NEW DELHI/SINGAPORE India is holding firm to a price of $300 a tonne for its wheat despite falling global prices, setting the scene once again for piles of rotting grain, even though it needs to feed its half-a-billion poor.
Plans by the world's second-largest producer to export record volumes -- around a third those of global leader the United States -- are now under threat after New Delhi stuck to the price for tenders when it met private exporters this week.
Although India is already making a loss at $300, its price is not sufficiently competitive against higher quality Australian and U.S. wheat. Last week, it approved exports of 5 million tonnes direct to private traders, on top of 4.5 million tonnes already approved for tenders by state-run companies.
"The very idea of exporting wheat to liquidate stocks will get defeated, as exports will slow down if the government maintains its stand of not selling below $300 a tonne," said Tejinder Narang, an adviser at leading New Delhi-based exporter Emmsons International.
Last year, pictures in newspapers of rotting grain stocks caused embarrassment to the government.
This year, grain stocks have already surpassed the country's secure storage capacity of 47 million tonnes, risking damage from pests and weather -- and another bumper harvest of some 92 million tonnes is on the way.
Global wheat prices have fallen more than 10 percent since February and now India's product cannot compete with better quality Australian and U.S. grain. Black Sea supplies that arrive from July are already selling cheaper.
Farm Minister Sharad Pawar and Food Minister K.V. Thomas, who have sparred over export policy in the past, now both agree that exports should not fall below prices being offered to domestic biscuit makers and flour mills.
That level of $300 a tonne free on board (FOB) is below the government's cost of about $325 a tonne, taking into account prices to domestic farmers, local levies, transport to warehouses and storage.
The floor price has also been fixed for private exporters who will directly buy the extra 5 million tonnes just offered.
About 3 million tonnes have been sold under a tender mechanism set up to sell 4.5 million tonnes through state-run companies. The highest bids received by state-run firms in their latest wheat export tenders were $301 and $305 a tonne FOB.
Bids around $305 a tonne FOB for Indian wheat are from traders who have already sold on at higher levels and need to cover those deals, said a Singapore-based trader.
Australian wheat, which is of superior quality, is only $10 a tonne more expensive than Indian wheat, down from a gap of $25 to $30 a few months ago, traders said.
And buyers have already started placing orders for Black Sea wheat, offered around $300 a tonne, including cost, insurance and freight, into southeast Asia, versus Indian prices of $315 to $320 a tonne for July shipment.
Private traders such as Cargill, Louis Dreyfus and Glencore (GLEN.L) will not buy at these levels, eyeing harvests to come from the United States and Ukraine.
"The way prices are going, I think the government will have to come up with a solution if it wants to maintain the current level of close to 500,000 tonnes a month of exports," said another Singapore-based trader.
(Additional reporting by Ratnajyoti Dutta in NEW DELHI; Editing by Jo Winterbottom and Clarence Fernandez)
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