June 15, 2012

 

India proposes two million tonnes federal wheat stocks export

 

 

In order to reduce its overflowing stocks, export of up to two million tonnes of government wheat stocks has been proposed by India's food ministry at a minimum price of US$228 a tonne, free on board.

 

However, it would look to offload far larger volumes through domestic sales, government officials said.

 

Although the proposed amount is small, traders are watching whether the government will proceed to export it at below cost. If it does export at US$228/tonne, it could force other global suppliers to reduce their prices. India is a key global wheat producer and therefore its prices influence those of other producers. International prices are currently quoted around US$250/tonne, free on board.

 

The overflowing stocks are mainly causing storage problems as government warehouses have run out of space. Their storage capacity is 63 million tonnes against the government's procurement this year of 83 million tonnes. Unless they are able to reduce wheat and rice stockpiles soon, large portions stored in the open could be washed away by monsoon rains, causing a significant financial loss.

 

"Our first preference is to supply more food grains to people in the country. But as stocks are huge, we're also considering exports of some quantity," Food Minister K.V. Thomas told Dow Jones Newswires.

 

If the proposal goes through, India would probably only be able to export 100,000 tonnes of the 83 million tonnes in government warehouses, which would serve little to reduce its huge stockpile. Glencore, the highest bidder in the first export tender issued last month, had offered to export around the same amount around US$230/tonne.

 

The government will have to bear a subsidy of INR15.56 billion (US$279.3 million) for wheat exports from federal stocks, the officials said. India's warehouses are overflowing as a result of bumper crops over the past three years, with stockpiles exceeding storage capacity by around 20 million tonnes, leaving much of the excess supply in the open, where it's vulnerable to spoilage.

 

A draft proposal on exports has been sent to the trade and agriculture ministries as well as other ministries for input, they said. The proposal may be sent to the federal cabinet in a week after the ministries' feedback is received.

 

The decision to sell mainly in the domestic market also follows disappointing bids in the first export tender last month, which was issued by State Trading Corp. Six companies submitted bids of US$150-230/tonne to export wheat from government stocks.

 

The government's cost to procure wheat from the last harvest is above US$300/tonne, while international prices are around US$250/tonne. Since the government would have to bear a loss with the cost of its purchase higher than the export price, it would effectively be offering a subsidy on exports.

 

The government plans to allocate an additional 10 million tonnes of food grains to subsidised sales to state welfare programmes and another three million tonnes to the open market, the officials said.