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Wheat auctioning fails to curb prices

Feb 23, 2023 01:42 AM IST

The Union government’s decision to sell 5 million tonnes of wheat in the open market through staggered auctions to cool prices has not brought down retail rates of the staple beyond a quarter point

NEW DELHI The Union government’s decision to sell 5 million tonnes of wheat in the open market through staggered auctions to cool prices has not brought down retail rates of the staple beyond a quarter point, according to latest data.

Stocks of the grain in the world’s second-largest grower dwindled when a heatwave crimped output by 2.5% to about 106 million tonnes in 2022, even as it kept exporting. (PTI)
Stocks of the grain in the world’s second-largest grower dwindled when a heatwave crimped output by 2.5% to about 106 million tonnes in 2022, even as it kept exporting. (PTI)

Several traders HT spoke to cited the government’s lowering of the reserve price for some of these auctions as one of the reasons, implying that merchants who bought by bidding when the base rate on offer was higher are at a disadvantage compared to those who wagered later and got stocks cheap. Reserve price is the lowest price at which a seller is willing to sell.

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Many traders are sitting on their supplies because they don’t want to sell onwards at a loss, keeping markets from being replenished adequately, one merchant said. Authorities however said wheat reserve prices were “dynamic, scientific and depended on demand”.

Stocks of the grain in the world’s second-largest grower dwindled when a heatwave crimped output by 2.5% to about 106 million tonnes in 2022, even as it kept exporting. In May last year, the government halted overseas sales to plug shortages.

To control rising prices, the Centre last month decided that the Food Corporation of India, the government’s main grain-handling agency, will sell 3 million tonnes in the market through various channels through e-auctions. On Feb 21, the government said it would auction 2 million tonnes more.

From the first auction on February 1 through to upcoming rounds of bidding, the FCI has been tweaking the reserve price. That’s because the agency is responding to “demand and inflation dynamics” an FCI official said, requesting anonymity.

“We invested so much to buy the wheat only to find that the government cut the reserve price within 15 days. How I do recover my losses,” said CP Gupta, a trader from Rajasthan’s Kota. The latest reserve price, which does not include transportation cost, will “help supply of wheat to general public in different part of the country at a reasonable price,” the food ministry said in statement on Tuesday.

The reserve price was lowered from 2,350 per quintal (100kg) plus freight charges to 2,150 on February 17 and now it has gone back up to 2,350 per quintal. A category of wheat called “under relaxed specifications” is being offered slightly cheaper because of its quality.

“The government wants to bring down prices. Prices have already come down. It’s normal for reserve price to be dynamic and we routinely do OMSS,” the FCI official said, referring to the official name of the auctioning called open market sales scheme.

Data seen by the HT showed that the government has sold more than 1.4 million tonnes, while the official said demand was robust. Despite these measures, wheat inflation has remained. Cereal prices grew 16.1% in January 2023 year-on-year against 13.8% in December 2022.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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