India to raise wheat exports in 2013, pay local farmers more

India raised its 2013 wheat export limit by 500,000 tonnes from a year ago on hopes for a bumper harvest and said it would pay its farmers 5.1 percent more for purchases of the grain, contrary to expectations, due to higher input costs.

India, the world’s second biggest wheat producer, has been exporting the grain since last year from government warehouses that are overflowing after successive bumper harvests, partly encouraged by generous support prices.

India has allowed 2.5 million tonnes of wheat exports for 2013 to cut bulging stocks, the finance minister said on Wednesday, compared with 2 million tonnes in 2012.

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Wheat stocks were at a whopping 37.6 million tonnes on December 1, more than three times a target of 11 million tonnes.

“We have huge stocks. We have three times the buffer stock requirement and therefore we approved the export of additional 25 lakh (2.5 million) tonnes of wheat,” P Chidambaram said.

India, also one of the biggest consumers of wheat with a population of 1.2 billion, raised the price of wheat payable to farmers next year to 1,350 rupees per 100 kg, up from 1,285 rupees this year.

The purchase price, which is equivalent to $245.6 per tonne, is lower than the current export price of between $310-$323 per tonne on a free on board (FOB) basis.

“Indian wheat supplies will remain attractive at least for next 3-4 months,” said a Mumbai-based trader.

India sets a price to buy grains from local farmers to protect them from distressed sales, help maintain stocks for emergencies and run various welfare programmers. The higher price will also protect farmers’ profits at a time when costs of inputs, such as fertilizer and diesel, are rising.

The move to lift prices comes as a surprise as in November the government had said it would keep support prices unchanged given that it was grappling with bulging stocks and wanted to cut its high food subsidy bill.

The government made record wheat purchases early this year and has been exporting since August through tenders by state-run trading companies to cut stocks.

In the latest round of overseas wheat sales by state-run companies, MMTC Ltd received the highest bid at $322.5 per tonne from a global trading firm.

Reuters