India

A multi-year high inflation rate drives government cereal stocks to a five-year low

Despite retail cereal price inflation exceeding a 105-month high in September, the government’s stocks of wheat and rice have plunged to a five-year low.

As of October 1, wheat and rice stocks in public godowns totalled 511.4 lakh tonnes (lt), according to the Food Corporation of India (FCI). Compared to 816 lt a year ago, this was the lowest level since 2017 (see table below).

As of October 1, wheat stocks were at a six-year low of 227.5 lt (the three-month operational stock requirement plus the strategic reserve to cover procurement shortfalls), which was just over the minimum buffer level (the three-month operational stock requirement plus the strategic reserve to cover procurement shortfalls) of 205.2 lt. However, rice stocks (including unmilled paddy grain) were nearly 2.8 times the required level. Consequently, the overall cereal stock position was relatively healthy, despite FCI warehouses holding less grain than they did four years ago.

As a result of the depleting stocks, the consumer price index (CPI) for “cereals and products” increased 11.53 per cent in September compared to September last year. Using the current price index as a base year, the highest annual inflation for cereals was recorded. According to the old CPI, using 2010 as the base year, the previous high cereal inflation rate was recorded in December 2013 at 12.14 per cent. Eight years and nine months have passed since that time.

There is concern about the depletion of FCI stocks, especially in wheat. As of September, retail inflation for non-PDS (public distribution system) wheat and atta flour reached an all-time high of 17.41 per cent, a rise from 15.72 per cent, 11.73 per cent, 10.06 per cent, 9.45 per cent, 9.59 per cent, 7.77 per cent, 5.57 per cent, and 5.10 per cent in the preceding eight months. Due to the fact that farmers have yet to sow wheat and the next crop will not be available in the markets until mid-March, there are limited chances that the price will ease.

International prices further compound the uncertainty. At the Chicago Board of Trade exchange, the benchmark wheat futures contract dropped from a record $12.94 a bushel on March 7 to $7.49 on August 18. Prices have since surged as tensions in Ukraine have escalated, and on Wednesday, they closed at $8.82 per bushel (one bushel equals 27.216 kilograms).

According to the latest world grain trade report published by the US Department of Agriculture, the export price of wheat from Russia has increased from $313 to $327 per tonne, free on board, over the past month. Other wheat origins have experienced higher prices or increases as well: the European Union ($334 to $359), Australia ($372 to $376), Canada ($369 to $402), Argentina ($400 to $420) and the United States ($392 to $459). A landed cost of $365-370 per tonne in India would be the result of adding ocean freight and shipping insurance. The price at the port is approximately Rs 30-30.5/kg, which renders imports uneconomical unless they are made on a government account in order to replenish public supplies.

Cereal Stocks.

According to the latest world grain trade report published by the US Department of Agriculture, the export price of wheat from Russia has increased from $313 to $327 per tonne, free on board, over the past month. The price increase has been even greater for wheat from other origins: the European Union ($334 to $359), Australia ($372 to $376), Canada ($369 to $402), Argentina ($400 to $420) and the United States ($392 to $459). Even Russian wheat will cost $365-370 per tonne in India once ocean freight and shipping insurance are added. The price at the port is approximately Rs 30-30.5/kg, which renders imports uneconomical unless they are made on a government account in order to replenish public supplies.

 

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