India has requested both global and domestic traders to refrain from purchasing new-season wheat from local farmers, aiming to allow the Food Corporation of India (FCI) to amass significant quantities to replenish its dwindling reserves. Following a ban on exports in 2022 to safeguard domestic needs, India is focused on increasing its wheat stockpiles and controlling the price surge triggered by reduced production due to unfavorable weather conditions in the past two years. This strategic move is part of the government's effort to stabilize the local market, where nearly 800 million people are entitled to free grain under the world's largest food welfare program.
The government's informal directive to private traders to avoid wheat purchases in April marks a significant intervention in the grain market, reminiscent of similar actions taken in 2007. The guidance aims to facilitate FCI's targeted procurement of at least 30 million metric tons of wheat this year, an increase from the 26.2 million metric tons procured last year, which was below the set target. Notable traders in the Indian grain market, including Cargill Inc, Hindustan Unilever Ltd, ITC Ltd, Louis Dreyfus Company, and Olam Group, are likely to adhere to this government request, deferring their purchases to accommodate FCI's procurement needs.
The low wheat procurement in the previous year has led to a significant reduction in government wheat inventories, with stocks falling to their lowest level since 2017. This decrease has caused concern over potential price escalations in the open market, prompting the government to avoid wheat imports to prevent dissatisfaction among the local farming community, an important voter base in the upcoming parliamentary elections. Despite the reduction in stocks, the U.S. Department of Agriculture suggests India might need to import around 2 million metric tons of wheat this year. FCI has initiated the procurement of new wheat from farmers at government-set prices, notably focusing on Uttar Pradesh, a major wheat-producing state that has historically contributed minimally to FCI's procurement efforts.