Wheat exports bounce back as war disrupts global supply dynamics
Even though India’s wheat exports were robust in FY22, due to a possible disruption in the supply of food grains – especially wheat – as tensions between Russia and the ‘Ukraine turned into a full-fledged war, export demand received a new impetus.
The stumbling block, however, is the traditional opposition of Western countries in the World Trade Organization (WTO) to India’s wheat exports, as they consider the minimum support price for food grains guaranteed by government as a subsidy that goes against the principles upheld by the World Trade Organization (WTO). WTO.
Both countries involved in the current war are major wheat producers. India produces surplus food grains and new export demand will not put inflationary pressure on their prices in the country.
To put things into perspective, India’s wheat exports from April to December 2021 were pegged at 5.04 million tonnes, compared to 1.06 million tonnes during the same period in 2020, and the levy is expected to increase further in the fourth quarter, based on record food grains. production.
On February 16, 2022, the Ministry of Agriculture announced that India was on track to produce 111.32 million tons of wheat, which is a record in itself. The overall estimate for foodgrains is 316.06 million tonnes, again a record.
In 2021, wheat production stood at 109.24 million tonnes, while overall food grain production was estimated at 303.34 million tonnes.
India is the second largest wheat producer with a share of about 13.53% of the total world production, but most of the production is for domestic consumption.
India, by the way, was the world’s leading exporter of rice. Wheat exports also grew at a compound annual growth rate (CAGR) of 48.56% between 2016 and 2020, reaching $243 million in 2020 from $50 million in 2016, according to data from ITC Trade. Map 2021.
Yet India still accounts for less than 1% of global wheat exports, although its share has fallen from 0.14% in 2016 to 0.54% in 2020.
Today, the disruption of supplies from Russia and Ukraine has opened a window of opportunity for India’s wheat exports to hit a record high.
The exported wheat is entirely transported by private traders. With the opening of this new window, if India sells off its excess stock from government warehouses, it may face opposition from Western nations.
“Under the WTO, if wheat is exported from the stocks purchased under the MSP, it is considered a violation of the public stockholding agreement,” said Devinder Sharma, an expert on the MSP. agricultural issues.
“India can subsidize – Western countries call our MSP purchase a subsidy – only for the nutritional and food security needs of Indians. We can source and store for our consumption, but not export, that’s what they claim,” added Sharma.
Meanwhile, new export demands drove wheat prices to a record high in India. In Indore, Madhya Pradesh, considered one of the benchmark markets for grain, wheat is now selling at Rs 2,400-2,500 per quintal (100 kg), down from Rs 2,000-2,1000 until outbreak of war.
Also in the US market, wheat futures prices have risen by 40-50% in the past month, which in a way is all the more reason for Indian wheat to become attractive.
Demand from exporters is strong, apparently due to rumors that the supply line from Russia and Ukraine could dry up if tensions persist.
Normally, wheat prices remain low during this time of year as freshly harvested rabi crops head to physical markets – the mandis.
The current price of wheat in India is well above the Center’s Minimum Support Price (MSP), which is a rare occurrence. The MSP for wheat for the 2022-23 marketing season has been set at Rs 2,015 per quintal.
When wheat prices exceed the MSP, it essentially means that the Center will have to buy lesser quantities under the price guarantee scheme, because farmers are already getting premiums for their produce from private buyers.
Analysts also believe that boosting wheat exports will also solve the chronic problem of rampant wastage in government-owned storage facilities run by the Food Corporation of India (FCI).
The government dutifully purchases huge quantities of food grains under the Minimum Support Price (MSP) program. But it is no secret that a huge amount of this purchased grain is wasted in government assets because it is not stored properly.
In the absence of proper storage – known in the trade as CAP, or the lid and pedestal method – FCI, which buys grain from all over India, stores acquisitions in open ground under tarps.
Exposed to bad weather, especially storms and sometimes flooding, several of these sites see huge quantities of purchased wheat lost.
Under the open (domestic) market sales regime [OMSS(D)]FCI sells excess Central Pool foodgrain stock on the open market at pre-determined prices, a government official said.
He added, “Prices and quantity of food grains to be unloaded under OMSS (D) are decided by the government taking into account MSP, economic cost, ancillary costs of supply, excess inventory, etc.”
It is not immediately clear how much has been released as part of the central pool on the open market since the war broke out last month.
“But everyone would like to make hay while the sun is shining, so there is definitely a possibility that the government will want to sell its excess stocks,” Sharma said. “And it will evade WTO provisions citing the global emergency and the need to stabilize food prices,” he added.
(With contributions from IANS)
Posted: Sunday, March 13, 2022, 8:06 PM IST