New Delhi: India may import the most wheat in a decade as output declines in the world’s second-biggest producer.

Imports may total 5 million metric tonnes in 2016-17, the most since 2006-07, according to the median estimate of seven traders surveyed by Bloomberg. Production is set to decline 1.8% to 85 million metric tonnes in the year through June from a year earlier, according to the median estimate of nine traders and flour millers compiled by Bloomberg. That’s the lowest since 2009-10 and compares with the government’s estimate of 94.8 million tonnes.

“One of the most critical issues is what’s the production number going to look like," Abdolreza Abbassian, senior economist at the United Nations’ Food & Agriculture Organization in Rome, said by phone. “There will be higher imports than a year earlier, but nothing too big because of the large stocks."

Even as dry weather curbs output for a second year, stockpiles at the start of May were 14% bigger than the government’s 1 July target, Food Corp. of India data show. While the country last week decided to extend its 25% import duty on wheat, some southern flour mills are already sourcing grain from overseas. Demand for wheat is robust and steadily increasing, according to B.K. Anand, head of grain and oilseeds business with Cargill India Pvt. Ltd

Australia, France

Wheat for September delivery on the Chicago Board of Trade rose 0.1% to $4.8775 a bushel on Tuesday. The contract has declined about 10% in the past year. Futures on the National Commodity & Derivatives Exchange in Mumbai climbed about 22% in the period and closed at 1,790 per 100 kilograms on Monday.

Wheat purchases by the government from farmers dropped 17% to 22.93 million tonnes as of 17 June from a year earlier, according to state-run Food Corp. data. Arrival of wheat in grain markets across the country fell 20% to 25.76 million tonnes as of 17 June, from a year earlier, government data show.

Declining supply is prompting flour millers in non wheat-growing states to buy grain from Food Corp. of India and some processors have contracted to import from Australia and France, according to M.K. Dattaraj, managing director of Krishna Flour Mills Bangalore Pvt. Ltd. As much as 1 million metric tonnes from the two countries have been contracted for import, Ramesh G. Kotecha, consultant with Star Agriwarehousing and Collateral Management, estimates.

Import duty

The amount of wheat India buys from overseas will be affected by the country’s import duty. Mills in southern parts of India may buy at least 500,000 tonnes in the year ending March from Australia and France and, if the government removes the duty, overseas purchases may total as much as 900,000 tonnes for blending with local wheat, said P. Gunasekaran, president of the Tamil Nadu Roller Flour Mills Association.

India first imposed a 10% duty in August and increased it to 25% in October, citing a decline in global prices and adverse impact on domestic growers. Overseas purchases are estimated at 2 million tonnes in 2016-17, up from 471,000 tonnes a year earlier, according to the US Department of Agriculture.

“It shouldn’t be difficult for India to source wheat," FAO’s Abbassian said. “India can choose from whoever offers the best price. I don’t think the situation would be that alarming." Bloomberg