October 26, 2011


India ups local wheat purchase price



As inflation continues around 9%, India will pay nearly 10% more to local farmers for wheat, Law Minister Salman Khurshid said on Tuesday (Oct 25).


India, the world's second-biggest wheat producer, has raised the price it will pay to buy grain planted from October to INR1,285 (US$26) per 100 kg from INR1,170 (US$24) paid in 2011.


Inflation is currently running above 9% but policymakers are expecting it to ease to 7-8% by March 2012 as the Reserve Bank of India hikes interest rates to curb demand.


"We have to take care of both farmers and consumers. We have to ensure adequate returns to farmers. At the same time, we have to keep inflationary pressures under check," Khurshid said.


The local wheat purchase prices equate to lower than the current global price of around US$280 per tonne on a delivered basis, making exports viable, traders said.


"Indian FOB (free on board) wheat is about US$250 per tonne. For Bangladesh and the Middle East, supplies from Russia or Australia would cost US$280-300 per tonne. The Indian wheat is competitive now," said a trader with a Mumbai-based global firm.


India formally allowed wheat exports in September but few deals were struck while domestic prices outstripped global rates. That situation has now changed.


An Indian firm made the lowest offer at US$274.1 a tonne, including cost, insurance and freight, in a Bangladesh tender for 50,000 tonnes of the grain that opened on October 10.


Global wheat prices have risen 3% to US$6.45-7/5 a bushel in the past 10 days after being weak most of this year.

However, any further supplies from India will add to global stocks. On October 12, the USDA projected a 5.4 million-tonne rise in global wheat supplies for 2011/12 from a year earlier.


India itself aims for a record wheat harvest of 86 million tonnes next year, which could mean more exports from the world's second-biggest consumer after China. It harvested a record 85.93 million tonnes in 2011 against demand of some 76 million tonnes.


On October 1, wheat stocks in government warehouses were 31.4 million tonnes against a target of 11 million tonnes. The government has said private firms can export up to two million tonnes.


India sets a price to buy grains from local farmers to protect them from distressed sales, help build stocks for emergencies and run various welfare programmes.

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