*****India’s Wheat Harvest Is A Complete Disaster*****

The Indian Express reports that there will be no bumper wheat harvest in Punjab.

(emphasis mine) [my comment]

No bumper wheat harvest in Punjab
Sukhdeep Kaur Posted online: Friday , Apr 24, 2009 at 2312 hrs

Srinagar : Call it the paradox of timing — clear skies when the farmers looked up for rains and it poured when they wanted the sun. First, dry spell during winter, and rains and hailstorm at the time of harvest later washed away all hopes of Punjab farmers to reap a bumper harvest.

Consequently, the state Government has scaled down its procurement target from the earlier 115 lakh metric tonnes (MT) to 100 lakh MT with the loss in yield estimated to be in the range of five to 20 per cent across the state.
[too optimistic]

But it is the wheat quality that has become a bigger worry for the state already reeling under the problem of plenty with huge stocks of previous year's wheat still lying with it. Besides, last year's good minimum support price had prompted farmers to bring more area under wheat cultivation this time.

The weather-beaten wheat arriving at many parts of the state is reported to be poor in parameters of weight, colour and maturity owing to early harvesting of the crop by rain-hit farmers. So even as procurement season in both Punjab and Haryana is drawing to a close and wheat arrivals are comparatively higher by 100 per cent this year, the discoloured and shriveled grains with high moisture content may result in post-harvest losses and pose serious storage challenge, say procurement agencies.

What's worse, longer storage of this year's wheat is a possibility that the two states cannot rule out owing to already overflowing stocks, thanks to slow movement of last year's stocks out of the state by the Food Corporation of India (FCI).
[Seems like a complete disaster to me. India's wheat harvest is already of poor quality. Bad storage conditions will make matters far worse.]

Meanwhile, the poor wheat quality, MSP of Rs 1,080 amid falling global wheat prices and higher taxes (total taxes collected on foodgrains in Punjab totals to 12.5 per cent) is also keeping private traders out of the mandis. It is the FCI along with five state government agencies that procured over 95 per cent of the total arrivals of 64.21 lakh MT till April 19 against just 9,000 MT by private traders. The corresponding figure last year was 0.5 lakh MT of the total arrivals of just 27.43 lakh MT. In neighbouring Haryana too, only 1,600 tonnes had been purchased by traders till April 19 out of total arrivals of 46.28 lakh MT.

However, though the wheat quality in the two states has been equally hit by early harvesting due to temperature variations, unlike Punjab, Haryana is hopeful of a bumper harvest this year owing to larger area under wheat. Its agriculture department is pegging the total wheat production at 105 lakh MT, up by two lakh MT from last year. The production this year is expected to be higher than earlier years and perhaps the best so far, the state agriculture secretary Shakuntala Jakhu said.

Claiming that the damage from inclement weather is localised, its Food and Supply department said the total procurement may even touch 60 lakh MT
[This unrealistic optimism is due to India's impending elections]. The two states are also likely to witness shorter procurement period with Haryana achieving 90 per cent of its procurement target and Punjab 65 per cent by the end of the third week of the procurement season.

The Economic Times reports that several factors cheeses big Indian private traders from significant wheat buys.

Several factors cheeses big private traders from significant buys
23 Apr 2009, 2119 hrs IST, Prabha Jagannathan, ET Bureau

NEW DELHI: High wheat price, relatively poor quality, persisting ban on exports, cheaper wheat in the global market and a glut-inclined domestic

marketing season appear to have cheesed big private traders and MNCs away from significant buys in mandis. [Very foolish decision by those traders, which is very bullish for wheat prices]

Coming at a time when the government has already bought almost twice the quantum of wheat it purchased last year, that spells bad news for the government's food subsidy bill this year, besides signalling a prolonged freezing of wheat support price by any new government at the curretn Rs 1080/quintal, thus dashing farmers' hopes of a higher floor price.

"There is a marked glut in the domestic wheat market. Somewhere, we seem to have gone off the mark in balancing the country's needs for wheat and sugarcane (a good part of the area in the north is interchangeable). Perhaps we policy makers bent over backward too much to make up for the shortage and subsequent high priced imports in 2006 and 2007," a senior food ministry official acknowledged, adding "The only way to resolve this next year could be to freeze the wheat floor price for at least two consecutive seasons."

Upto April 20, foodgrain procurement major Food Corporation of India (FCI) bought 126. 5 (12.6 million) lakh tonnes of wheat at the Miniimum Support or Floor price of Rs 1080/quintal from a total of 132.5 (13.2 million) lakh tonnes that arrived in mandis this marketing season. Significantly, the FCI bought only 58 lakh (5.8 million) tonnes of wheat upto April 20 last year, that is, only half of what it was forced to buy this year from mandis..

Of the total arivals of wheat, according to FCI officials who preferred anonymity, the private sector bought only 5.6 lakh (0.5 million) tonnes. Most of the private sector buys were made, not by the giants who make big purchases each year including Cargill, ITC, HL, Adani, Glencore, AWB, but by roller flour mills and chakkis [who probably have a better idea what is going on in India's wheat market]. "Very few big companies made notable purchases this year," the official s aid. [Misguided (idiotic) deflation fears are probably a big part of these delayed purchases. Most of these "big companies" probably expect wheat prices to fall. They are in for a VERY nasty surprise.]

Trade observers maintain that a combination of key reasons had veered big companies off significant wheat purchases in the domestic market this season, thus belying the hopes of the government that removing stock limits and approving exports "in principle" would tempt them into making those crucial buys now. In turn, that would have lesssened the government massive storage and purchase burden for the bumper wheat harvest of almost 80 million (800 lakh) tonnes made this year [See this? Virtually all media stories are still expecting a "bumper wheat harvest" for India. They haven't yet realized that India's wheat harvest is a disaster], in addition to a similar output last year. Upto April 1, for instance, the prescribed government buffer stocking norm for wheat stands at only 50 lakh tonnes. In comparision, the actual quantity of wheat crowding out godowns both in the States and those of the FCI total upto a whopping 139.30 (13.9 million) lakh tonnes, including the carryover stock from last year.

"Big companies are likely to buy only at the end of the season, when prices crash to much below the Rs 1080/quintal floor price prescribed by the government [evidence of ridiculous (idiotic) deflation expectation]. Currently, floor millers from both Punjab and Haryana are buying from UP. Traders are also procuring for the southern market from UP, where prices currently rule at Rs 930-935/quintal [and wheat is of decent quality]. In comparision, wheat price rules at around Rs 1225-1230/quintal in southern cities. Plus, some of the UP's wheat is also making its way surreptitiously into Punjab to be sold to the governemtn at floor price. This happens every year but this year, the quantum is higher than ever before," a governmetn official said.

One key reason that MNCs and the big private sector companies are not rushing to buy domestic wheat is that exports continue to be banned although "in priciple" approval for reopening this in May has been given already. [I bet a hundred bucks that the ban on wheat export will not be lifted. Any takers?]

However, global wheat prices, at around a low of $181.50/tonne, is below domestic prices and makes little economic sense for traders to export unless backed by a sound export subsidy by a governmetn desperate to get rid of its massive stocks in bursting out of godowns. To boot, untimely rains in the northern wehat regions have ensured that some of this year's output is marred by high moisture content.

Under the FCI Act, the government is obliged to buy all the wheat, whatever the quality, that comes to the mandis in traditional states where puchase is made [Can anyone see how this policy could cause a problem? Simple logic dictates that buying wheat, "whatever the quality", will over time lead to the buildup of large inventories of rotting, inedible wheat not even fit for use as animal feed]. The poor quality of the commodity, it is understood, also added to the reluctance of big private sector buyers to purchase domestic wheat.

The Hindu Business Line reports that wheat procurement may be lower this year.

Wheat procurement may be lower this year
Centre not as keen as last time to stock up.
Record in 2008-09
Procurement this time may not be anywhere close to the record 226.89 lakh tonnes of 2008-09


New Delhi, April 18 Even as official wheat procurement during the current season so far is three times last year's corresponding level, total purchases may
[will] still end up being lower.

The Food Corporation of India (FCI) and State agencies are unlikely to procure anywhere close to the record 226.89 lakh tonnes (lt) of 2008-09, according to trade sources.

The ongoing 2009-10 rabi marketing season (April-June) has seen governmental purchases of 94.08 lt of wheat as on Friday — way more than the 31.57 lt bought during the same period of 2008-09.

But these figures could be deceptive. Firstly, there has been a lot of early harvesting because of farmers advancing plantings by about 10 days. Also, unseasonal rains early this month have prompted farmers to bring wheat to the mandis early so as to not risk any crop damage.
[Why not? If the government pays the same for edible and inedible wheat, why risk wind, rain, and hail damage when you can harvest not quite edible wheat early? Under India's system, a large harvest of rotting wheat is worth more than a smaller harvest of edible wheat.]

"The grain quality in Punjab is not very good this time
[ie: inedible], as there has been lustre-loss due to the harvest showers. So, they are in a hurry to sell, knowing fully that there will be nobody to buy this wheat later", said Mr Raj Sood, a leading arhatia (commission agent) of Khanna.

Premature market arrivals apart, there is an even more important reason why wheat procurement may turn out lower this year. In 2008-09, of the total procurement of 226.89 lt, Punjab and Haryana accounted for 99.41 lt and 52.37 lt respectively, followed by UP (31.37 lt), MP (24.10 lt), Rajasthan (9.35 lt), Bihar (5 lt) and Gujarat (4.15 lt).

"Last year's all-time-high procurement was not courtesy Punjab and Haryana, but UP, MP, Bihar and Gujarat. These swing States together delivered about 40 lt more than their usual quota, which will not happen this time", the CEO of a prominent multinational trading firm noted.

Last year, the Centre was desperate to buy. So, it got agencies to start first-time purchase centres across UP and Bihar and a rhatiyas were paid 2.5 per cent commission as incentive to source wheat. The mobile phone numbers of officials were widely advertised, so that they could be reached by anyone with even a truck-load to offer.

This time, the Centre has not shown such enthusiasm. As a result, in m andis such as Shahjahanpur, Hardoi, Gonda, Kanpur, Etah and Mainpuri, wheat is selling at Rs 910-930 a quintal, against the official minimum support price (MSP) of Rs 1,080.

Flour mills in Bangalore are getting UP wheat at the rail-head for Rs 1,225-1,235, while in Chennai, it is still lower at Rs 1,210. Even millers in Punjab are finding it cheaper to source from UP rather than from their own State, where the MSP is rigorously enforced!

As a result, even assuming Punjab and Haryana contribute last year's levels, total wheat procurement may not eventually cross even 200 lt.
[and the quality of that wheat will be terrible]

Express India reports that millions go hungry as food rots in FCI godowns.

http://static.expressindia.com/expressindia/images/zero.gifMillions go hungry as food rots in FCI godowns
Posted: Jul 02, 2008 at 1219 hrs IST

[This article shows how, as expected, the policy of buying wheat, "whatever the quality", has resulted in grain reserves overflowing with rotten wheat]

New Delhi, July 2: Over 10 lakh tonnes of foodgrains worth several hundred crores of rupees, which could have fed over one crore hungry people for a year, were damaged in Food Corporation of India (FCI) godowns during the last one decade.

The damages were suffered despite the FCI spending Rs 242 crore while trying to prevent any loss of foodgrains during storage. Ironically another 2.59 crore was spent just to dispose off the rotten foodgrains.

These startling facts came in reply to a Right to Information (RTI) application filed by a Delhi resident. FCI informed that 10 lakh tonnes of foodgrain was damaged in the godowns of government owned agency, which is responsible for procurement and distribution of foodgrains across the country.

The FCI informed that 1.83 lakh tonnes of wheat, 3.95 lakh tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize were damaged between 1997 to 2007.

The FCI said in the northern region -- UP, Uttarakhand, Haryana, Jammu and Kashmir, Punjab, Rajasthan, Himachal Pradesh and Delhi -- the damage incurred was seven lakh tonnes and the PSU spent Rs 87.15 crore to prevent the loss besides spending over Rs 60 lakh to dispose off the damaged foodgrain.

Keeping in view the amount of money spent by the FCI for preservation of foodgrains in its godown,
the quantum of damage is huge. Is it not a national shame?" the RTI applicant Dev Ashish Bhattacharya said.

Similarly in eastern India -- Assam, Nagaland, Manipur, Orissa, Bihar, Jharkhand and West Bengal -- the damage incurred was 1.5 tonnes of foodgrains while the FCI spent Rs 122 crore to prevent it from rotting. But the damaged lot was disposed off after spending another Rs 1.65 crore.

In southern region -- Andhra Pradesh, Tamil Nadu, Karnataka and Kerala-- the damage incurred was 43,069.023 tonnes despite spending Rs 25 crore. This damaged foodgrain was disposed off after spending another Rs 34,867.

While damage in Maharashtra and Gujarat mounted to 73,814 tonnes, the FCI spent Rs 2.78 crore to prevent the loss. However, this lot was also disposed off later at a cost of Rs 24 lakh.

In Madhya Pradesh and Chhattisgarh, the damage incurred was 23,323.57 tonnes of food grains and the amount spent to stop the damage was Rs 5.5 crore.

The story was no different from other go-downs as the FCI spent Rs 10.64 lakh for disposing damaged food grains.

"The data given by FCI seems manipulated. In case of Jharkhand, the food grain damage is 3,699 tonnes which is comparatively low than other states. But the money spent to dispose off the damage is Rs 1.4 crore, which is high when compared to the other states," Dev Ashish said.

http://static.expressindia.com/expressindia/images/zero.gifIBN live reports that wheat wasted by FCI.

No recession, one lakh mt tonne wheat wasted by FCI
Rupashree Nanda
CNN-IBN
NO SLOWDOWN: In all the FCI still has 1,19,000 mt of imported wheat and is desperate to dispose off.

[Just like US banks with their toxic securities, India doesn't want to face the truth about its wheat reserves. If India admitted how much of its wheat reserves were rotten, it would send wheat (and food) prices soaring.]

New Delhi: There is still 3500 mt of imported rotting wheat lying with the FCI in Madhya Pradesh and there is 1,000 mt of rotting wheat lying with FCI in Maharashtra

In all the FCI still has 1,19,000 mt of imported wheat. This is according to the information got in response to an RTI query filed by CNN-IBN.

"If it is still lying it has defeated the purpose for which it was brought, " says Head of Development Policy/ Planning Commission, Santosh Mehrotra.

Imported in the name of the poor,
the expensive wheat might now end up being auctioned in the open market at dirt-cheap rates. Even as animals feed or it simply might be buried.

Maharashtra, ironically, the Agriculture minister's home state is already getting rid of the stocks and what is happening in Maharashtr a could happen in the rest of the country.

Price of the waste of a lakh tonne of the wheat now lying in godowns had cost the exchequer nearly Rs 200 crore.

"There were questions about whether the government paid more than it should have. We found out that systems were perhaps not followed," says Central Vigilance Commissioner, Pratyush Sinha.

The FCI is silent on many questions such as how much of imported wheat had to be destroyed, what was the shelf life of this wheat and who decided to dispose off the wheat.

Last year, the FCI internally procured a record 225 mn tonnes of wheat and this year it would be saddled with another 80 million tonnes by May. It simply does not have storage space.

In tough times with recession following inflation, the agriculture ministry needs to accept accountability for wheat that nobody could eat.






My reaction: Two very important points to note: India's disastrous wheat harvest is enormously bullish and has been completely missed by the financial/agricultural media so far. See my entry how to invest in agriculture and profit from rising food prices.

1) A dry spell during winter and rains/hailstorms at the time of harvest have washed away expectations of a bumper harvest.

2) The loss in yield estimated to be in the range of 5 to 20 percent across Punjab.

3) However the real concern is over the quality of India's wheat harvest:

The weather-beaten wheat arriving at many parts of the state is reported to be poor in parameters of weight, colour and maturity owing to early harvesting of the crop by rain-hit farmers. So even as procurement season in both Punjab and Haryana is drawing to a close and wheat arrivals are comparatively higher by 100 per cent this year, the discolored and shriveled grains with high moisture content may result in post-harvest losses and pose serious storage challenge, say procurement agencies.

4) Under the FCI Act, the government is obliged to buy all the wheat brought in my farmers, "whatever the quality", encouraging high yields of poor quality.

5) Due to stocks overflowing with rotting wheat, longer storage of this year's wheat is likely.

6) Very few big companies have made notable purchases this year. Deflation fears are probably a big part of these delayed purchases.

7) Unseasonal rains and hail early this month have prompted farmers to bring wheat to the mandis early so as to not risk any crop damage.

"The grain quality in Punjab is not very good this time, as there has been lustre-loss due to the harvest showers. So, they are in a hurry to sell, knowing fully that there will be nobody to buy this wheat later"

8) Over one million tons of foodgrains were damaged in Food Corporation of India (FCI) godowns during the last decade. This figure is optimistic, as data given by FCI seems manipulated.

The FCI informed that 1.83 lakh tonnes of wheat, 3.95 lakh tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize were damaged between 1997 to 2007.

9) The FCI still has also has 119,000 metric tons of rotting imported wheat that it is desperate to dispose off.

10) Virtually all media stories are still expecting a "bumper wheat harvest" for India of "almost 80 million (800 lakh) tones". There is no realization that India's wheat harvest is a disaster.


Conclusion: Wind, rain, and hail ruined India's wheat crop. India's policy of buying all wheat at the same price, "whatever the quality", has made the situation worse by encouraging farmers to focus on quantity rather than edibility. Furthermore, grain reserves overflowing with rotting wheat means that the already poor quality of India's harvest will be worsened due to lack of storage space. Finally, big companies have been holding off purchases due to misguided deflation fears, which means a lot of pent up demand chasing a lot of "discolored and shriveled" wheat.

India is now left with large stockpiles of rotting, inedible wheat and a harvest that is a complete disaster.

This entry was posted in Food_Crisis, India, News_Developments. Bookmark the permalink.

2 Responses to *****India’s Wheat Harvest Is A Complete Disaster*****

  1. Anonymous says:

    I there Eric, thanks for keeping the news and hindsight flowing.

    While I don't think this issue should be disregarded, I'd like to point two aspects here:

    . only 12% of the world's grain is traded internationally;

    . world grain demand during recent years has grown mainly due to agro-fuels and livestock.

    I'm not that certain there will be a worldwide shortage accompanied by sky-rocketing prices. Both demand for agro-fuels and meat should be down from last year with the economic slowdown.

    This doesn't mean localized shortages can't develop, like in the UK due to lack of credit or in India due to the weather.

    And if you allow me a bit of blogwhoring, you may find a good deal of information on world grain production at these links:

    http://www.theoildrum.com/node/5181

    http://www.theoildrum.com/node/5182

  2. mroberts says:

    Eric, your feedback on this post would be great. Not looking good right now for federal tax receipts.

    http://www.bizzyblog.com/2009/04/22/when-will-the-press-catch-on-to-uncle-sams-collections-meltdown/

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