November 11, 2014


Wheat-abundant India hikes price support for farmers by 3.5%


India has announced it will raise the price it will pay farmers for wheat harvested in April next year, raising the prospect of further adding to the overflowing wheat stocks stored in government warehouses. Supply has exceeded demand for the past eight years, as farmers are encouraged to plant wheat that the government pays at subsidized prices.


Last October 30, the government announced it will buy new-season wheat at INR1,450  (US$23.60) per 100 kg, a price higher by 3.57% from the previous one.


The World Trade Organization (WTO) has criticized India because of a rising subsidy bill resulting from higher support prices for farmers and large inventories.


In July India blocked a WTO-led global trade reform as it sought more freedom to subsidise and stockpile grains.


India, the world's second-biggest wheat consumer, buys the grain from local farmers at a higher price each year to protect them from distress sales and to cover their emergency needs. It also uses wheat to sell food to the poor at low prices.


Eight years ago, India was importing expensive wheat from Australia, but as its bins started to overflow, helped by support prices that encouraged farmers to grow wheat, the government has been exporting wheat for the past two years now.


As of October 1, wheat stocks at government warehouses stood at 32.3 million tonnes, almost thrice the official target.


A record 95.9 million tonnes of wheat was harvested this year, up from last year's 92.5 million tonnes.


Meanwhie, India's state governments are about to roll out the $19-billion Food Security Act, which will sell cheap rice and wheat to an increased number of 810 million people from the current 318 million.


The Indian government has raised the price it will pay to buy new-season wheat from local farmers by 3.57 per cent to 1,450 rupees ($23.60) per 100 kg, encouraging the crop even though supply has exceeded demand for eight years.


India, the world's second-biggest wheat consumer, sets a price each year to protect domestic farmers from distress sales and to cover emergency needs. It uses the grain to sell food to the poor at low prices.


The government announced this year's increase in a statement Oct. 30.


It also raised the support price for new-season rapeseed, the main winter-sown oilseed, to 3,100 rupees per 100 kg from 3,050 rupees a year earlier.


State governments buy oilseeds only when prices fall below the support rate and can claim reimbursements from the federal government.


Imports account for nearly 60 per cent of India's annual edible oil demand of 18 million to 19 million tonnes, making it the world's biggest buyer.

Storage overflowing


In the grain market, India's bins are overflowing after a sharp rise in the support price in the past decade. The government has allowed exports from its warehouses in the past two years, in a reversal from 2006, when India had to buy expensive Australian wheat.


On Oct. 1, wheat stocks at government warehouses amounted to 32.3 million tonnes, nearly three times the official target.


Indian farmers grow only one wheat crop a year, with planting in October-November and harvesting from April. This year, farmers harvested a record 95.9 million tonnes of wheat, up from 92.5 million the previous year.


Higher support prices for farmers, large inventories and exports have led to a rising subsidy bill and invited criticism at the World Trade Organization (WTO).


Seeking more freedom to subsidize and stockpile grains, India in July blocked a global trade reform at WTO.


While India refuses to yield in the WTO spat, the chairman of EU trade ministers on Oct. 15 said New Delhi has until Oct. 21 to support a global trade deal struck last year or risk being left out of the agreement to ease worldwide customs rules.


Presenting his first budget for the fiscal year to March 2015, Finance Minister Arun Jaitley on July 10 earmarked 1.15 trillion rupees for food subsidies.


State governments are also in the process of rolling out the $19-billion Food Security Act, which promises cheap rice and wheat to 810 million people, expanding current handouts made to 318 million of India's poorest people.

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