Wheat prices surged to an eight-month high on Tuesday, propelled by strong demand for big festivals, limited supplies and as import duty makes overseas buying unfeasible for domestic flour mills.
The increasing prices may prompt the government to release more stocks from inventories and eliminate import duties on the cereal to bolster supplies and control prices ahead of important state assembly elections and a general election next year. Rising wheat prices could contribute to food inflation.
Wheat prices in New Delhi jumped by 1.6% on Tuesday to 27,390 rupees ($329) per metric ton, the highest since February 10. Prices have surged by nearly 22% over the past six months.
“Festival season demand is driving up wheat prices. The government needs to permit duty-free imports to reduce prices,” said Pramod Kumar S, president of the Roller Flour Millers’ Federation.
India has no immediate plans to abolish a 40% import tax on wheat, Sanjeev Chopra, the most senior civil servant at the food ministry, said last month.
As of October 1, wheat stocks in government warehouses stood at 24 million metric tons, sharply down compared with a five-year average of 37.6 million tons.
Domestic wheat prices are rising in the absence of imports and less than targeted procurement by the government, said Ashwini Bansod, head of commodities research at Phillip Capital India Pvt Ltd.
India managed to procure 26.2 million tons of wheat from farmers in 2023 against a target of 34.15 million tons.
The market is also factoring in concerns over the El Nino weather pattern that could lead to warmer than normal temperatures during winter, and could have a negative impact on the upcoming wheat crop, Bansod said.
The government estimates wheat output jumped to a record 112.74 million metric tons in 2023, but a leading trade body said the harvest was at least 10% lower than the farm ministry’s estimate.
“The supply situation is poised to tighten further in the coming months, and there’s a real risk of prices surging beyond 30,000 rupees unless the government opens the door to imports,” said a Mumbai-based dealer with a global trade house.
This article has been republished from The Times of India