February 29, 2012

Industry officials said Tuesday (Feb 28) that Iran may purchase up to three million tonnes Indian wheat through private deals as western sanctions hitting supply from the US and Europe.

Once the two countries are able to find a way to get around restrictions on payment due to the sanctions, this deal could potentially open doors for the export of other food items to Iran, they said.

"The payments by Iran could be in rupees...It is being worked out," one of the officials who didn't wish to be named, told Dow Jones Newswires. The value of the deals being discussed is estimated at US$750-900 million.

One option being looked at is Iran using rupee payments received against oil exports to India to buy wheat and other food products from the latter. A delegation that includes representatives of Iran's central bank is expected in New Delhi this week to discuss the deals and the payment mechanism, a second official said.

Iran has recently turned to Australia, Canada and Russia to buy wheat and corn to replenish stocks. The success of any deal will hinge on the two establishing a payment mechanism as shipments of premium basmati rice and tea have been disrupted after sanctions were imposed.

Another issue that needs to be sorted out is the port of delivery.

"I think private traders in India would be willing to supply wheat to Iran, so long as they take delivery at Indian ports," said M.K. Dattaraj, former president of the Roller Flour Millers Federation of India. "Otherwise, logistics can get complicated."

Besides wheat, Iran is also keen to buy edible oils, corn and sugar, an Indian official said. Wheat from India is likely to be shipped at a price of US$300/tonne free on board. Such an order could help Indian traders at a time when the country has plentiful supply after two bumper crops. Domestic exporters have also been struggling as high domestic prices make exports difficult.

India has shipped no more than 550,000 tonnes wheat after an export ban was lifted in September.