July 23, 2010

India's wheat exports to Bangladesh put on hold

India's proposal to sell up to 400,000 tonnes of wheat from federal stocks to Bangladesh is caught in negotiations as the importing country wants the offer price lowered significantly, trade officials said.

The landed cost of the Indian wheat at Bangladeshi ports would be US$370 a tonne, compared with that of US$242 a tonne for Ukraine's Black Sea-origin wheat, said a senior official with the Food Directorate General of Bangladesh.

Earlier this month, the official visited India for negotiations on all aspects of the deal. "We want to import 300,000 tonnes of wheat now. We will request India to lower the price. We may offer a price slightly higher than the Black Sea variety, considering that Indian wheat has more protein content," the official said.

Since 2007, India maintained the wheat export ban and was on a drive to shore up stocks by offering farmers state-fixed prices above the international rates, following one of the worst-ever droughts in 2009. Consequently, the government cornered most of the local supplies and state-run warehouses are now brimming with food stocks. The country is expecting a bumper crop this year, which will add to its storage problems.

The government is expected to review the wheat export ban in September, but analysts say the price negotiations with Bangladesh show that India will likely find it tough to sell, even if the ban is lifted. It allowed state-run Food Corp. of India in May to export up to 400,000 tonnes of wheat to Bangladesh.

Bangladesh says it is keen to buy 300,000 tonnes immediately, so long as India delivers the grain at its ports at competitive prices. Indian officials say they are waiting for a formal purchase price offer from Bangladesh before deciding on supplying the grain.

The Bangladeshi official declined to comment if the deal may be shelved. "All our issues will be communicated to the Indian government through the foreign ministry," he said.

But trade officials here said the deal may fall through because India is unlikely to concede to Bangladesh's price demand. "If Bangladesh is supplied wheat at a lower price on government-to-government basis, Nepal may also ask for wheat at the same price. Then there will be problems," said another trade official.

India also allowed 50,000 tonnes of wheat exports to Nepal in February through diplomatic channels, but the deal is waiting for procedural formalities. The country's price negotiation with Bangladesh comes within days of South Asian neighbour Sri Lanka backing out of buying 20,000 tonnes of common variety rice through diplomatic channels because of procedural delays, adding to the pressure on India's storage.