India Ministry Proposes Wheat Exports

By RAJESH ROY And BIMAN MUKHERJI
WALL STREET JOURNAL
NEW DELHI -- India's food ministry has proposed exporting up to 2 million metric tons of wheat from government stocks at a minimum price of $228 a ton, an amount that would do little to reduce its overflowing stocks.

However, it would look to offload far larger volumes through domestic sales, government officials said.

Although the proposed amount is small, traders are watching whether the government will proceed to export it at below cost. If it does export at $228/ton, free on board, it could force other global suppliers to reduce their prices. India is a key global wheat producer and therefore its prices influence those of other producers. International prices are currently quoted around $250/ton, free on board.

The overflowing stocks are mainly causing storage problems as government warehouses have run out of space. Their storage capacity is 63 million tons against the government's procurement this year of 83 million tons. Unless they are able to reduce wheat and rice stockpiles soon, large portions stored in the open could be washed away by monsoon rains, causing a significant financial loss.

"Our first preference is to supply more foodgrains to people in the country. But as stocks are huge, we're also considering exports of some quantity," said Food Minister K.V. Thomas.

If the proposal goes through, India would probably only be able to export 100,000 tons of the 83 million tons in government warehouses, which would serve little to reduce its huge stockpile. Glencore, GLEN.LN -3.65% the highest bidder in the first export tender issued last month, had offered to export around the same amount around $230/ton.

The government will have to bear a subsidy of 15.56 billion rupees ($279.3 million) for wheat exports from federal stocks, the officials said.

India's warehouses are overflowing as a result of bumper crops over the past three years, with stockpiles exceeding storage capacity by around 20 million tons, leaving much of the excess supply in the open, where it's vulnerable to spoilage.

A draft proposal on exports has been sent to the trade and agriculture ministries as well as other ministries for input, they said.

The proposal may be sent to the federal cabinet in a week after the ministries' feedback is received.

The decision to sell mainly in the domestic market also follows disappointing bids in the first export tender last month, which was issued by State Trading Corp. Six companies submitted bids of $150-$230/ton to export wheat from government stocks.

The government's cost to procure wheat from the last harvest is above $300/ton, while international prices are around $250/ton. Since the government would have to bear a loss with the cost of its purchase higher than the export price, it would effectively be offering a subsidy on exports.

The government plans to allocate an additional 10 million tons of foodgrains to subsidized sales to state welfare programs and another 3 million tons to the open market, the officials said.