India may offer wheat to firms, poor as stocks rot

Last Updated: Thu, Jun 14, 2012 19:00 hrs

By Mayank Bhardwaj

NEW DELHI, June 14 (Reuters) - The Indian government appears likely to offer 3 million tonnes of wheat to commercial biscuit makers and flour mills and another 10 million tonnes at cheap prices to the poor before its huge stockpiles start to rot.

A ministers' meeting to decide on offering wheat to businesses, including biscuit maker Britannia Industries , and to state governments for distribution was scheduled for late Thursday but then called off for procedural reasons.

Ministers will soon meet again, government sources said.

India, the world's second-biggest rice and wheat producer, is grappling with storage problems due to bumper harvests in recent years.

Grain stocks at government warehouses were at a record 82.4 million tonnes on June 1 against 63.0 million tonnes of storage space, forcing authorities to store grains in the open.

Officials concede that 6 million tonnes of grains could rot due to lack of storage space, but analysts say the losses could be higher as more than 19 million tonnes lie in the open.

But the response by local buyers to any offer is likely to be tepid because of pricing.

"There is no reason to be enthusiastic. The reaction of both - bulk buyers and state governments - will be pretty lukewarm again," said Veena Sharma, secretary of the Roller Flour Millers Federation of India.

"The cost at which the government tries to offload stocks deters buyers. Flour millers or food companies find it easier and economical to buy from the open market, while state governments do not lift as it will strain their resources," she said.

The government will not sell below the price it paid for the wheat, which was 12,850 rupees per tonne in 2012. That equates to about $230 per tonne, not including freight and storage costs. Wheat can currently be bought on the global market for about $250 per tonne.

Sharma said procedural delays also encourage bulk consumers to buy from the market instead of from government stocks.

In 2011/12, the government managed to sell only about 1 million tonnes of wheat to bulk buyers after offering more.

Any extra allocation to states for subsidised sale to the poor will be in addition to 55 million tonnes of grain already earmarked under the food welfare programme for the fiscal year from April 1, 2012.

The government is also likely to allow exports from government warehouses and decide on incentives for overseas sales to try to bring down the stockpiles. (Editing by Jo Winterbottom and Jane Baird)

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