December 27, 2012

As it hopes for a bumper harvest next year, India has raised its 2013 wheat export limit by 500,000 tonnes from a year ago and would pay its farmers 5.1% more for purchases of the grain, contrary to expectations, due to higher input costs.

India, the world's second biggest wheat producer, has been exporting the grain since last year from government warehouses that are overflowing after successive bumper harvests, partly encouraged by generous support prices.

India has allowed 2.5 million tonnes of wheat exports for 2013 to cut bulging stocks, the finance minister said on Wednesday (Dec 19), compared with two million tonnes in 2012. Wheat stocks were at a whopping 37.6 million tonnes on December 1, more than three times a target of 11 million tonnes.

India, also one of the biggest consumers of wheat with a population of 1.2 billion, raised the price of wheat payable to farmers next year to INR1,350 (US$25) per 100 kilogrammes, up from INR1,285 (US$23.4) this year.

The purchase price, which is equivalent to US$245.6 per tonne, is lower than the current export price from US$310-323 per tonne on a free on board (FOB) basis.

India sets a price to buy grains from local farmers to protect them from distressed sales, help maintain stocks for emergencies and run various welfare programmes. The higher price will also protect farmers' profits at a time when costs of inputs, such as fertiliser and diesel, are rising.

The move to lift prices comes as a surprise as in November the government had said it would keep support prices unchanged given that it was grappling with bulging stocks and wanted to cut its high food subsidy bill.

The government made record wheat purchases early this year and has been exporting since August through tenders by state-run trading companies to cut stocks. In the latest round of overseas wheat sales by state-run companies, MMTC Ltd received the highest bid at US$322.5 per tonne from a global trading firm.

India, which grows only one wheat crop in a year, produced a record 94 million tonnes of the grain in 2012. Farmers plant wheat from October and harvests begin in March.