June 8, 2012

India's surging wheat stocks expose to rot

As unattractive global prices have hobbled government efforts to export from its overflowing grain bins, India's wheat inventory at government warehouses surged to a record 50.2 million tonnes on June 1, exposing more stocks to rot.

India's entry into the global market could further dent benchmark US wheat prices, which dropped 10% last week after much-needed rains hit drought-hit parts of Russia and on higher-than-expected yields from the US winter harvest.

Much of India's grains are left out in the open exposed to potential decay as state-run warehouses can store only 63 million tonnes against the total 82.4 million tonnes of current stocks, which includes some coarse grains such as millets.

While wheat stocks were well above the official target of four million tonnes for the quarter ending June 30, rice inventory for the same period was 32.1 million tonnes against a target of 12.2 million tonnes, government sources said.

The government aims to add up to four million tonnes of storage capacity by the end of June, one government source has said, still leaving a substantial gap. The government's storage problem has worsened as farmers have just finished harvesting another record wheat crop, forecast to be 90.23 million tonnes in 2012. Demand runs at about 76 million tonnes a year.

India grows only one wheat crop in a year, with planting from September-October and harvests from March. The government encourages wheat production by fixing a support price as it needs to ensure enough supplies to cover its commitments to feeding the poor, who make up about 40% of its 1.2 billion population.

A sharp rise in the price the government pays to buy wheat from local farmers has led to bin-bursting harvests since 2007, exacerbating storage problems in the world's second-biggest wheat producer.

Farm Minister Sharad Pawar, known for his pro-farmer policies, has been a driving force behind higher prices to wheat growers. The government has raised the price it pays to buy wheat by more than 70% since 2007.

Brimming granaries forced India to lift a four-year old ban on exports in September but lower global prices have scuppered efforts to trim bulging stocks, forcing the government to store wheat under tarpaulin. Only about one million tonnes of wheat has been exported so far.