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Asia grain: India wheat seen too expensive

SINGAPORE: Indian wheat is much too expensive to make inroads into the international market unless the financially-stretched government provides generous subsidies, traders and industry sources say.

"I don't think we'll see many more exports into historic importers other than markets like Nepal and probably Bangladesh," said an industry source.

"Purchasing prices are quite high compared to international prices...and they don't have established quality-assurance infrastructure to maintain a lot of exports over the long period," the source added.

India said on Saturday it had struck its first wheat export deal in four years by signing an accord to sell 50,000 tonnes to Nepal for an undisclosed price. It planned to negotiate more deals with the Middle East, Indonesia and some other countries.

Indian trade officials said last week the Nepal deal was a welcome step to reduce its huge stocks and that India should try to export at low prices even if there was a loss.

As of October 1, the Indian state agencies held wheat stocks of 20.5 million tonnes, nearly the double of a buffer stock norm of 11.6 million tonnes.

However, traders here said India would need to give a discount as large as $50 per tonne, compared with its high domestic wheat prices, if it wanted to compete with the world's major wheat exporters like the United States or the European Union.

"Any expenditure they have to come up with to support domestic farmers and re-export is quite high," said the industry source, adding domestic wheat prices in southern India stood at around $170 per tonne, against world prices of around $120.

Given India's large budget deficits, the government was eager to spend that much money to subsidise exports, they said. It would also risk angering other grain exporters as it has imposed a 50 percent import duty on wheat.

"The reason they stopped imports was to stop strains on currency reserves. It's hard to see at this stage the government subsidising exports," a trader added.

"If the new crop, which comes in in March, is big and starts increasing stocks, then they may have to sell more. But I don't think it's happening," the trader added.

INDIAN GOVERNMENT CONCERNED OVER FINANCES

Earlier this month, Indian Prime Minister Atal Behari Vajpayee expressed concerns over government finances. Analysts say the government will slip on its fiscal deficit target of 4.0 percent of GDP set in the 1999/2000 budget.

Traders also said the duty slapped in December had already stopped wheat imports by flour mills in southern India who had shunned expensive domestic products. This, coupled with the country's huge population, should cut inventories.

"Anything can happen, but it has a huge population," said another trader. "Things should improve because of the duty."

Indian 1999 wheat imports are estimated to stand at around two million tonnes. The Indian government has set a wheat output target of 74 million tonnes for the 1999/2000 year to end-June, up from around 72 million tonnes the previous year.-Reuters