March 19, 2007

 

India plans new measures to augment wheat supplies

 

 

Less than a week after rains, hailstorms and strong winds damaged India's wheat crop, the federal government moved in swiftly Friday (Mar 16) and announced plans to possibly import up to three million tonnes of wheat.

 

At the same time, it also reduced the import duty on wheat to zero until Dec 31 and further raised the minimum support price for wheat by Rp1,000 (US$22.6) a tonne to Rp8,500/tonne for making local purchases from farmers, in addition to a hike that had already been made earlier.

 

Traders and analysts vary on the likely impact of the three initiatives with some calling it a classic display of market intelligence that would eventually prevent imports, while others terming it as a realisation that there will be a shortfall in output in 2007.

 

This year, the government will start the local wheat procurement season with an offer price of Rp8,500/tonne to farmers, which is a whopping Rp2,000/tonne higher than the previous year's initial offer price.

 

"At this price, the government will be able to procure at least 15 million tonnes wheat from farmers in 2007," said Gopal Bhushan Gupta, a Ludhiana-based flour miller in the northern province of Punjab.

 

He said it's highly unlikely that India's government will have to import wheat in 2007 to run subsidised sale programmes.

 

Millers say that the government's announcement of a plan to import 3 million tonnes wheat is a clever ploy to discourage farmers from selling wheat to private traders.

 

Government's local procurement may rise

 

"The price the government is now offering to farmers is good. I think they will be able to meet their procurement target (of 15 million tonnes)," said Atul Chaturvedi, President-Agro, Adani Exports, an Ahmedabad-based company in the western province of Gujarat, where wheat is already being harvested.

 

He said private traders are unlikely to be as aggressive this year in importing wheat as in 2006 because chances of prices heading northwards are limited.

 

"Farmers are more than prepared to sell wheat at Rp7,500/tonne but the government has upped the ante by setting the minimum price at Rp8,500/tonne," said Gupta.

 

Traders say by giving mills an option to make duty-free imports until December, the government has further tried to boost its own prospects of local procurement.

 

In India, the cold arithmetic of wheat trade is such that any shortfall in the government's local procurement results in a proportional volume of imports to run subsidised sale programmes.

 

As a result, the government is extremely keen this year to maximise its own purchases of wheat by offering an attractive price to farmers.

 

Output uncertain

 

Analysts, however, say the government may have been prompted to step in with the latest initiatives because output prospects still remain uncertain.

 

"At a time when wheat crop required sunshine for proper flowering, heavy rains accompanied by winds inflicted damage on vast tracts of cultivated land," said an official of an international trading house.

 

He said despite all the bravado put forth by the government, the size of the wheat crop may not turn out to be the projected 72.5 million tonnes.