India scraps 1-mt wheat import deal
India on Wednesday scrapped its tender to buy one million tonnes of wheat from the world market. It is hoping to get a better price by waiting for harvests to arrive in Australia, EU and USA in the next few months.
By Nidhi Nath Srinivas, TNN |
NEW DELHI: India on Wednesday scrapped its tender to buy one million tonnes of wheat from the world market. It is hoping to get a better price by waiting for harvests to arrive in Australia, EU and USA in the next few months.
Since India is likely to import close to five million tonnes wheat this year, the difference of even a few dollars adds up to a sizeable amount in the country’s food subsidy bill. That is why the government is keen to ensure that it spends the minimum possible on importing grain.
India can afford to delay its purchase of wheat for a few months because there is plenty of wheat available with the FCI right now. India needs 1 million tonnes every month for its ration shops. As the FCI has procured more than 10 million tonnes from farmers and has carry-forward stocks of 1.5 million tonnes (as on June 1), there is no urgent need for rushed purchase.
But this postponement is not without risk. Global freight rates are rising. So what the government may gain in terms of cheaper wheat, it may lose due to increase in transportation costs.
“By waiting a few months, India will certainly get a much better idea of what will be the crop size in Australia, USA and EU. It is also possible that world prices may cool down. But it is a 50:50 decision. Fundamentals show that prices could rise by the time India makes up its mind,’’ said a technocrat here.
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“Maybe we could have bought 5 lakh tonnes right now and postponed the rest of the purchase. That way the price risk would have been better hedged,’’ he added. Traders say the government may also be waiting for revised phytosanitary norms that would allow cheaper American wheat to compete for India’s custom. But that seems unlikely since negotiations between US officials and the ministry of agriculture are still on. International trading companies are not permitted to offer American wheat in their bids because the grain testing procedures of US customs were not aligned with India’s norms.
After hectic diplomatic and trade moves in the last 18 months, the Union agriculture ministry has been under pressure to amend norms for testing procedures. Once India agrees to the new norms, it may still take more than a couple of months before they can be formally put in place.
The re-entry of US wheat would be a good thing since it would widen India’s shopping area and heighten competition among bidders. In 2007, the US will grow 10% of the world’s total wheat, and sell one out of every four sacks of wheat traded in the world market. That makes it a very large player in the world market and one India cannot afford to eliminate from the listings.
The State Trading Corporation, which had floated the tender on April 30 on behalf of the Food Corporation of India, had accepted offers for 2 lakh t from Glencore and 1 lakh tonnes from Toepher at prices that were lower than their original bid. But the price was still perceived as too high by the food ministry and the tender was scrapped. Unfortunately, this kind of erratic behaviour puts off bidders.
“The bids STC received were anyway priced way above the world market due to the high risk premium associated with doing business with India. Now that the tender is scrapped, bidders which had booked positions on international exchanges will take a hit. Getting back the bid bond money will be another source of tension,’’ said a trader here. India needs 12 million tonnes wheat annually to run its public distribution system for the poor. It is likely to produce 73.7 million tonnes wheat in 2007, against 69.48 million tonnes last year.
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