Local wheat’s cheaper than foreign grain

NEW DELHI: Good quality Indian wheat is still substantially cheaper than foreign grain. Bread and biscuit companies have not contracted foreign wheat yet because local premium Lokvan wheat is about Rs 500/tonne cheaper. So prices in India will have to rise another Rs 300/tonne before it becomes profitable for millers and bakers to look outside the country. That is bad news for consumers seeking respite through imports.

MNC grain companies too have not yet begun aggressively marketing among southern millers because they are aware of this substantial price disparity. “We are not expecting any business to take place before October. By then prices will firm up substantially because consumption will draw down stocks,” said a Delhi-based trader.

The disparity between Indian and foreign wheat is mainly due to the 5% duty levied on it. “For wheat below 10% moisture, there is a $10 differential which cannot be ignored right now,” said an industry watcher.

The biggest problem for millers here is that there are not too many origins from where wheat can land in India competitively and also meet the phytosanitary specifications. Ukrainian wheat, for instance, is not able to meet Indian SPS norms even though it is quite cheap. Russian wheat at $190/tonne meets the SPS norms but contains higher moisture. That creates quality problems for millers. Australian wheat is high quality and meets the norms, but it is expensive.

“Australian wheat quality is more like top quality Lokvan wheat, which also sells at a premium. Millers looking for Lokvan will eventually substitute it with Australian wheat once there is price parity in the South,” said a trader.

Realistically wheat will not arrive in large quantities till India has eaten away its own local crop. Just three months into the marketing year, there is still plenty of wheat in the north to meet its own demand and also supply the South. It is only after October, when wheat supplies in the North start dwindling, that prices in the south will start rising. Imports will begin in earnest then.

India has reduced duty on wheat to encourage more quantities to flow into the country. But consumers are unlikely to see any reduction in their budgets for the next few months.