Why is wheat procurement low despite bumper production?

Wheat procurement reached 25.7 million metric tonnes (mmt) on May 17, 2024, against the government official target of 37.29 mmt fixed for the Rabi Marketing Season (RMS) 2024-25, according to Food Corporation of India (FCI) data. The current procurement is around 31 per cent less than the target, despite a bumper production year—the government has estimated a production of 112 mmt.

Two reasons have contributed to this: aggressive wheat buying outside government mandis (wholesale markets) by private traders and farmers holding back their stocks.

This year’s procurement figures are also less than last year’s, when it was 26.07 mmt, even when the government kicked off procurement earlier than its scheduled time of April 1 this year.

The lower procurement could be a worry for the government, as it is looking to boost central wheat stocks to meet the requirement under the National Food Security Act (NFSA).

In March, wheat reserves fell to 7.5 mmt. This was very close to the strategic buffer norm of 7.4 mmt needed by the FCI to maintain as of April 1. The reason was two straight years of reduced crop yields. This is why the government was hoping to boost its reserves this year, on the back of a bumper harvest.

Over the past decade, wheat stocks on April 1 averaged 16.7 mmt. As of May 1, around 17 mmt was available in the central pool according to official data. While this is more than the buffer norm of April 1, the government would want to boost its procurement so that its wheat reserves are above the buffer norm for July (27.5 mmt).

Though the Centre has set a target to buy 37.29 mmt in the 2024-25 RMS marketing year, officials have said that the “realistic” procurement may be 31-32 mmt.

Private buying

Even though the government had unofficially asked private traders to not buy this year and had even relaxed quality specifications for the sale of wheat, farmers are keener on selling their crop to private buyers. This is because the procurement rate is higher than the government announced minimum support price (MSP) of Rs 2,275 per quintal.

In fact, some states like Madhya Pradesh and Rajasthan have also announced additional bonus, over and above the MSP. However, in the private market, farmers are getting around Rs 2,400-Rs 2,500 per quintal.

The rabi crop season runs from October to March, and procurement usually happens from April to May. 

Holding back stocks

Experts say that farmers are also holding back their crop, in hopes of a further increase in prices.

Purchases have slowed down in most wheat-producing states like Uttar Pradesh, Bihar, Rajasthan, Punjab and Haryana.

Sources say there is an expectation that wheat prices in the open market will increase by Rs 300-400 per quintal in the coming days.

If the procurement target is missed this time, it would be the third such consecutive year. In the 2023-24 RMS, the procurement was 26.2 mmt of wheat, against a target of 34.15 mmt. In 2022-23 RMS, the government had procured 18.8 mmt against a target of 44.4 mmt.

Experts point out that there will be enough stocks to disburse in PDS (public distribution system) and other welfare schemes. One of the reasons is that the procurement window — which usually ends by May-end — has been extended till June 15 this year.

They add that there is not much cause of worry till the next crop (which will come in April next year), given that the next crop is also good.

“The government is doing enough to manage perception. With the current numbers, it does not appear to be as bad a situation as it was earlier being anticipated,” agricultural economist Shweta Saini, who is also the founder of Arcus Policy Research, told Down To Earth.

Saini has been tracking both arrival and prices of different crops. She noted that with around 26 mmt of current procurement, the opening stocks of 7.5 mmt and a La Nina year (which might lead to above normal rains and provide good soil moisture for the next crop), the overall outlook looks manageable.

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