On April 18, data from the commerce ministry showed India's Wholesale Price Index (WPI) inflation unexpectedly rose to a four-month high of 14.55 percent in March. And while energy and metals led the charge—the ministry commented, which it often does not, that the rise in WPI inflation was mainly because of higher prices for crude oil, natural gas, mineral oils and basic metals due to supply chain disruptions caused by Russia-Ukraine conflict—a certain other item was also responsible for pushing inflation higher.
While the food index of the WPI rose 0.54 percent month-on-month in March, indicating the presence of some sequential price momentum, the index of wheat rose 3.2 percent.
Of course, wheat was not the only food article to experience a sequential increase in prices. In fact, there were 20 other food articles whose prices rose by an even greater percentage when compared to February levels. But put 16 of these 20 items together and their combined weight in the WPI basket still does not match up to that of wheat.
Wholesale wheat inflation jumped to 14.0 percent in March, the highest in 63 months. The last time wholesale wheat inflation was higher was in December 2016, in the immediate aftermath of demonetisation.
But the rise in wheat prices was to be expected. After all, wheat exports from Russia and Ukraine accounted for 28 percent of global supply in FY21. Remove some of Russian and Ukrainian wheat exports from the mix, and other exporters such as India and Australia would have to step up to the proverbial plate.
There is some movement on the export front already. On April 15, the government said that Egypt had agreed to procure wheat from India. The government hopes to export 3 million tonnes of wheat to Egypt this year. This would constitute nearly half of what Egypt—one of the biggest wheat buyers in the world—imported in 2021.
The rise in India’s wheat exports has been nothing short of meteoric. From a mere 0.21 million tonnes in FY20, the government is looking to export 10 million tonnes of the cereal in FY23—a 48-fold increase over just three years. This would amount to just under 9 percent of India's record wheat production of 111.32 million tonnes in 2021-22 (July-June) as per the second advance estimate.
The result of the rising export of wheat is higher domestic prices. And it's not analysts or some keyboard warriors who are saying so, but the Reserve Bank of India (RBI) itself.
"Prices of cereals, on a year-on-year basis, emerged out of eight months of deflation in October 2021 and reached 4.0 percent in February 2022. Within cereals, wheat prices have increased sharply since September on higher exports (336.8 percent year-on-year increase during April 2021-January 2022) and larger procurement," the central bank's biannual Monetary Policy Report, released on April 8, noted.
Retail inflation for cereals hit a 19-month high of 4.93 percent in March. Specifically for wheat from sources other than the public distribution system, retail inflation was at a 61-month high of 7.77 percent last month.
The RBI's Monetary Policy Report went on to note that "international prices could set a floor for domestic wheat prices through the export channel, even if domestic prices do not move in sync with global prices".
Of course, it is perfectly possible to export record sums of wheat as long as production rises in tandem. However, there is more and more talk of the government missing the clues in the chaff.
"Expecting: 1. 15% wheat yield loss due to heatwave. 2. Over 25% shortfall in wheat procurement by @FCI_India in Punjab, India. 3. Across India, wheat procurement by government agencies for food security purposes could be less by 9 Million Tonnes over last yr. Truly hope I'm wrong," tweeted Ajay Vir Jakhar, chairman of the Bharat Krishak Samaj, a self-described non-partisan farmer's organisation, on April 19.
As pointed out by Jakhar, the Food Corporation of India's (FCI) buffer stocks are worth more than a cursory look. At the start of April, the stock of wheat in the FCI's central pool was 18.99 million tonnes.
While the wheat stockpile is down 30 percent from llast year and the lowest in three years, they are 2.5 times more than what the norms specify. Moreover, the stock has been drawn down on account of the free foodgrain scheme, the Pradhan Mantri Garib Kalyan Anna Yojana, which has now been extended for another six months to September 2022.
What does this all mean for the future of atta prices for Indian households? If April data from the Department of Consumer Affairs is anything to go by, they are only going up. Measures such as export restrictions and releasing of stocks by the FCI are being talked of. However, it would be quite a move from the government to aggressively seek export destinations and sign them up—as it has done with Egypt—only to then impose limits on exports.
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