Frustrated by the high rates of wheat being quoted by multinational firms in response to its tenders, the government is now planning to negotiate a wheat deal with Russia at a bilateral level.
According to a senior government official, a group comprising food as well as commerce ministry officials, accompanied by executives from firms such as State Trading Corp. of India (STC) and MMTC Ltd, is being created to work out possibilities of having a bilateral agreement on wheat with Russia
“The delegation may be sent to Russia to discuss the issue of possible bilateral trade with the Russian government and then submit its recommendations to the government,” said the official who did not want to be quoted.
International firms such as Glencore International AG of Switzerland, Toepfer International of Germany and Cargill Inc. of the US quoted rates in the range of $460-570 a tonne in response to a tender of 350,000 tonnes of wheat floated by STC on 10 December.
India has imported 1.79 million tonnes (mt) of wheat since July and the average price on an earlier tender of 7 December was $396 a tonne, for 150,000 tonnes of wheat.
“In the past, we have had barter trade with Russia. A bilateral strategy can work well provided the Indian government designs its negotiation deal well,” said a government official in the agriculture ministry closely associated with trade in agri commodities.
India and Russia have resolved to strengthen their bilateral trade and have set up a joint study group to finalize a road map for increasing the bilateral trade turnover to $10 billion by 2010. In 2006-07, India’s exports to as well as imports from Russia rose by some 25% in rupee terms.
Sanjay Kaul, director, NCDEX Institute of Commodity Markets and Research, says a bilateral trade deal for wheat with Russia makes sense. “Of the 5.5mt of wheat that India imported last year, one million was from Russia. Besides, Russia is a grain surplus country and India gets a freight advantage because of its geographical proximity with Russia vis-a-vis Canada, Latin America and Europe, the other wheat exporters,” he said.
However, Kaul cautions India will have to have a medium-term strategy, say five years, over which it will continue importing from Russia, besides giving a commitment of a minimum quantity that India will import. “Or else, why would Russia export to India at prices lower than international prices and when there is huge demand for wheat across the world?” he asks.
While India’s total wheat production in 2006-07 was close to 75mt, up from 69mt in the previous year, the government could procure only 11.1mt for the Central pool through which it distributes grains to the poor. To maintain a buffer norm of 4mt, the government decided to import 2.3mt of wheat in 2007-08. However, with global wheat supplies running at a 26-year high, imports have become expensive.
Not everyone believes a pact with Russia will actually happen. “In the past, we have not been very successful in barter trade with Russia. Will a government-to-government deal work well in Russia, which is largely getting driven by private enterprises these days?” asks one industry player who didn’t want to be identified.