Canada Markets

The attached chart drawn from USDA data indicates India's wheat production growing from 68.64 million metric tonnes in 2005/06 to an estimated 92.46 mmt in 2013/14, with projections that the crop could reach 100 mmt. India remains the world's second largest producer next to China.

Meanwhile exports of wheat from India have also grown, with USDA reports indicating 89,000 mt exported in 2011/12, which jumped to 6.82 mmt in 2012/13 and is now forecast at 6.5 mmt for 2013/14.

While India's domestic policy is clearly one of self-sufficiency in food production, at issue is the growth in market support paid to producers for wheat, as indicated by the black line, increasing from 6400 Rupees/metric tonne in 2005/06 to 13,500 Rupees/mt in 2013/14, which is equal to approximately $240/mt Canadian in today's trade.

In their recent Wheat Letter, the U.S. Wheat Associates indicates their concern in their article India's Massive Crop Grown from Poor Government Policies. The article states that given recent wheat sales made by Indian traders ranging as high as $283.60/mt, while considering transportation costs of up to $80/mt to move product into export position, India is clearly subsidizing producers while trying to clear out a growing inventory. Reports suggest that the Canadian government is also questioning India's role in international markets.

Criticism is not only coming from the wheat exporters. An editorial in the online Indian Express suggests that India's recent win at the World Trade Organization's Bali Round is a costly one. This agreement favored the developing country's ability to utilize support prices and the government purchase of production as a means of meeting the needs of their growing populations, despite opposition from exporters. The Indian government is suggested to purchase 50% of the wheat production, while overall reserves currently total 80 mmt for all grains, which is said to be double the volume required to meet strategic reserves.

Costs to the system are also suggested to mount as a result of inefficiencies, with past studies indicating that 57% of the production does not meet the target group, with a large part of that volume simply disappearing. A 2005 study indicated there was a 3.65 Rupee cost for every 1 Rupee of benefit to the poor.

With North American traders struggling for their share of the global trade, watch for rhetoric to escalate should the current Indian crop reach the 100 mmt mark as seen in projections.

(ES)

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