Govt’s decision to limit stock holding of wheat will have cooling effect on prices

Wheat production, as per the government’s third advanced estimate, has been projected at 112.7 million tonnes, which is five million tonnes higher than in the previous year.

There has been an uptick in the prices of wheat in the past month, with an increase of close to 8 percent at the mandi level, as per Union Food Secretary Sanjeev Chopra.

The Centre’s order, which puts a limit on the stock holding of wheat after a gap of 15 years, is likely to have a cooling effect on prices, stakeholders in the industry have said.

On June 12, the Centre, to effectively manage the overall food security in the country and to prevent hoarding and unscrupulous speculation, issued an order imposing stock limits on wheat.

The order came into force on June 12 and will remain effective for the current financial year until March 31, 2024.

While holdings by traders and wholesalers have been capped at 3,000 metric tonnes (mt) of storage, retailers have been given 10 mt for each retail outlet.

In cases where the stocks held by them are higher than the prescribed limits, they have been asked to bring them down to the prescribed stock limits within 30 days of the issue of this notification.

"The order will efficiently bring down prices as people sell off the amounts exceeding the limits, thus putting more wheat into the markets, which will meet the demands of consumers in the country," said Anand Chandra, Co-founder of Arya.ag, which operates more than 3,000 storage warehouses for wheat across the country.

There has been an uptick in wheat prices in the past month. At the mandi level, prices have risen by close to 8 percent. Though wholesale and retail prices have not gone up by an equivalent amount, the government has imposed a stock limit on wheat, Food Secretary Chopra said in a press briefing on June 12.

The move is the latest in a series of steps taken by the government to curb the rising prices of wheat in the last year.

In May last year, the government banned all exports of wheat. That ban has yet to be lifted.

Further, on June 12, the central government also decided to offload 15 lakh tonnes of wheat in the first phase from the Central Pool stock to flour mills, private traders, bulk buyers, and manufacturers of wheat products through e-auction to control the retail prices of wheat.

 Several traders did not stock due to high prices

Speaking to a host of stakeholders, Moneycontrol found that several traders had not stocked up on wheat in bulk this year, owing to the high prices at which it was sold from the very beginning.

"The prices generally hover around Rs 18-19 per kilo but have remained high, above Rs 22 per kilo this year. People were waiting for prices to come down, but they kept on climbing, and most thus ended up not stocking any wheat this year," said Ashish Khandelwal, Managing Director of BL Agro Industries, an oil and food manufacturing company that trades in wheat as well.

Prices fall after Centre’s announcement

A day after the announcement by the Centre, the prices at mills started falling.

The price for a quintal of wheat being offered by flour mills in Delhi, which ruled at Rs 2,455 on June 12, fell to Rs 2,390 on June 13.

"There is panic in the market since the announcements have been made. Flour mills are aware that people who are hoarding wheat will reduce their prices and try to get rid of it quickly before prices fall any further," Ajay Rathore, owner of Bajrang Traders in Delhi told Moneycontrol.

Govt estimates of wheat production may be higher than actual output

Wheat production, as per the government’s third advanced estimate, has been projected at 112.7 million tonnes, which is five million tonnes higher than in the previous year.

However, experts have pointed out that this may be more than the actual numbers.

"Trade sources suggest that wheat production this year has been less than the advanced estimates of the government. Similarly, domestic wheat consumption is estimated to be about eight to 10 mt more than the Niti Aayog’s estimate of 97 mt. With the threat of El Nino hovering over the country, India needs to use all its resources to ensure food security in a difficult year," former Union secretary Siraj Hussain told Moneycontrol on June 7, when the Centre hiked the MSP for paddy by 7 percent, which he said showed the government’s concern about food safety.

"Production has been down in the past two years due to climatic issues the country is facing. The prices have primarily gone up due to a reduction in supply and not because of hoarding. In fact, at this time last year, we held about one million tonnes of wheat, whereas it is 0.6 million tonnes this year," says Chandra from Arya.ag.