India's government, worried that poor monsoon rains will depress the country's grain production, is planning to hold on to supplies for its domestic market instead of boosting exports—something that could push up global prices for wheat and rice.
India is the world's No. 1 rice exporter and has also become a prominent supplier of wheat ever since the government lifted a ban on exports of the two grains in September 2011.
"We don't want to end up importing grains," a senior food ministry official who declined to be named said in an interview with The Wall Street Journal, explaining plans to scale back commodity sales. "We have sufficient grain stockpiles, but naturally there will be an impact because of the weather situation."
To avoid any shortfall, the government has dropped a plan to auction 5 million tons of rice from state stockpiles in the open market, the official said. Instead, the government plans to distribute the grain to the poor through government welfare programs.
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Lackluster Monsoon Rains Trigger Crop Worries in India
Central government officials have also decided to keep on hold a program under which wheat was being sold regularly through state-run trading companies to global bidders, the official said.
India in September approved exports of up to 2 million tons of wheat by June 30. State-run agencies were able to sell 1.5 million tons to global bidders in that time. The government hasn't issued another order for wheat exports because of the uncertain weather, the official said.
"We have not received any orders for reviving wheat sales. We may or may not decide to go ahead [with the program] only after the monsoon season," the food ministry official said.
Since the arrival of monsoon rains over the country's mainland in the first week of June, rainfall has been 43% below average for this time of year, according to data from the India Meteorological Department. India gets 70% of its total annual rainfall during the June-September monsoon season.
About a third of India's grains production is bought by state agencies that maintain buffer stocks, while the rest is bought by private traders.
While government officials said they weren't planning to impose any curbs immediately on exports of rice and wheat by traders, they said the direction of policy will be shaped by the quantity of rainfall and its distribution through the season.
Weak rains have already delayed the planting of the summer rice crop in swaths of major producing states in eastern India, said Trilochan Mohapatra, a director in the state-run Central Rice Research Institute. "The rainfall situation appears to be serious," he said. "If it continues like this, it could affect our production. We are keeping our fingers crossed."
India's rice production could drop below 100 million tons from the 106 million metric tons harvested last year, he said, adding the impact may be less if rains pick up. However, production concerns have increased as the weather office has predicted an El Niño effect—a weather event associated with below normal rains—late in the monsoon season.
"The disappointing progress of the monsoon is a major worry," said Darren Cooper, senior economist with the London-based International Grains Council. "If monsoon rains don't improve substantially, then we are probably going to lower our forecast for India's rice exports."
The council had forecast that India would export 9.7 million tons of rice this year, while No. 2 exporter Thailand would ship out 9.2 million tons.
"If a problem with this year's kharif [summer] crop becomes increasingly apparent, then I would expect the pace of India's exports to slow quite considerably and the domestic market would then become the priority," Mr. Cooper said.
Indian 5% broken rice grades are currently quoting around $430 per ton, compared with $415 per ton for comparable Thai varieties.
The effect of a poor monsoon on wheat production won't become apparent until later, since winter is the main sowing period for the crop. Wheat is less dependent on rainfall than rice, as the main cultivation areas are in the northwestern region, which have an extensive network of canals and dams for irrigation.
Source:- online.wsj.com
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