February 26, 2004



Forecast Fall In India's 2003/04 Wheat Exports

India's 2004 wheat production is likely to reach a near record level of 76 million tons from 27.3 million hectares, up 16.7% from the 2003 drought- reduced 65.1 million tons (revised government estimate). Most of the increase is likely to be in the states of Madhya Pradesh and Rajasthan, where production plummeted last year owing to drought conditions.
Production in the major surplus wheat growing states of Punjab, Haryana, and Uttar Pradesh, where the crop is mostly irrigated, is likely to be more or less at the same level as last year or slightly better. Ideal planting and growth conditions characterized by ample subsoil moisture, normal winter rains, and prolonged cool weather, combined with adequate input supplies are likely to result in a record national per-hectare yield. The crop was generally free from pests and diseases. The government has recently revised last year's production estimate significantly downward to 65.1 million tons from its earlier estimate of 69.3 million tons based on final crop-cutting results received from various states, the press release said. This was the lowest production in the past seven years, with the decline largely due to a steep decease in planted area and yields in non-irrigated states.
The quality of this year's crop is likely to be good due to an extended winter, which typically results in better grain formation. Indian wheat is largely soft/medium hard, medium protein, bread wheat. Exceptions are wheat grown in central and western India, which is typically hard with high protein and high gluten strength. India also produces around 1.5 million tons of durum wheat, mostly in central and western India, which is not segregated and marketed separately. Indian wheat breeders have developed several durum varieties with high yield potential and requiring minimal irrigation. An analysis of Indian wheat samples collected from various grain markets by the government's Directorate of Wheat Research showed that about 80% of Indian wheat falls under U.S. Grade III.
Yield Area Production Linear (Production)
India's wheat production increased by 50% between 1990 and 2000, aided by a 17% increase in planted area and a 30% growth in yields. High yielding seeds, virtually free irrigation in major states, and the highly remunerative and guaranteed government support encouraged farmers to boost area and yields. Growing budget pressures, combined with increased emphasis on crop diversification, could lead to reduced input subsidies and less generous price supports, constraining production growth.
Wheat consumption in MY 2004/05 is expected grow along the trend to 73.5 million tons, the press release said.
The government, in its pre-election promises, recently announced plans to expand the highly subsidized grain distribution program for the "poorest-of- the-poor" (Antyodaya Anna Yojana) to cover an additional five million families to take the total families covered to 20 million. If implemented, this would result in a higher wheat off take from government stocks and support higher consumption. The steep decline in government wheat stocks in general, and low quality wheat stocks in particular, combined with high open market prices for wheat visa-vis corn, would discourage animal feed consumption of wheat. A significant decline in wheat production in 2003 resulted in wheat consumption dipping by 3.5 million tons in MY 2003/04, despite higher releases from government stocks for drought relief and other programs. Domestic wheat prices were generally higher in MY 2003/04, reflecting reduced wheat availability in the open market.
Most domestic wheat consumption is in the form of homemade chapatis or rotis (unleavened flat bread) using custom milled atta (wholemeal flour), although usage of branded packaged atta marketed by large companies, including some multinationals, is increasing in cities.
There are around 200 large flourmills in India, with a milling capacity of around 15 million tons, which manufacture mostly maida (flour), semolina, and residual flour to cater to institutional demand. Although the demand for specialty wheat flour for pizzas, burgers, and bakery products is rising due to a high growth of the fast food sector, the high import duty on wheat (50%) discourages imports of high quality wheat.
For the first time in several years, the government decided to hold the support price of wheat for MY 2004/05 unchanged at last year's rs. 6,300 ($138.5) per ton, in order to keep food subsidy under control and to encourage crop diversification. The sales prices of wheat by the government under various Public Distribution Schemes (PDS) are: rs. 6,100 ($134) per ton for the Above Poverty Line (APL) clientele, rs. 4,150 ($91) for the Below Poverty Line (BPL) clientele, and rs. 2,000 ($44) for the "poorest-of-the poor" clientele.
India's wheat exports in MY 2004/05 are forecast to decline sharply to 2 million tons from 5 million tons in MY 2003/04. On a July/June basis, exports are also forecast at 2 million tons in 2004/05, compared with 4 million tons in 2003/04. Declining government grain stocks forced the government to discontinue the export allocation of wheat in August 2003. The government also raised the sales price of wheat for exports for the January -March 2004 period by rs. 500 ($11) per ton to rs. 6,525 ($143.4) per ton for the 2003 crop and to rs. 6,225 ($136.8) per ton for the 2002 crop.
The government, in its pre-election promises, announced that private trade would be permitted to procure wheat directly for exports and the government would reimburse the "WTO compatible" subsidies, including freight, port handling, and other costs, the press release said. This reimbursement would be subject to documents proving the export of the grain. However, the modalities of this scheme and the amount of reimbursable subsidy were not spelled out, which has lead to confusion. As the national election is scheduled for mid- April, and the parliament remains dissolved, no decisions are likely until a new government takes office sometime in late April or early May.
Nonetheless, if international wheat prices continue to remain high, it is possible that some of the large exporters might procure wheat at or near the support price of rs. 6,300 ($138.5) and export it. Without government subsidies, however, India's presence in the global wheat market would diminish drastically, with only small exports to neighboring countries like Bangladesh and Sri Lanka, likely.
Of the 4 million tons of wheat exported in 2003/04 (July/June), almost 50% were to the South and South East Asian markets, where Indian wheat almost entirely displaced U.S. SRW. Sri Lanka and Bangladesh have now emerged as a regular importer of Indian wheat, and may continue to remain so due to the low price and freight advantage.
Government-held wheat stocks, a major determinant of the government's wheat trade decisions, plummeted to 12.7 million tons on Jan. 1, 2004, from 28.8 million tons a year ago. Stocks are projected at 6.5 million tons on April 1, 2004, the lowest level since 1998.
Despite a likely near-record wheat harvest this year, government wheat procurement is likely to increase only marginally from last year's 15.8 million tons, as most of the increase in production is likely to be in states like Madhya Pradesh and Rajasthan, where government procurement operations are limited, and because the private sector wheat purchases may increase. Estimates of private-held wheat stocks are not available, but such stocks at the end of the marketing year are typically estimated to be about two months worth of consumption. However, this year private stocks are expected to be below normal, as reflected by high open market prices.
The 50% import duty, which took effect on Dec. 1, 1999, combined with India's large build up of stocks, made imports infeasible. India emerged as a competitor for U.S. wheat in South and South East Asia, due to high government export subsidies. The government justifies the subsidies by claiming they are WTO-compatible under Article 9.1 (d) and (e), along with Article 9.4 of the Agreement on Agriculture. Although the situation is changing due to domestic considerations, wheat imports in the near-term appear unlikely.
However, slowing production growth, combined with increasing domestic demand fueled by massive population growth and higher per capita income, might make imports necessary in the long-run. Furthermore, the Indian wheat-based food industry is modernizing. The growing fast-food sector is generating demand for specialty flour for pizzas and burgers, which would necessitate access to varieties of wheat, which India does not produce.
Although the high level committee constituted by the government to formulate long-term grain policy submitted its report last year, the recommendations made in the report have not been fully implemented. Although there was a proposal to involve the Food Corporation of India in exports of grains, this did not find favor with the government.

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