NEW DELHI (Commoditiescontrol) – India’s wheat imports will increase sharply if import duty is removed or slashed as prices of wheat are languishing near 10-year low in the international market while domestic market is ruling nearly all time high.
The country has already imported nearly six lakh tonnes of wheat so far in 2016 as the traders find it cheaper even after paying 25 percent import duty on wheat. Flour millers have been demanding for withdrawal of import duty so that they would buy cheaper wheat from Ukraine, Russia, France and Australia. Several bulk buyers have already signed contracts with foreign suppliers and they are waiting for government decision as The Union Food Ministry has proposed a cut in import duty on wheat.
According to sources, The Food Ministry considers that it should be slashed to 15 percent so that supply of wheat should increase as the stock positing of grain with Food Corporation of India is falling constantly.
Wheat production in the country has declined in the last two years well below the peak of 2014-15, reducing stocks to the lowest level in nearly a decade and pushing domestic prices close to all time highs. Though, prices of wheat have been by and large steady in recent past but traders are anticipating an upward movement in near term on ensuing festive demand.
Wheat stocks with FCI were 326.38 lakh tonnes in June, 2016 which reduced to 301.81 lakh tonnes in July and 268.79 lakh tonnes in August and present stock position is at 242.45 lakh tonnes, according to the data available at FCI website. This shows that stocks of wheat in FCI warehouses have fallen sharply after the agency started selling grain through Open Market Sales Scheme (OMSS).
As of now, the FCI has liquidated 20,25,800 tonnes of wheat through OMSS while sale of wheat under dedicated movement has been at 45,050 tonnes. Total sale of wheat to bulk consumers and state governments has been recorded at 19,80,750 tonnes.
Offtake of wheat under Public Distribution System (PDS) during the early four months of the financial year 2016-17( Upto July 2016 ) from central pool against the annual allotment of 2016-17 was at 79,10,542 tonnes, hence, average monthly requirement of wheat for PDS is estimated around 20 lakh tonnes.
As per the stocking norms, the balance stocks of wheat should be at 205.2 lakh tonnes with the state-owned agency. Hence, present stock position is higher than the FCI stocking norms and that is the reason Union Agriculture Minister has reiterated that there is sufficient stock of wheat to meet domestic demand.
The Agriculture Ministry has also said that improved monsoon rains in 2016 after two years of drought may increase the production of wheat during the 2016-17 crop year.
However, the FCI has to maintain a buffer stock for the Public Distribution System and other welfare schemes.
Quantity of wheat put for e-auction in Madhya Pradesh began with 1,00,000 tonnes which was reduced to 50,000 tonnes and further 40,000 tonnes to 25,000 tonnes.
.png) FCI could procure only 229 lakh tonnes of wheat this year as market rates were higher than Minimum Sport Prices (MSP) fixed by the government at Rs. 1,525/100kg for wheat.
(Wheat Production data, Sources : Union Agriculture Ministry)
While target for wheat procurement was over 300 lakh tonnes for current RMS against 280 lakh tonnes procured last year (RMS-2015-16) for central pool.
India imported a decent quantity of wheat nearly five lakh tonnes last year 2015-16 due to lower crop in the country as untimely rainfall during harvesting season damaged the quality of the crop which gave reason to the domestic millers to carry out buying in overseas market.
To check wheat import, the government had to impose 10 percent import duty on wheat in August 2015 for the first time since 2006. This was revised on October 19, 2015 and import duty on wheat was raised to 25 percent to restrict overseas buying in the wake of falling wheat prices in the international market and motivate domestic buyers to source their requirement from Food Corporation of India (FCI).
Again, the Central Board of Excise and Customs (CBEC) in a notification dated March 28, extended 25 percent import duty on wheat from March 31 to June 30, 2016.
On June 17, the government further decided to extend 25 percent import duty on wheat to curb inward shipment as domestic production is comparatively better than last year.
Wheat production has been projected at 935 lakh tonnes in 2015-16, higher than the previous year’s 889.4 lakh tonnes, according to fourth advance estimates released by the agriculture ministry on August 2, 2016.
International Grain Council (IGC) has estimated wheat production in India at 865 lakh tonnes in 2015-16 in its latest reports, however, it has projected supply in the year at 1043 lakh tonnes with opening stocks of 172 lakh tonnes against consumption demand of 889 lakh tonnes of wheat in the country during the year.
IGC has predicted wheat production for the crop year 2016-17 at 900 lakh tonnes in India while total supply of wheat has been estimated at 1055 lakh tonnes with opening stocks of 145 lakh tonnes against increased consumption demand at 924 lakh tonnes.
Three years’ Balance Sheet For Demand and Supply of Wheat In India:
| Particulars |
2014-15 |
2015-16 |
2016-17 |
| Acreage |
304.73 |
314.7 |
302.2 |
| Production |
958.5 |
865.3 |
900 |
| Opening stocks |
178.3 |
172 |
145.4 |
| Imports |
0.51 |
5.2 |
20 |
| Total Supply |
1137.31 |
1042.5 |
1065.4 |
| Consumption |
931.22 |
887.4 |
951.4 |
| Ending stocks |
172 |
145.4 |
110 |
(Acreage is In Lakh Hectare; Production, Opening Stocks, Imports, Supply, Consumption and Ending Stocks In Lakh Tonnes, Source: USDA).
Analyzing the above demand and supply figures estimated by International Grain Council and USDA as well, we find that the supply is higher than consumption demand and there is no problem of scarcity of stocks of wheat in the country as it is seen in the case of pulses.
Millers are demanding for withdrawal of import duty on wheat because wheat prices are significantly low in global market and they want to source it from overseas.
Ukrainian wheat costs $190 a tonne FOB presently at Indian port. At approximately Rs. 67 a dollar conversion rate it stands Rs. 12,730 a tonne in Indian currency. With Rs. 3,182 import duty at this rate and Rs. 1,200 port expenses wheat costs at Rs. 17,112 a tonne while the trader sells at Rs. 17,800/100kg or Rs. 1,780/100kg presently.
Similarly, Australian wheat costs $231 a tonne FOB presently at Indian port. At approximately Rs. 67 a dollar conversion rate it stands Rs. 15,477 a tonne in Indian currency. With Rs. 3,870 import duty at this rate and Rs. 1,200 port expenses wheat costs at Rs. 20,547 a tonne while the trader sells at Rs. 22,0 00/100kg or Rs. 2,200/100kg presently.
Since, a bumper crop is reported in Australia this year, obviously, prices will come down after fresh arrivals. At expected prices (FOB) at $ 210 in December it will cost at Rs. 14070 in Indian currency and with import duty of 3518 it will stand at Rs. 18788. Hence traders will sell it around 1,900-2,000/100kg in the domestic market.
At this rate, importers will also prefer to import wheat at Kandla port in Gujarat and Mumbai. But market observers are of the opinion that higher imports will discourage farmers to grow wheat in upcoming rabi season.
"If import duty is withdrawn, wheat prices will come down sharply in the domestic market with higher volume of imports as global prices are very low and it will impact farmers as market rates of wheat will be much lower than MSP in next rabi marketing season, contrary to rabi marketing season 2015-16, and the government agencies will have to procure wheat more than their capacity,” said Satyadev, a market expert who deals in wheat at Kota market.
Mill quality wheat is currently ruling at Rs. 1,670-1,700/100kg in agriculture market (primary market) of Madhya Pradesh and Rs. 1,660-1,675/100kg in Rajasthan. Prices declined nearly Rs. 25-40/100kg this month due to weak demand from flour mills, according to trade source.
In coming days arrivals may increase from farmers’ sources, hence, there is possibility of further pressure; however, it will hardly impact prices as demand is expected to remain firm, according to majority of the traders in Madhya Pradesh and Rajasthan.
On the other side, some traders have to say that farmers have already liquidated most of their wheat produce this year as prices remained more of less firm even during peak arrivals season. Only 15 percent of the total production would be at the hands of farmers and same quantity is expected with traders. It should be noted that new wheat crop will arrive in the market after six months.
Most of the bulk buyers’ requirement is presently fulfilled by the Food Corporation of India’s open market sales but they will proceed for imports as import duty is removed or slashed, said a trader.
Hence, prices of wheat are expected to remain firm in near term, according to traders.
Meanwhile, unfavourable weather condition in Australia is likely to hit quality of the grain in upcoming harvest season.
The La Nina - which brings cooler, wetter weather for much of Australia's key wheat growing region on the east coast - had in 2010 decimated the region's crop and downgraded the quality of the grain to animal feed.
As of now, Australia, the world's fourth-largest exporter of wheat, is expected to harvest its second-largest crop on record during the 2016-17 season after near-perfect conditions across much of the country, the country's chief commodity forecaster confirmed this week.
(By Commoditiescontrol Bureau; +91-22-40015533)
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