Global wheat output this financial year will likely fall 3.5% due to rough weather across Europe, Russia and Morocco, providing succour to India, which is grappling with a glut in the grain and mulling subsidies to ease storage before the rains arrive in June.
Global wheat production may decline to 671 million tonnes in 2012-13 compared with 695 million tonnes a year before, according to the London-based International Grains Council (IGC). Last month, the council had forecast output at 676 million tonnes.
The downward revision comes just as India, the world’s second-largest grain grower, is exploring options to ease storage in choked warehouses and make room for an all-time- high wheat harvest of 90.23 million tonnes in the crop year through June. Though global demand might not pick up exactly in sync with India?s need to offload its stocks, the decline in global output would indeed come handy for an Indian government burdened with an unmanageable level of stocks.
Earlier this month, a panel, headed by Prime Minister’s Economic Advisory Council chairman C Rangarajan, recommended exporting two million tonnes of wheat from the official reserve and offloading of another 13 million tonnes through ration shops and the open market at subsidised rates.
The total subsidy outgo on wheat is estimated at Rs 17,000 crore. An empowered group of ministers (EGoM), headed by finance minister Pranab Mukherjee, is expected to consider the proposal this week.
Global consumption of the grain is expected to fall just 1% to 681 million tonne and stocks at the end of 2012-13 will consequently dip 5.4% to 191 million tonnes, the IGC said.
However, providing a subsidy on wheat exports when the fiscal deficit is galloping and millions go to bed hungry every day will put the government in a tight spot over its efficacy in grain management. Although opposition parties had stalled Parliament proceedings last year over grain storage and wastage, the problem worsened into a crisis this year, forcing the government to consider subsidies to avoid an absolute disaster. Any trimming of the global wheat production forecast in such a juncture augurs well for India, albeit to a limited extent.
Although these forecasts are for the current fiscal, it makes sense for countries to stock grains early to guard against any possible spike later, said a senior government official, who didn’t want to be named. ?It (the downward revision) also impacts global perception about the trade and has potential to influence prices. If you want to buy the grain to meet your domestic demand, buy it now, or else you may have to buy it at higher prices later,? he added.
?The share of global trade taken by Black Sea exporters may not be as high, with smaller crops seen restricting shipments by Russia and Ukraine. Export surpluses are expected to be smaller in the EU and Argentina, but increased production and reduced competition will likely boost sales by the US,? the IGC said.
The government has the capacity to store roughly 63 million tonnes of grains, but official stocks have already exceeded 71 million tonnes and are expected to swell to 75 million tonnes by the end of the month. Worse still, the government has a covered storage capacity of 42-45 million tonnes, and the rest is covered by tarpaulin or is stocked in make-shift arrangements which don’t ensure complete protection against heavy rains.
A third straight year of bumper harvest, a more-than four-year ban on wheat exports by private traders though September 2011 and the lack of a clear road map on the implementation of the proposed Food Security Act have stoked the problem of plenty.
In a tender opened by State Trading Corporation late last week to test waters for potential exports, six companies bid for wheat from India to sell overseas at $150-230 a tonne, freight on board, official sources said. Bangladesh-based Rokeya Flour Mills quoted the lowest, while Netherlands-based Glencore Grains quoted the highest in the tender, they added.
Trade executives said that added to the costs of transportation and warehousing, the government may have to offer a subsidy of around $100 per tonne to blunt massive competition from the Black Sea region.
?The main problem is the food ministry’s pathetic management of grains. It didn’t seek permission to allow wheat exports as late as September last year, with the intention to show the world that it is ready for the Food Security Act, while everybody knew that the Act couldn’t be implemented before 2013 due to the complexities involved in the matter. It didn’t make any efforts to ease stocks from state-run warehouses either. And now that it’s forced to act, it doesn’t have any option but to offload with subsidy,? said a senior trade executive with a multinational trading firm.
The Act, which aims to offer subsidised grains to around two-thirds of the population, is yet to get Parliamentary approval, and several states have raised questions over the number of beneficiaries.
Another government official said had the ministry been proactive in seeking EGoM’s permission to allow exports before the winter harvests last year, it would have been better. ?It doesn’t just make any sense to pile up such huge stocks until now,? he added.
Food ministry officials said Iran is looking for around 3 million tonnes of wheat from the country, which will partly balance out India’s large oil trade deficit as mounting Western sanctions have squeezed scope to make payments in globally-traded currencies. This apart, they are expecting some export demand from gulf countries too. However, no export proposal has been finalised as yet.