Price fall partly nullifies benefit of wheat import duty waiver

Since India scrapped 10% import duty on December 8, prices fell by 6% in CBoT and 5-7% locally

Falling wheat prices have partially offset the benefit offered to traders through import duty waiver. The import duty was brought down to nil from 10 per cent, in order to ensure cheaper supplies of the cereal in Indian markets.

Wheat prices have fallen by 6 per cent at the Chicago Board of Trade (CBoT) over the last two weeks since the government of India scrapped 10 per cent import duty on wheat. The near-month cereal contract is currently trading at $4 a bushel (27.2155 kg) from $4.32 a bushel on December 8, the date of duty waiver announcement.

In India, wheat prices have fallen between 5-8 per cent across the country during the period under consideration. As against Rs 1,997.50 a quintal in Rajkot on December 9, the cereal currently trades at Rs 1,965.20 a quintal. Anticipating the government's import duty cut, wheat prices started moderating after hitting the level of Rs 2,071 a quintal about a month ago in the benchmark Rajkot market.

"Import has an edge over domestic supply, especially at the southern coasts. This is because transportation from a north Indian state like Punjab to Andhra Pradesh and Tamil Nadu is more expensive than importing. So, wheat import makes sense to meet supply deficit till rabi harvesting begins this year," said Veena Sharma, Secretary, Roller Flour Millers Federation of India.

With the announcement of the duty waiver, the landed cost came down by about Rs 200 a quintal. Lured by this, flour mills contracted with about 0.5 million tonnes of wheat import largely from Ukraine. The total wheat import contracted and delivered to Indian importers is estimated to be about two million tonnes. Traders estimate a deficit in the cereal of about four million tonnes this year.

However, they estimate an additional 0.5 million tonnes of import, for which flour mills are at various stages of signing contracts with potential overseas suppliers.

Owing to two subsequent years of drought, India's wheat production is estimated at 83 million tonnes by private assayer RML AgTech, which is about four million tonnes shy of demand. The government, however, continues to estimate wheat output at 93.5 million tonnes for 2015-16 as against the country's annual consumption of 87 million tonnes.

"Today, India is at an inflection point on food consumption with the population expected to touch 1.6 billion in the next 10-15 years. This would create a huge demand for food and, with increased economic prosperity, the need for higher value food is going to increase manifold. It is not difficult to deduce that we are far from prepared to meet this demand," said Rajiv Tevtiya, Managing Director, RML AgTech.

Supply deficiency, however, continues to push wheat prices up in the domestic markets. From the level of Rs 1,600 a quintal in the beginning of the last rabi season, wheat prices have surged to trade currently at Rs 2,100-2,150 in northern states. In order to cool down prices, therefore, the government lowered wheat import duty in September to 10 per cent from 25 per cent and again to "nil" early this month.

"During the October-November period, wheat prices went up by 30 per cent. But, increasing import has eased supply tightness resulting in lower prices," said Sharma.

Currently, the landed cost works out to around Rs 100 per quintal cheaper in India. Hence, imported wheat continues to remain cost-effective compared to the cereal supplied by the government.

Gopal Lal Seth Mohata, President of Maharashtra Roller Flour Mills Association, said that flour mills in Maharashtra also import wheat from Ukraine and other supplying countries to blend with Indian wheat for producing processed products including flour, maida to name a few.