India's Wheat Farmers Consider Exports As Prices Spike Amid Ukraine War

Russia-Ukraine crisis is leading to spike in global prices of wheat, helping Indian farmers to skip government procurement at MSP.

<div class="paragraphs"><p>Ears of wheat grow in a field during harvest. (Photographer: Andrey Rudakov/Bloomberg)</p></div>
Ears of wheat grow in a field during harvest. (Photographer: Andrey Rudakov/Bloomberg)

India's wheat farmers are considering skipping government procurement at minimum support price and instead selling to exporters, as the staple grain is trading at a premium globally amid the Ukraine war.

The Russia-Ukraine crisis is leading to a spike in global prices of wheat, helping Indian farmers to skip government procurement at minimum support prices and opt for higher rates offered by private players.

"Wheat farmers across Madhya Pradesh, Punjab and other parts have been receiving enquiries since last week from foodgrain exporters," Pushpendra Singh, president at Kisan Shakti Sangh, a farmers’ union, told BloombergQuint over the phone.

Traders are willing to pay up to Rs 2,700 a quintal, including freight charges at Kandla port, Singh said. The government procures wheat at an MSP of Rs 2,015 per quintal.

Since the invasion, wheat futures soared to a record of more than $14 a bushel, and are now trading at close to $11.5 per bushel or about Rs 3,200 a quintal. Prices remained below $8 a bushel last year and stayed below $6 from 2016 to 2020.

"Spot prices of wheat have been above the Rs 3,000 per quintal mark since the first week of March. Prices have risen by more than Rs 300 per quintal," said Rajesh Jain, a private exporter.

According to data from the U.S. Department of Agriculture's official website, Russia and Ukraine together account for 27.6% of the world’s wheat exports. The Russia-Ukraine crisis forced port closure in the Black Sea, choking global supplies. That aided Indian exports of the staple.

By the end of February, we have already exported 6.6 million tonnes of wheat, crossing the historical high of 6.5 million tonnes achieved earlier in 2012-13 fiscal," Sudhanshu Pandey, India's food secretary, said last week. "You can expect roughly about 7 million tonnes plus exports this year."

India is the second largest producer of wheat after China, followed by Russia, according to the United Nations Food and Agricultural Organization. The nation's wheat production, according to government estimates, is expected to reach a new high of 111.32 million tonnes in the 2021-22 crop year compared with 109.59 million tonnes in the previous year.

Indian farmers are also at an advantage because the rabi crop will reach mandis starting this week, while other global producers will have to wait till June-July for the harvest.

As of March 1, 2021, the Food Corporation of India had 24 million tonnes of wheat. The stock, according to World Trade Organization rules, is only meant for domestic consumption and cannot be exported.

The government is expected to procure 44.4 million tonnes of wheat during the forthcoming rabi season of 2022-23, which is marginally higher than 2021-22. Actual procurement is expected to be lower at around 36 MT due to higher exports, according to a commerce ministry official, who spoke on the condition of anonymity as details are not public yet.

The government is seeing a possibility of private players and farmer organisations dealing directly, the official said. That will lower the procurement numbers, the official said.

Emailed queries to the Ministry of Commerce on the expected drop in government procurement remained unanswered.

"More private interest and less government purchase is beneficial for the Centre because it otherwise provides compensation in the form of subsidy to the states for the economic cost of procurement," said DK Srivastava, chief policy advisor at EY. "This is also a better financial deal for the farmer who otherwise has to sell his produce at MSP."

The Pradhan Mantri Garib Kalyan Yojana aimed at providing free food grains also ends this month, further cutting India's food subsidy bill.