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India raises local wheat purchase price, exports viable

posted Nov 1, 2011, 5:10 AM by Puneet Goyal

A labourer sifts wheat crop in a field on the outskirts of Ahmedabad 
March 5, 2010.
Credit: Reuters/Amit Dave/Files
By Mayank Bhardwaj
NEW DELHI | Tue Oct 25, 2011 6:07pm IST

(Reuters) - India will pay nearly 10 percent more to local farmers for buying wheat in 2012 over this year, Law Minister Salman Khurshid said on Tuesday, to ensure better returns to growers as inflation continues around nine percent.

India, the world's second-biggest wheat producer, has raised the price it will pay to buy grain planted from October to 1,285 rupees per 100 kilogrammes (about $258 per tonne) from 1,170 rupees (about $235 per tonne) paid in 2011.

Inflation is currently running above 9 percent but policymakers are expecting it to ease to 7-8 percent by March 2012 as the Reserve Bank of India hikes interest rates to curb demand.

"We have to take care of both farmers and consumers. We have to ensure adequate returns to farmers. At the same time, we have to keep inflationary pressures under check," Khurshid said.

The local wheat purchase prices equate to lower than the current global price of around $280 per tonne on a delivered basis, making exports viable, traders said.

"Indian FOB (free on board) wheat is about $250 per tonne. For Bangladesh and the Middle East, supplies from Russia or Australia would cost $280-$300 per tonne. The Indian wheat is competitive now," said a trader with a Mumbai-based global firm.

India formally allowed wheat exports in September but few deals were struck while domestic prices outstripped global rates. That situation has now changed.

An Indian firm made the lowest offer at $274.1 a tonne, including cost, insurance and freight, in a Bangladesh tender for 50,000 tonnes of the grain that opened on Oct. 10.

Global wheat prices have risen 3 percent to $6.45-7/5 a bushel in the past 10 days after being weak most of this year. Reuters analyst Wang Tao is still looking at a bullish target at $6.55-3/4 for CBOT December wheat.

But any further supplies from India will add to global stocks. On Oct. 12, the U.S. Department of Agriculture (USDA) projected a 5.4 million tonne rise in global wheat supplies for 2011/12 from a year earlier.

India itself aims for a record wheat harvest of 86 million tonnes next year, which could mean more exports from the world's second-biggest consumer after China. It harvested a record 85.93 million tonnes in 2011 against demand of some 76 million tonnes.

On Oct. 1, wheat stocks in government warehouses were 31.4 million tonnes against a target of 11 million tonnes. The government has said private firms can export up to 2 million tonnes.

India sets a price to buy grains from local farmers to protect them from distressed sales, help build stocks for emergencies and run various welfare programmes.
($1 = 49.825 Rupees)
(Writing by Ratnajyoti Dutta; Editing by Jo Winterbottom)