April 22, 2011

India raises local wheat purchase price to help farmers

India has raised the price it pays to buy wheat from local farmers by 4.5% to INR11,700 (US$264.2) per tonne, to ensure better returns to farmers, a government statement said on Thursday (Apr 21).

Farmers in India, the world's second-biggest wheat producer, are expected to harvest a record 84.27 million tonnes in 2011, helping mounting stocks swell further. Overflowing grain bins have prompted a review of a four-year-old ban on exports.

On Wednesday (Apr 20), Farm Minister Sharad Pawar said his government should allow grain exports as India was sitting on huge stocks when global prices are high.

Traders said the domestic wheat purchase price was substantially lower than the global price of around US$289 per tonne.

"If we try to look at Indian FoB (free on board) wheat, it is at about US$300 per tonne. Buyers such as Iran and Japan are currently importing US or Canadian wheat at US$360 per tonne. Clearly, we tend to gain from exports," said a trader with a Mumbai-based global firm.

The government buys grains from local farmers to help build stocks for emergencies, to run various welfare programmes and protect farmers from distress sale.

With the advent of harvests in April, farmers in the northern states of Punjab and Haryana, the grain basket of the country, often call on the federal government to raise the purchase price.

India grows only one wheat crop in a year, with sowing in September and October, and harvests from March and April. While the government raises the purchase price to help farmers boost output, the increase often tends to stoke food inflation.

India, Asia's third-largest economy, has been battling higher inflation despite overflowing grain bins. On Thursday (Apr 21), government data showed that India's food price index rose 8.74% in the year to April 9, up from the week earlier.