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   Wheat Import Gets Murkier
 

 

  • Govt floats new wheat tender and gets 8 bids

  • Quality and quarantine norms are relaxed

  • Govt has still not explained steep fall in reserves

Whittling down the quarantine and quality norms in importing wheat, the latest tender of State Trading Corporation of India (STC) received eight global bids trying to sell 3 million tons while Indian requirements was for 2.2 million tons (mt) of wheat. The May 8 tender received bids for only 2.6 mt even though the requirement was stated as 3 mt and since most bidders could not meet “stiff” quality and financial norms, most bidders were disqualified. In the end, only .8 mt was ordered--.5 mt to Australian Wheat Board and .3 mt to Geneva based Agrico Trade & Finance SA.

Interestingly, in the latest tender, neither AWB nor Agrico have submitted bids. The eight parties to have tendered this time include the Hamburg-based Toepfer International and its Illinois-headquartered associate, Archer Daniels Midlands. The others are the US-based Cargill, Bunge and Touton, the Rotterdam-based Concordia, Noble Grain of Singapore and Glencore International of Switzerland, STC officials said. The maximum single bid for one mt was from Toepfer and the prices offered ranged between $190 and $237 a ton. This is higher than the $187-199 a ton range at which the earlier .8mt order was awarded to AWB and Agrico. The present offers are valid till June 28.

Australia has cost advantages over the US and ports where methyl bromide can be used to fumigate the wheat. However, the quality of wheat from AWB was terrible (even if a Mysore based Government agency waffled on quality and try to “legalize” the quality) and it appears as if the Government has cancelled this contract. The opposition accuses the Government of mismanagement of buffer stocks, bad planning to procure such a large quantity on the more expensive spot market, and lack of analysis to track supply, demand, and pricing. Many independent trade experts say that the Government should have allowed private importers to import such a large quantity as it did to meet sugar shortages. The experts project that the Government will pay an extra 30% for the lowest quality grain. The other issue is that the large import will arrive when domestic farmers will be ready to sell their Rabi crop. With a projected lower price for the imported wheat and an abundant domestic price could create a reverse problem where farmers may not get a fair price for their crop. The Government buys only 1/3 of the wheat production and 2/3 is left to market forces; this makes farmers vulnerable to a Government-created glut.

It is not clear why there is a shortfall in the quantity in stock. Production from Punjab and Uttar Pradesh is expected to be lower by 10-20% were lower because of drought and hot weather. This is surprising because almost the entire nation got what was close to a 100 year rain. The Government says that food consumption patterns have changed with a higher demand for high-value cereals products and more consumption of wheat in the South. However, it is silent on rain patterns, water storage levels, changing agricultural patterns where more land is being used for cash crops like sugar cane, changing weather patterns, and problems with storage. The Government has also not answered why the wheat stocks in the public distribution system (PDS) dropped from 7.3 mt in February 2005 to 5mt a year later. In April 2006, the stocks are expected to plummet to 1.7mt, 2mt below the Government target of 4mt; this will be the lowest wheat stock level in 20 years. The PDS stocks, managed by the Food Corporation of India, are required for the poorest families who cannot afford to buy wheat from the open market. India is expected to consume 74.5 million tons while production is expected to be 73 million tons. Farmers had been steadily veering away from wheat to more lucrative sugar production causing large scale environmental and health damage.