September 5, 2012

 

India emerges as food powerhouse despite poverty and undernourishment

 

 

India is emerging as food powerhouse, exporting millions tonnes of wheat, corn and rice which boost its national coffers, despite widespread rural poverty and undernourishment.

 

Whether it remains in the ranks of major international suppliers, though, depends on fickle weather, upgrades to creaking export facilities and the government's ability to better organise a national food reserve system that is failing to meet domestic needs.

 

In the first half of this year, India exported at least 10 million tonnes of grains and soymeal, helping to cap surging global prices caused by drought in major exporting nations, more than double the volume shipped before New Delhi's lifting of an almost four-year export ban on some foodstuffs a year ago.

 

Countries like South Korea, Indonesia and Thailand are now buying Indian wheat for the first time in nearly a decade, and India looks well-placed to capitalise in the Middle East and North Africa on reduced grain exports from the Black Sea region where dry weather has hit the harvest.

 

Russia's wheat exports may plunge by 60% to 8.5 million tonnes in the marketing year that started July 1, the London-based International Grains Council says.

 

India has a freight advantage of US$10-25/tonne in exporting grains to East Asia and parts of the Middle East. While this advantage has always been there, in the past India either didn't have enough grain to export, sales were banned or quality concerns limited interest in it. But with prices rising, importers are more willing to give it a chance.

 

Commodity traders now expect India to export about 22 million tonnes of wheat, corn, rice and soymeal in the year ahead, which at current prices will translate into a foreign exchange inflow of more than US$10 billion.

 

An example of India's clout came last year. Global rice prices were expected to hit new highs when Thailand, the world's largest exporter, raised prices paid to local farmers by 50%. However, the removal of India's ban on rice exports was a game changer. India is now world's largest rice exporter, surpassing Thailand and Vietnam.

 

"In the rice market, India saved the world from a cardiac arrest," said Tejinder Narang, an advisor at Emmsons International, a New Delhi-based commodity trading company.

 

While global soy output is shrinking, India's soymeal exports, used for animal feed, may rise 10% in 2012-13, said Davish Jain, managing director, Prestige Group, one of India's largest exporters of the product.

 

Indian corn on a delivered basis in eastern Asia costs at least US$30/tonne less than the cheapest grade of Australian wheat due to a relatively weak rupee, low labour costs and tight supply from alternative sellers. Similarly, Indian feed wheat is at least US$70/tonne cheaper than US corn.

 

India was one of the world's largest wheat importers in 2006, but since then it has had a series of bumper crops due to favourable weather, higher yields and more planting.

 

The government buys wheat and rice from growers at above-market prices to boost rural incomes and rations sales at highly subsidised rates to many millions of under-nourished Indians. But rampant corruption has resulted in grain stocks being siphoned off for sale in the domestic open market where prices are more than double the subsidised rates.

 

Both output and inventories have hit record highs, although a lack of warehousing has damaged the quality of grain stored in the open.

 

At the start of August, India's government wheat stockpile was 47.5 million tonnes, more than double mandatory requirements, or equivalent to one-third of annual global trade.

 

However, concerns remain, particularly over policy uncertainties and logistics. Many ports have creaky infrastructure unable to handle large volumes and occasional ship waiting times of more than a month happen.

 

"India hasn't really done much in improving its logistical capabilities for grain exports," said Abdolreza Abbassian a senior economist at the United Nations' Food and Agriculture Organisation.