World wheat prices soar, India seizes export opportunities

The conflict in Ukraine has raised concerns about supply disruptions from the Black Sea region, which accounts for 30% of global wheat exports. That pushed global wheat prices to a 14-year high this week.

The only major wheat supplier at the moment

India is the only major supplier of wheat globally at the moment, thanks to a large surplus of reserves in the country. The recovery in global prices and the record drop in the Indian rupee against the dollar also make wheat shipments attractive to Indian sellers.

India's warehouses are overflowing with wheat after five record harvests in a row - largely due to favorable weather, the introduction of high-yielding seeds and support for prices set by the state. for growers.

Wheat harvests will again hit a new peak in 2022, with production expected at 111.32 million tonnes from next month, up from 109.59 million the previous year.

Overfilling grain bins forced the Food Corporation of India - a government-backed grain stockpiling agency - to store wheat in makeshift warehouses.

Wheat stocks at government warehouses totaled 28.27 million tons compared with the target of just 13.8 million tons. With another good harvest starting in April, the granaries will be full from May and June.

Why didn't India export much of its surplus wheat before?

The overflowing wheat stocks helped the government weather droughts in 2014 and 2015, and allowed Prime Minister Narendra Modi's government to distribute free grain during the coronavirus containment period.

But economists say such inefficient maintenance of such large amounts of wheat has unnecessarily strained state finances, and monoculture also deprives the soil of nutrients. .

India has struggled to export wheat due to the year-on-year increase in the subsidized or guaranteed prices offered to growers by the government. That increase makes Indian wheat more expensive than world prices, leading to uneconomical selling abroad.

But the rare convergence of factors like multi-year high global wheat prices, record low rupees and surging demand from traders looking to replace Russian and Ukrainian wheat with India's. made Indian wheat so appealing.

Advantages and challenges

Strong demand from Asian customers such as Nepal, Bangladesh, Sri Lanka, Indonesia and the Philippines allows India to supply wheat at lower freight rates. India can also supply wheat to the Middle East with lower shipping costs than many other sellers.

In addition, at the end of the year India was able to dispel concerns about the quality of its wheat as Indian scientists came up with many high-protein varieties suitable for making pasta and pizza dough. .

Indian traders and government officials also cite increasing cargo handling capacity at Indian ports as another help.

However, traders said rising internal freight costs for transporting grain from major wheat-producing states to ports and a potential shortage of railroad cars could hamper exports. export.