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Auction sale of FCI wheat unlikely

Harish Damodaran

NEW DELHI, July 10

THE Government has decided to shelve for the time being the plan to auction five million tonnes of wheat from the Food Corporation of India's (FCI) stocks in Punjab and Haryana. This follows alleged `cartelisation' attempts by northern flour millers in o rder to bid at prices well below the Government's expectations.

The Union Minister of Consumer Affairs and Public Distribution, Mr. Shanta Kumar had, on June 10, announced the decision to sell up to five m.t. of wheat piled up in the FCI's godowns at Punjab and Haryana through auctions at various centres of these Sta tes. The Government, he said, would also fix an internal reserve price, below which no open auction or sealed tender bid would be accepted.

But even a month after the announcement, little headway has been made on the modalities, including specification of a date, of the proposed auctions. According to sources, the auction move has been put in cold storage in the wake of unconcealed cartelisa tion efforts by the North-based roller flour mills (RFM).

``If auctions take place, I don't see any miller offering a rate more than Rs. 625 per quintal. Why should they when open market prices are ruling even lower in the entire northern region?'', said Mr. Nirmal Parkash Sofat, President, Arthia Association o f Punjab.

Wheat dara prices in Delhi have, in fact, weakened over the past fortnight from the Rs. 628-630 per quintal range to Rs. 613-616 per quintal currently. In the nearby Hapur mandi, the prices are quoted even lower at Rs. 575-600 per quintal. Even in a dist ant place like Kozhikode, millers are accessing wheat at Rs. 740-750 per quintal now, compared to Rs. 775-780 per quintal a month ago.

As against this, FCI is offering wheat to RFMs under its open market sale scheme (OMSS) at Rs. 900 per quintal. However, there are few takers at this price, which covers the FCI's full economic cost. This is in contrast to the pre-Budget situation, when the OMSS rates were fixed below the economic cost at Rs. 688 per quintal for the northern States and Rs. 705, Rs. 697 and Rs. 699 per quintal for the southern, western and eastern regions, respectively.

During 1999-2000, FCI managed to dispose of 44.17 lakh tonnes of wheat through the OMSS window. Offtake in the current fiscal has, on the other hand, been meagre due to the hefty increase in OMSS rates as well as a glut in the market arising from a recor d wheat crop of 74.25 m.t., up from the previous year's 70.78 m.t.

``The production has been larger than what we anticipated. Traders, who undertook purchases assuming open market prices would soon touch the Government's Rs. 900 per quintal level, have completely burnt their fingers and are offloading their stocks now. This, in turn, is exerting further downward pressure on prices. Currently, there is over-supply in the market and any recovery is unlikely till October at least'', Mr. Sofat said.

In the event of auctions taking place, RFMs are likely to cash in on the weak sentiments and bid at levels below even Rs. 700 per quintal, which is the least that the Government would expect on the wheat that is being liquidated `at source'.

The Government's calculation is that the Rs. 700 per quintal rate matches the economic cost of wheat ex-Punjab or Haryana, even if it does not corresponding to FCI's all-India average economic cost. To that extent, settling for a minimum reserve price of Rs. 700 per quintal may not be a bad option.

Problems could, however, arise if the millers were to bid at prices even below the Rs. 700 per quintal level. It is to avoid this likely embarrassment that the Government is now contemplating a unilateral reduction in the OMSS prices, rather than choosin g the auction route.

``Ideally, we would prefer the OMSS rate to be market determined. But now when we know that the market itself is going to be rigged by a cartel of millers, why go in for auctions? It is better that we ourselves offer a new price band and test the market response to this'', an official said.