This is the time when the rabi (winter-spring) crop, especially wheat, is still in the field and one can’t be fully sure about the yields to be harvested.
But the production concerns aren’t confined to wheat. Equally, if not more, serious is the situation with regard to sugar. The output prospects and stocks position, which also matters for food inflation, seems most uncertain in these two commodities today.
Wheat: Managing stocks
In wheat, the silver lining is the opening stocks before the new crop’s procurement from April 1.
Last year’s stocks in government godowns on April 1, at 75.02 lakh tonnes (lt), were the lowest for this date since the 58.03 lt of 2008 and just over the required minimum buffer of 74.6 lt.
A major reason for the stocks depleting to a 16-year-low was the 2024 Lok Sabha elections. During 2023-24 (April-March), a record 100.88 lt of wheat was offloaded from the Food Corporation of India’s stocks into the open market. Much of those sales, including 6.73 lt under the Bharat Atta scheme offering wheat flour at a subsidised retail price of Rs 27.5/kg, happened in the run-up to the polls from November 2023.
While the aggressive open market sales then helped moderate wheat prices, it was, however, a risky gamble. Had the 2023-24 crop turned out bad – like in the previous two years – government agencies would have struggled to procure sufficient wheat to replenish the barely above-buffer stocks. Thankfully, production was reasonable enough to enable procurement of 266 lt, more than the 262 lt and 188 lt of 2023 and 2022 respectively, although nowhere near the 341-434 lt range of the preceding four years (see table).
This time, though, the Narendra Modi government hasn’t taken any risk. It has offloaded a mere 9.59 lt of wheat under the open market sale and Bharat Atta schemes during April-January 2024-25, and may do not more than 30 lt for the entire fiscal. Government stocks as on March 1 were around 140 lt and are projected at 120 lt at the start of the new procurement season from April 1. That’s higher than last year’s 75 lt opening stocks.
Wheat is wholesaling in Delhi at Rs 2,950-3,000 per quintal, compared to Rs 2,400-2,450 a year ago. The Modi government, unlike last year, has not sought to cool down prices through excessive open market sales and stock drawdown. Instead, it has imposed stocking limits, with traders not being allowed to hold more than 250 tonnes and retailers only 4 tonnes for each outlet. These limits are applicable until March 31.
It’s all about temperatures
Having more stocks relative to last year gives the government some comfort, reducing its pressure to procure to that extent.
For now, open market rates – Rs 2,950-3,000/quintal in Delhi and Rs 2,600-2,650 in Madhya Pradesh’s (MP) Ujjain and Indore mandis – are ruling above the Centre’s minimum support price of Rs 2,425.
Prices may ease once the new crop arrives – from the 2nd to 3rd week of March in Maharashtra and Gujarat, 3rd week of March to 1st week of April in MP, and early April in Rajasthan. How much they will, making the government’s job simpler, depends on how high the production is.
Ground reports point to a bumper crop in central India. This wasn’t the case last time, when grain yields fell due to the delayed onset of winter (affecting the crop’s vegetative growth and tillering) followed by foggy weather with lack of sunshine in January (leading to poor pollination and seed setting).
There have been no such major temperature anomalies or fog/smog conditions this time. Rajbir Yadav, principal scientist at the New Delhi-based Indian Agricultural Research Institute, expects average wheat yields in MP to be 15-20% more than last year.
The question mark is mainly over yields in north and northwest India, where the crop is in grain-filling stage. The general rule of thumb is that every extra day during this period confers an additional wheat yield of 40-50 kg per hectare. So long as maximum temperatures don’t cross 35 degrees and there are no sudden spikes, the kernels will keep accumulating starch and other nutrient matter.
As things stand, the temperatures are well within range. If they remain so well into April and yields in north and northwest India turn out as good as last year (like they are for central India this time), the inflation woes in wheat will end, with no dearth of grain in mandis or government warehouses.
Sugar: Not as sweet
Things don’t look so sanguine in sugar, where all output estimates have gone awry.
Initial estimates by the Indian Sugar & Bio-Energy Manufacturers Association pegged gross production of the sweetener for the 2024-25 season (October-September) at 333 lt. This – after deducting 40 lt of sugar diverted to make ethanol for blending with petrol – translated into a net output of 293 lt, down from 319 lt in 2023-24.
But as the crushing season has progressed, the estimates have been continuously pared down. As of February 28, net production was hardly 220 lt, against 255 lt for the same period of 2023-24. Moreover, out of 533 mills, 186 had ceased to crush for want of cane, versus 72 last year.
Latest industry estimates put net sugar production at 265 lt, with some even projecting it at 255 lt. Given 79.23 lt of opening stocks, 285 lt domestic consumption and 10 lt exports (which the government permitted on January 20), a net production of 265 lt would leave 49.23 lt available on September 30.
The closing stocks would be lower if production falls to 255 lt. At below 40 lt, they would suffice for less than 1.7 months of domestic consumption. That, by itself, isn’t a problem. But with Diwali and Dussehra both falling in October, plus mills not beginning crushing operations before November, it can create a demand-supply mismatch and push up prices.
Ex-factory sugar prices are already at Rs 40.10-41.10 per kg in Uttar Pradesh (UP) and Rs 38-38.70 in Maharashtra, up from their corresponding year-ago levels of Rs 37.30-38.50 and Rs 33.80-34.25. One wouldn’t be surprised if the government were to clamp stock limits on sugar or even make it easier to import in the months ahead.
Clearly, the impact of subpar 2023-24 rainfall in Maharashtra and Karnataka, besides the increased susceptibility of the dominant Co-0238 sugarcane variety in UP to red rot disease and top shoot borer pest attacks, have been underestimated. And it is showing in the production numbers too.
