Wheat Production Decline Threatens Food Security: Impact on Prices and Speculation
The story so far:
On June 12, the government of the Union took action to regulate the quantity of wheat held by traders, wholesalers, retailers, big chain retailers, and processors in order to ensure overall food security and prevent excessive hoarding and speculation. The main goal is to maintain a stable price for this crucial commodity by ensuring a consistent supply. Sanjeev Chopra, the Secretary at the Department of Food and Public Distribution, affirmed that the country has an ample wheat stock. The order became effective immediately and will remain in place until the end of March of the following year.
What are the limits?
Traders and wholesalers are allowed to hold a maximum of 3,000 metric tonnes of stock. Retailers and large chain retailers can store up to 10 metric tonnes at each of their outlets, while the latter can hold up to 3,000 metric tonnes in total across all their depots. Processors are permitted to stock up to 75% of their annual installed capacity. These entities are required to declare their stock positions and regularly update them on the Department of Food and Public Distribution's portal. If their stock exceeds the limit, they have 30 days from the notification date to bring it within the prescribed limits.
What are the additional orders?
The government has made the decision to sell 1.5 million tonnes of wheat from the central pool through the Open Market Sale Scheme (OMSS) via e-auctions. This initiative aims to regulate the retail prices of wheat by offering it to flour mills, private traders, bulk buyers, and wheat product manufacturers. The wheat will be sold in batches ranging from 10 to 100 metric tonnes. Additional quantities may be released in the future depending on market prices and demand. In addition, the government plans to sell rice through OMSS to stabilize its prices, with the exact quantity for the initial phase of the e-auction to be determined soon.
Why is there a concern?
According to recent developments, there is growing concern about a decline in overall wheat production due to unseasonal rains, hailstorms, and higher temperatures. This decrease in production is causing an increase in crop prices. Consequently, there is a possibility that local prices may surpass the government's purchase prices, which could hinder their efforts to stock up on supplies. On June 14, the average retail price of wheat was ₹29/kg, compared to ₹27.54/kg a year ago. At the wholesale level, it stood at ₹2,593.5 per quintal, compared to ₹2,557.89/quintal the previous month and approximately ₹2,423/quintal a year ago. The Food Corporation of India, responsible for ensuring affordable food grains through the Public Distribution System, aimed to procure 341.5 lakh metric tonnes of wheat for the Central Pool during the ongoing Rabi Marketing Season 2023-24. However, as of June 12, only 261.99 lakh metric tonnes have been procured. Government officials and traders have revealed that India's wheat procurement in 2023 could decrease by 20% from the initial estimate due to a slowdown in government purchases following the surge in local prices. Currently, the central stock holds 313.9 lakh metric tonnes of wheat, compared to 311.42 lakh metric tonnes during the same period last year.
What about production?
Despite experts' warnings about the potential impacts of El Nino, the Agricultural Ministry predicts a record-breaking wheat production of 1,127.43 lakh metric tonnes for the agriculture year 2022-23. This estimate reflects a 50.01 lakh metric tonnes increase compared to the previous year, driven by expanded wheat cultivation and improved yield.
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