UPDATE 1-India's wheat stocks pile higher, exports stall on quality, price

Fri Jun 7, 2013 6:52am EDT

* India grows hardly 3 million tonnes of high-protein wheat

* Unlikely to grab major share in global wheat trade

* The country resumed wheat exports only in 2011 (Recasts, adds comment, prices)

By Mayank Bhardwaj

NEW DELHI, June 7 (Reuters) - India's wheat stocks had piled up to 44.4 million tonnes by June 1, government sources said, more than a quarter of the world's total, as it fails to meet export targets because of high prices and quality constraints.

India uses the stocks to distribute cheap grain in one of the world's biggest food subsidy programmes which is set to be increased further under a proposed new law.

But bumper harvests - the latest of which has just rolled in - have swamped government warehouses and left stocks lying in sacks under tarpaulin, vulnerable to rot and rats.

With global prices underpinned by concern about Australian supplies and worry over shipments from the United States after the discovery there of a genetically modified (GMO) strain, India might have hoped to capitalise with exports.

But India has only sold a little more than half of the 9.5 million tonnes it has offered either directly to traders or through state-run sellers as the major consumer refuses to concede on price and buyers seek a higher quality.

"Japan and Korea were buying U.S. soft white wheat, a high-protein variety used for cakes and biscuits, while our wheat is suitable for preparations like roti," said Tejinder Narang, adviser at New Delhi-based trading company Emmsons International.

India, one of the world's biggest wheat producers, has for long focused on ensuring its 1.2 billion people have enough to eat and encouraged its farmers to grow robust wheat that is perfect for the flat breads so familiar in Indian cooking.

It resumed limited exports in 2011 as stocks piled up, but is far from a major player and that means there's little incentive to work on improving quality and packaging.

FLUFFY, HIGH-PROTEIN WHEAT

Nor is there any compelling demand domestically to produce the fluffy, high-protein wheat preferred for making biscuits and the loaves of bread typical of European bakeries.

Indeed, only small parts of the tropical sub-continent have the right climate and soil conditions to grow that kind of quality wheat, with about 3 million tonnes produced annually, for domestic consumption.

"India has to feed itself as no other nation can supply food to a country of more than 1.2 billion people. We need higher stocks and higher production," Swapan K. Dutta, a top farm scientist, told Reuters.

India spends nearly a trillion rupees ($18 billion) to sell cheaper rice and wheat to a large section of its people.

The government in March offered 5 million tonnes direct to private traders such as Cargill, Louis Dreyfus and Glencore but none of this has so far been sold as the floor price of $300 per tonne is not attractive given current global levels of $280 per tonne.

"Wheat trade is dominated by the United States, Canada, and Australia. And we do not have an intention or liberty of muscling in," said a senior government official involved in policy decisions.

The government also stockpiles rice, another staple, but inventories edged down to 33.3 million tonnes on June 1 against 34.7 million tonnes the previous month, the sources added.

Stable policy and steady exports have helped India emerge as the world's top rice exporter, thanks also to private companies which developed hybrid seeds and ensure consignments meet global standards, trade and government officials said.

"Rice is mainly grown and consumed in Asia and that explains our predominant position," the senior government official said.

(Additional reporting by Ratnajyoti Dutta; Editing by Jo Winterbottom and Robert Birsel)