Analysis: Government godowns overflow with wheat but will retail food prices ease

Tribune Web Desk

Vibha Sharma

Chandigarh, May 27

Wheat procurement has surpassed last year’s level with Punjab and Haryana emerging as the top contributors to the central pool. But will that be sufficient to ease retail food prices, especially in rural areas, which has been keeping the Reserve Bank of India worried.

According to experts, wheat, or for that matter, any grain price, is influenced by MSP. In other words, higher procurement also means more money spent on buying and perhaps a “marginal increase” in prices.

Central pool surpasses last year’s procurement

The good news, according to the Food Ministry data posted last week, is that during the Rabi Marketing Season 2024-25 as much as 262.48 LMT (lakh metric tonnes) of wheat has already been procured so far this year, surpassing last year’s total procurement of 262.02 LMT.

As many as 22.31 lakh farmers have already benefited during RMS 2024-25 with total MSP outflow of Rs 59,715 crore. Major contribution has come from five procuring states—Punjab, Haryana, Madhya Pradesh, Rajasthan and Uttar Pradesh—with the procurement of 124.26 LMT, 71.49 LMT, 47.78 LMT, 9.66 LMT and 9.07 LMT, respectively.

Meanwhile, 728.42 LMT paddy equivalent to 489.15 LMT rice has also been so far procured from 98.26 lakh farmers during the KMS (kharif marketing season) 2023-24 with MSP outflow of around Rs 1,60,472 crore. 

Punjab, the biggest contributor to the central pool stock, is set to contribute a record 12.5 MT (million tonnes) of wheat in the current season of which 12.4 MT (124.26 LMT) has already been purchased, say officials.

India in comfortable position

So all is well. The combined stock of wheat and rice for May was around 578.62 LMT as per the FCI website and additional procurement has put the country in a better position to meet requirements under welfare schemes like Pradhan Mantri Garib Kalyan Anna Yojana and carrying out market intervention, if required.

However, wheat and rice prices are significantly influenced by MSP, a reason why experts believe that “despite higher production and procurement food prices many not ease”.

The season is expected to end with 27 MT to 29 MT wheat, which is higher than around 26 MT procured last year but less than the target of 30 MT to 32 MT set for the season.

If that happens, the official wheat procurement target will remain unmet for yet another year.

Procurement target

At the beginning of the current season on April 1, wheat stocks in the central pool were 75 LMT (quite close to buffer norms) against 83.45 LMT registered on April 1, 2023.

The buffer norm is 74.6 LMT.

Despite higher production expected this season, the government fixed a “conservative target” of wheat procurement in the range of 30-32 MT for the 2024-25 RMS.

In the 2023-24 season, the government procured about 26.2 MT wheat against the target of 34.15 MT while in 2022-23, it was only 18.8 MT against the set target of 44.4 MT due to fall in production and other reasons like farmers selling produce to private buyers at higher price than to state purchasing agencies.

Adequate stocks, stable retail prices

There will be surplus and like always the government will comfortably be able to fulfil all its social obligations and more, say officials.     

Besides, a close watch is being kept on market prices of wheat, trends, sentiments, etc and all decisions, including on open market sale, will be based after factoring in everything, they add.

“The projected procurement of around 27 MT is adequate, including intervention if prices start going up,” they say.

However, according to reports, traders have also purchased wheat from farmers at MSP of Rs 2,275/quintal for the current season in anticipation of price rise after procurement.

The fact is even though overall inflation has eased, food prices have remained a worrying point, including for the RBI. 

According to reports, retail inflation in wheat rose to 6.02% in April.

Rural inflation

Economists say India’s retail inflation rate dropped to 5.09% in February 2024, which was the lowest in four months. A small drop of 0.01% was registered from 5.1% in January 2024. 

However, the rural inflation at 5.34% was 0.56% higher than the urban 4.78% due to “higher prices of food”.

The prices of grain, spices, vegetables and pulses in rural areas have edged higher than in urban areas.

“While combined inflation (CPI for rural and urban India) for January was 5.1%, rural inflation at 5.34 % was higher than urban inflation of 4.92%. The trend (of higher rural inflation) has been persisting for some time now, which is a worrying factor. It means that problematic components of food inflation have persisted and in some categories prices in rural areas are higher than in urban areas,” they add.

All this is also affecting sale of consumer items, tractors, motorcycles, etc.   

Meanwhile, according to experts, retail inflation rate in April is expected to be lower than 4.85% seen in March and within the RBI’s tolerance range of 2-6% for the eighth consecutive month.

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