NEW DELHI, March 6 (Reuters) - Any decision by India to reopen the door for wheat exports may come to naught unless the government follows up with subsidies or curbs state-backed buying, decisions that will have to wait until after elections.
Local media on Thursday reported that a panel of Indian ministers had agreed to lift a ban of exports of wheat and wheat products once elections end in May [ID:nDEL457225].
The world’s biggest wheat producer after China, India’s grain bins are groaning after a record crop last year.
Expectations of another strong harvest this year have forced the government to reconsider the ban it imposed in early 2007, when food security fears were just beginning to take hold and prices rising.
The decision it may face this spring is whether to stick to its promise to buy wheat at a fixed rate from domestic farmers to protect them from distressed sale -- risking grain silos overflowing -- or force open an arbitrage relief valve by stopping purchases, driving down higher domestic prices.
“It is true that there is a problem of plenty here but the government will have to give a subsidy to prop up sales as and when exports are permitted,” said M.K. Duttaraj, president of the Roller Flour Millers’ Federation of India.
“I know exports are not going to take place soon. At least not before May. Once exports are allowed, the maximum subsidy we can expect is of 600 rupees ($11.65) per 100 kg,” said Duttaraj.
The Food Corp of India (FCI) -- whose inventories now stand at nearly 17 million tonnes of wheat, almost 10 million tonnes more than this time last year -- has already raised the price it would pay for the 2009 harvest by 8 percent to 1,080 rupees per 100 kg.
At the equivalent of about $210 a tonne, the government will be a better buyer than big importers in the southeast Asia and Middle East, which are now paying about $190 a tonne cost and freight.
“If we add small costs like internal freight to the FCI’s price, today wheat in India is at $269 per tonne free on board which should come down to about $160 per tonne to make shipments from India attractive,” said a senior official of a leading trading firm, who did not wish to be identified.
Benchmark wheat prices WH9 on the Chicago Board of Trade have fallen 62.6 percent to $5.04 a bushel from their year-ago peak of $13.495, making any overseas sales unprofitable for Indian exporters without incentives from the government.
If India does provide some form of export support, its first such shipments in six years may find some favour from Asian buyers now facing big delays to Australian shipments, but will otherwise face heavy competition in the marketplace.
“On the whole, the news should be seen as bearish for wheat,” said Abah Ofon, an analyst with Standard Chartered. “It goes on to emphasise that the market is well supplied.”
And the impact may be big -- between 2001 and 2003, India exported some 18-19 million tonnes of the grain.
Global wheat output was expected at 633 million tonnes in 2009, a drop of 50 million tonnes, or 7 percent, from last year’s world record of 683 million tonnes, David Boyes, commodity risk manager of the Canadian Wheat Board said on Feb. 23.
India is part of the problem -- its wheat harvest touched an all-time high of 78.57 million tonnes in 2008 and the farm ministry has forecast this year’s output at 77.78 million tonnes.
For a graphic on India's what production, click: here
An all-time high output helped the FCI, the country’s main grain procurement agency, to buy a record 22.68 million tonnes of wheat in 2008.
Wheat stocks of the FCI would swell to 14.0-14.5 million tonnes on April 1 when the new marketing year begins, against a norm of 4 million tonnes, Kumar said.
India grows only one wheat crop in a year, with sowing from October and harvests from March-April.
The government needs 12 million tonnes of wheat annually to run various welfare programmes.
Although traders say the government would face immense difficulties in managing huge stocks, government officials say the FCI has hired more warehouses, created makeshift grain bins and is ready to store wheat under tarpaulin.
“Left with no choice, the FCI would have to buy as much as farmers offer. The FCI may end up procuring about 24 million tonnes of wheat,” said Pramod Kumar, president of the Karnataka Flour Millers Association. ($1=51.52 rupee) (Additional reporting by Naveen Thukral in SINGAPORE)
Our Standards: The Thomson Reuters Trust Principles.