FCI plans to rope in spot exchanges to sell wheat

By : Komal Amit Gera
Last Updated: Thu, Oct 25, 2012 09:07 hrs
A man speaks on a mobile phone amid sacks filled with wheat and rice inside the market yard on the outskirts of Ahmedabad

The Food Corporation of India (FCI) is planning to engage spot exchanges to sell wheat. The move, heralding a breakthrough in the distribution of wheat to traders and flour millers, is round the corner.

At the moment, flour millers buy wheat either through the open market sales scheme (OMSS) or through a fixed quota, involving sealed tenders and a lot of paperwork.

The new system of sale of wheat would make the process transparent, as it involves less paper work and less intermediation.

A senior FCI official told Business Standard approval from the central government is awaited. It could take some time to comply with the statutory directions if such directions are given by the food ministry else it might be rolled out without a time lag, he added.

The quantity, he said, is immaterial, as the focus is on making the process streamlined by removing various bottlenecks in distribution.

According to sources, five to six million tonnes of wheat are distributed every year under OMSS, against a milling capacity of 12 million tonnes.

The government is under tremendous pressure to offload its huge stocks due to high procurement this year. The quantity to be released is projected to be 11-12 million tonnes.

According to sources, three leading spot commodity exchanges in India could be roped in by the FCI to create synergies for spot selling of wheat.

“The distribution of a commodity like wheat through the electronic market would benefit buyers in terms of efficiency and better price discovery. A minimum floor price would be determined in different states and private buyers can buy through competitive bidding,” said Anjani Sinha, managing director and chief executive officer of National Stock Exchange.

The price might vary in different states, despite transactions through spot exchanges, due to transportation costs and differential tax structures. But at the same time, it will ensure better quality as online spot exchanges have quality and assaying norms. Prices are adjusted if the quality varies from the norms. A trader in West Bengal might buy wheat from Haryana through a spot exchange more easily (saving in terms of time and assured quality) than from traditional mandis.

The price of wheat remains unregulated in the open market from October to March, as there are no new arrivals and most of the wheat stocks are available only with government agencies. The private traders mandate their own terms to the flour millers. As a result, they run their mills at less-than-capacity.

According to Adi Narayan Gupta, president of the Roller Flour Millers Association of India, a similar experiment was done in Delhi and Andhra Pradesh earlier this year. However, it did not click due to lack of clarity with government officials and lack of awareness among buyers.

“The policymakers this time should ensure these lacunae are addressed. We cannot say more about the benefits of such sales, as details of the proposed new system are not available,” said Gupta.

Naresh Ghai, president of the Punjab Flour Millers Association, said: “The government of India should fix a floor limit in the producing states, lower than the consuming states, to make the proposition viable. An earlier attempt at spot selling was unsuccessful due to flaws which the industry expects to be reviewed this time.”

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