support price of Rs 13,500/tonne ($246).

MoA is still in denial mode on the emerging trends. The country and the market cannot be kept in suspense on this issue for its impact on future policymaking matters— price realisations to farmers, reviewing yield, storage andexports, and availability for Food Security Bill (FSB).

15 per cent drop

NCDEX data provide a good basis of price discovery. In 2012-13, the values receded progressively, while they are climbing up this year, which indicates lower production ( see graph ). After adjusting for the MSP hike of Rs 650/tonne, the calculus shows that production may be lower by 15.6 per cent in absolute terms.

Given some export pressure in the open market this time due to short sales of 4-5 lakh tonnes, higher consumption of 1-1.5 per cent, holding back of some crop by farmers, and heightened speculation, nominal deductions of 2.5 per cent from 15.6 per cent can be considered.

This leads to a total decline in output of 13 per cent or 81.4 million tonnes in 2013-14. In 2012-13, the procurement was 38 mt out of a crop of 94.88 million tonnes, or about 40 per cent. By the same logic, FCI’s aggregate tonnage should not be less than 32-33 mt (or 81.4x0.4) by June 2013, instead of 44 mt — short by 27 per cent.

Food Ministry officials on May 18 stated that “a careful pricing strategy has paid dividends ------and with lower production, near MSP prices and other aspects, the procurement in the country has come down”. Apparently, Food Ministry is not in sync with MoA on production numbers.

Moreover, “Other aspects of a careful pricing strategy” could be --- massive carry in stocks, lack of storage, uncertainty of FSB, delaying export tenders of FCI and central PSUs so that exporters intensify demand in open market to drive local prices up, “fixation” of unworkable pricing (Rs 14,840) for private sector exports from Punjab/Haryana. All these steps could be part of the “strategy” to ensure lower procurement by creating a short-term illusion of higher market prices, while the central pool remains overloaded with an inventory of 48-50 mt.

This has lured farmers to hold back their produce, which they might regret. Government intervention for influencing prices upward has been strategised. This contradicts the intent of seeking lower food inflation. Whether production is low at 80 mt or as high as 93 mt is of critical import to farmers, and cannot be dealt with in an ostrich-like manner. If production is 93 mt and FCI procurement is around 30 mt, there could be abundant supply from July 2013 onwards, while export demand will be subdued due to lower values of Black Sea crops.

Farmers’ decision

Farmers will be losers by selling unsold stock below MSP to traders.

A clear picture from MoA will enable farmers in selling held-back crop to FCI at MSP when there is still one month (June 13) available to them. Otherwise, the farmers can hold on for better realisation. Food inflation or deflation will also be impacted corresponding to the numbers. Wheat output has ranged between 75 mt and 86 mt till 2011. It was exceptionally high in 2012 at 94.88 mt. Has India slipped back to range of low-to-mid 80 mt? Is 93 mmt is a myth? World prices will also factor this development.

Trading decisions, allocation and releases in the market by FCI, MSP of next rabi crop and other precautionary steps are dependent upon this vital input.

Crop mapping and forecasting through satellite imagery rather than ad hoc multiplier factors or patwari reporting systems may have to be hastened for more reliable estimates.

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