February 24, 2005

India's wheat exports in 2005-06 may halve

India¡¯s wheat exports in marketing year 2005-06 (April-March) are forecast to halve at around 10 lakh tonne from the estimated 20 lakh tonne, says Global Agriculture Information Network (GAIN). Following the discontinuation of subsidised wheat export sales by the Centre in August 2003, Indian wheat lost its competitive edge in the world market.

Although there are still talks about the Centre providing a WTO compatible subsidy of Rs 900 per tonne, the domestic supply situation does not warrant such a policy. At the support price of Rs 6,400 per tonne, the FoB price of wheat sourced from the surplus state of Punjab would work out to roughly $190 per tonne.

Thus, even if the Centre provided a subsidy of Rs 900 per tonne, Indian wheat may not be competitive unless world prices rise. The forecast of 10 lakh tonne of wheat exports in 2005-06 will be mostly to Bangladesh by land route on private account.

This wheat is sourced largely from the subsidised PDS wheat leaking into the open market, or it is procured at below support prices from states like Uttar Pradesh, where the Centre price support operation is not very effective.

Earlier the upward revision in the 2004-05 exports was necessitated by reported larger exports to Bangladesh via the land route, as reported by the World Food Program, in Bangladesh. Although the demand for speciality wheat flour for pizzas and burger buns is rising due to high growth in the fast food sector, the high import duty on wheat (50%) and wheat flour (30%) discourages imports of wheat and flour.

Although the US now does not feel threatened by Indian wheat exports, it is keeping close tabs on the import duty on wheat in India on expectation that the Centre may be compelled to reduce it.

While market access for the US wheat was restored in 1999 following the resolution of some SPS issues, the imposition of a 50% duty, effective from December 1, 1999 made imports infeasible.

GAIN states, "Though a reduction in import duty in the near-term looks unlikely, slowing wheat production growth since 2000, combined with increasing domestic demand, may compel the Centre to reconsider higher import duty in the future."