India's rise as a major wheat exporter will go into reverse
despite the prospect of a record harvest, with weak prices and a wish to avoid
an international trade row, and internal political disputes, keeping a lid on
Indian farmers are poised for a record wheat harvest this
year of 96.0m tonnes, up some 3.5m tonnes year on year and beating the previous
record of 94.9m tonnes set in 2012, the US Department of Agriculture's New
Delhi bureau said.
While the average yield looks like easing to 3.0 tonnes per
hectare, down 0.2 tonnes per hectare from last year, sowings showed an "unprecedented
increase" of 6% to a record 31.5m acres, boosted by benign weather and rising
government support prices.
The prospect of elections in April has encouraged some states,
such as Rajasthan and Madhya Pradesh, to offer bonuses of 1,500 rupees ($24 per
tonne) on top of the government mandated minimum support price, the bureau said.
However, the bigger harvest will not translate into stronger
exports thanks to the high level of the government's price guarantee, which the
bureau said had risen to the equivalent to $225-250 per tonne.
Getting shot of this wheat on export markets would require
India raising support for wheat exports, for which it currently has a floor
price of $260 a tonne for shipments from state supplies – implying a subsidy
once storage and administration costs are included.
"With international prices expected to remain depressed
during the upcoming marketing year, it will be very difficult for the
government to export wheat with $260-per-tonne floor price," the bureau said.
"Due to the increase in the procurement price for the
upcoming season, the government will have to raise the subsidy significantly
higher to off load any wheat in the export market."
However, India's wheat export regime has already prompted
rival exporters Canada and the US to raise questions at the World Trade
"The increasing implied subsidisation of government wheat
exports is a major concern for the government on meeting its WTO commitments,"
the bureau said, adding this meant that India looked "unlikely to lower the
export floor price below $260 per tonne".
US soft red winter wheat, the type traded in Chicago, the
world's benchmark wheat futures market, was being offered at $266.50 a tonne in
Gulf of Mexico ports at the end of last week.
A lower floor price for exports would also likely provoke
opposition within India, given that domestic users are offered subsidised sales
through the so-called Open Market Sales Scheme at $248-281 per tonne.
'Starting to displace
The USDA bureau forecast India's exports slumping 45% to 3.0m
tonnes in 2014-15, well below the record 8.65m tonnes reached in 2012-13, when
the country eclipsed the likes of Argentina, Kazakhstan and Ukraine as a wheat
A fall in the rupee, improving the competitiveness of Indian shipments, or a jump in world prices would be needed to improve prospects.
India's rise as an exporter since August 2012, when it opened
government stocks to shipments, has been a large concern to rivals, given the
country's huge supplies – it is expected to close this season with some 20m
tonnes in stocks – besides the large level of government subsidies.
Separately, Jaime Nolan Miralles at broker FCStone noted on
Wednesday that "Indian wheat is starting to displace Aussie wheat into the Indonesian
However, the USDA bureau noted some long-term challenges to
India maintaining its growing wheat production, one being "unscientific
irrigation practices and overexploitation of ground water", which is increasing
soil salinity besides reducing moisture reserves.
"The depletion of irrigation water resources is likely to
put pressure on wheat cultivation in north India in the next few years, forcing
farmers to explore less water-intensive crops, like corn, pulses and oilseeds."
The bureau also noted a "growing concern among policy makers
and researchers about the vulnerability of the wheat crop to global warming and
changing climatic conditions.
"According to some local research, a 1-degree Celsius rise
in temperature during the growing season can result in a 3-7%decrease in grain