Earlier in the year, the duty had been reduced from 25% to 10% until March 1, 2017. The decision to remove the duty entirely was due to concern about the rising domestic prices and declining government-held wheat stocks, the report said.
Domestic prices have surged over the last two months to record levels due to tight domestic markets. Due to the concerns on declining government-held wheat stocks, the government reduced wheat sales under open market sale scheme (OMSS) in recent months contributing to the strong escalation in domestic prices.
Firm domestic prices resulted in stronger offtake of government held-wheat in the first seven months of the marketing year (18.6 million tonnes vs 15.4 million tonnes last year), especially by the private trade under OMSS, resulting in stocks on Nov. 1, declining to 18.8 million tonnes, more than 11 million tonnes lower than last year. Consequently, the government reduced the wheat offtake from November onwards on concerns about further draw down of stocks to levels below the government desired stock levels.
Consequently, the domestic prices have escalated to record levels in most markets as historically the government has been the dominant supplier in the open market during the second half of the marketing season.
The strong domestic prices suggest that the Ministry of Agriculture estimate of 2016-17 wheat production of 93.5 million tonnes is highly optimistic, while private trade sources continue to estimate the crop in the range of 85 million to 87 million tonnes.
Trade sources report that about 3.2 million tonnes of wheat already has been imported or contracted for imports through the end of February 2017 and an additional 500,000 tonnes is likely to be imported in March 2017. Assuming no significant changes in the import duty structure and current price parity between domestic and international wheat prices, 2016-17 imports are likely to reach 3.7 million tonnes. However, import prospects are likely to be affected if the government decides to re-impose the import duty based on the production prospects of the upcoming 2017-18 wheat crop.
Wheat ending stocks for 2016-17 are estimated lower at 8 million tonnes based on relatively higher offtake of wheat during the first half of the marketing year. The official wheat stocks on Dec. 1 were estimated at 16.5 million tonnes, about 10.4 million tonnes lower than last year’s level. Assuming the normal offtake of wheat under the public distribution system (PDS) and reduced offtake of OMSS during the last four months, the 2016-17 ending stocks are expected to decline to 8 million tonnes, just about the government’s desired stocks of 7.5 million tonnes.
Consumption estimate for 2016-17 is revised higher to 92.4 million tonnes, reflecting the change in the import and stock estimates.