NEW DELHI -- India will likely lift the ban on exports of wheat and common grades of rice as soon as the ongoing federal polls are over, officials said Thursday.
This could be bearish for global prices as India has significant stocks that can be exported at short notice.
A new federal government, expected to be in place by June, has little choice but scrap the ban as state-run granaries are bursting at the seams and lack of storage space for the new crop is becoming an issue.
"International prices will fall if India exports as the whole world knows the country is under compulsion," said G.Chandrasekhar, associate editor of Hindu Businessline and a senior industry analyst. "Allowing exports even in early June is too late. We should have decided before the elections."
Industry officials estimate at least 3 million to 5 million tons of wheat and an equal quantity of rice will have to be exported this year to prevent a domestic glut.
"There is no space left to store the new wheat crop," said a government official who did not want to be identified. "Exports are inevitable."
Harvesting of the wheat crop which began in April is expected to be completed by June. The storage situation is slightly better for rice as the new crop is not expected to hit the market for another six months.
The crunch in storage space is so acute that government officials are considering the use of school grounds and unused airfields to store grain. But that could take a heavy toll on the quality of grain held by the government.
There has been speculation for long that the ban on exports will be lifted, but a decision had been put on hold in view of approaching elections, analysts said.
With a history of governments being voted out on high prices of politically sensitive commodities such as rice and onions, India's government was keen on keeping consumer prices low until voters had made up their mind on who should rule the country for the next five years. Federal polls began Thursday and are due to end May 15.
The government can't delay a decision much further, analysts said.
"They have virtually no alternative, but to export wheat," said Vinod Kapoor, past president of India's Wheat Products Promotion Society. "Some wheat and rice can be distributed under welfare schemes, but (that can be done) only in a limited way."
Industry officials estimate no more than half a million tons of wheat and a similar quantity of rice can be distributed domestically under state-run welfare schemes.
India banned the export of wheat and non-basmati rice in 2007 to control rising prices. Since early 2009, however, inflation has come down and stocks have risen to more comfortable levels.
On April 1, the state-owned Food Corporation of India was holding a stock of about 14 million tons of wheat and 20 million tons of rice.
Under federal rules, the government is required to keep a buffer stock of only 4 million tons of wheat and 12.2 million tons of rice.
"The level of stocks is more of a threat (than a measure of food security) as the quality of the grain may decline and it could become unviable for exports," said Veena Sharma, secretary of the Roller Flour Millers Association of India.
The risk of damage to non-basmati rice, or commonly consumed rice varieties, was also rising as stocks were piling up at state warehouses, Vijay Setia, president of the All India Rice Exporters' Association, said.
Industry officials say high domestic prices combined with deteriorating quality of stored wheat would mean the government may have to provide subsidies to encourage exports.
Global wheat prices are currently around $190 per ton, while prices in India are as high as $220/ton.
"If the government provides a subsidy, it would be able to bring down the pressure of surging stocks," said S Raghuraman, head of research at Agriwatch, a commodity brokerage."On the other hand, if Indian (wheat) enters the global market, it will negatively impact prices."
India has raised the state-set procurement price of wheat to 10,800 rupees ($218)/ton from 10,000 rupees/ton last year and that is prompting more farmers to sell new crop wheat to government agencies.
Meanwhile, removing the export ban on non-basmati rice could hit exports by arch rival Thailand, Mr. Setia said. Common Indian rice is likely to sell at a slightly lower price than Thai varieties, which are quoting around $600 to $900/ton.
He said the government may also lower the minimum floor price of $1,100/ton for export of premium, aromatic basmati rice to $800/ton, to regain market share from competitor Pakistan.
Source : online.wsj.com