Singapore/New Delhi: Any government faced with huge grain stockpiles, strengthening global prices and prospects of record output would be tempted to jump into export markets, but India’s policy makers will think twice before opening the floodgates for exports of wheat.
Wheat shipments from the world’s second largest producer could partly fill a gap in global supplies caused by a shortfall in production in key exporters and calm the international market, which has soared almost 60% since April last year.
But the government is expected to tread cautiously and, in the best-case scenario, allow exports of no more than 2 to 3 million tonnes -- just a fraction of the country’s estimated 2011 production of around 84 million -- because of surging domestic food prices and exploding demand.
Farm officials, politicians and even economists have urged the government in recent weeks to lift four-year-old curbs on wheat exports, and India has empowered a group of ministers to decide if it should allow exports of wheat this year.
“The biggest constraint exports face is the issues around domestic food inflation,” said Luke Matthews, a commodity strategist with Commonwealth Bank of Australia in Sydney. “The Indian government might be reluctant to allow widespread exports whilst domestic food prices are still high.”
Agflation is a thorny issue for the Congress-led coalition government as the food price index climbed 9.18% in the year to 26 March, even though grain prices were not the key driver.
Benchmark Chicago Board of Trade wheat prices have risen sharply since last June, after a devastating drought in the Black Sea region prompted Russia, usually the world’s third-biggest wheat exporter, to ban grain exports.
Crop-damaging floods in Australia, the world’s fourth-largest supplier, followed just as the crop was getting ready for harvest in December.
In more recent weeks, wheat crops in the United States, the world’s No. 1 exporter and China, the biggest producer, have been coming under stress from erratic weather.
With concern over food prices growing across the nation of 1.2 billion people, the government has backtracked on its decisions about, and even slowed approvals of, grain exports.
In July 2009, the government lifted a ban on wheat exports, but reimposed the curbs within 10 days on concerns food prices may rise as the seasonal monsoon rains fail.
India has spent months deliberating sugar exports policy after an initial announcement in December. Last month, authorities finally decided to ship half a million tonnes of sugar -- a tiny part of India’s total output of about 25 million -- but have yet to issue an official notification.
“I am not too gung-ho about wheat exports, with inflation around 10%. We are not sure about the government’s decision,” said Atul Chaturvedi, chief executive for farm business at Adani Enterprises, India’s biggest exporter of agricultural products.
“Logically, it makes sense to export but logic sometimes doesn’t work. Look at sugar, there is so much flip-flop in the policy.”
Wheat exports have been banned since February 2007, when adverse weather conditions hit production and the government had to turn to costly imports.
Since then, five consecutive harvests have run ahead of domestic demand and warehouses have filled. The government has had to store the grain under tarpaulin, and its bulging stocks have begun to rot.
Wheat reserves swelled to 17.2 million tonnes by 1 March, more than double a government target of 8.2 million tonnes. That, combined with forecasts of a record harvest of 84.3 million tonnes in 2011, has prompted industry and trade to demand that export curbs be lifted.
India grows only one wheat crop in a year, with planting in September-October and harvest from March. Purchases of the grain by private traders and state-run Food Corp. of India, the main grain procurement agency, pick up only after mid-April.
The Food Corp. buys grains from local farmers at a fixed price to build reserves for emergency needs, to run various welfare programmes and protect growers from distressed sale.
Food Corp. is expected to buy 26.0 million tonnes from farmers in 2011 against 22.5 million tonnes in the previous year, government officials say.
Agency purchases have got off to a slow start so far. It has bought 661,000 tonnes of wheat since April, when the new season purchases began, down from 1.3 million tonnes a year ago.
In India wheat is primarily grown in the northern states of Uttar Pradesh, Punjab and Haryana and the central state of Madhya Pradesh.
Traders said the authorities were likely to allow wheat exports of around 2 million to 3 million tonnes. “They may do it in tranches, like first announcing wheat exports of two to three million tonnes,” said D. P. Singh, president of the All-India Grain Exporters Association.
Still, some trading firms have already started building stocks by buying wheat from wholesale markets in anticipation that the government will allow private traders to sell cargoes in the international market.
“With such buoyant production estimates, there is a strong possibility of exports and more private traders will buy wheat,” said Veeresh Hiremath, research head of Karvy Comtrade, a brokerage based in the western city of Ahnedabad.