Pressure mounts to cut Indian wheat import duty
India’s wheat flour-milling industry urges the government to cut or abolish the 40% wheat import duty as domestic stocks hit a decade-low. Rising temperatures threaten crop yields, fueling price hikes and food inflation. With procurement targets falling short and production uncertainties looming, policymakers may reconsider import policies to stabilize supply and prices.
AMID conflicting concerns around the upcoming wheat harvest, the Indian wheat flour-milling industry has urged the government to cut or abolish the wheat import duty to boost domestic inventories at their lowest in more than a decade, reduce price volatility, and tame rampant food inflation driven by supply uncertainty.
Wheat is critical to India’s burgeoning economy, influencing food security, political stability, farmer livelihoods, and inflation alike. As one of the largest producers and consumers of wheat globally, India’s policy decisions regarding wheat production, pricing, and distribution have far-reaching implications. While global wheat prices have dipped by more than 2 percent since the beginning of the year, Indian wheat prices have soared to near-record highs.
The Roller Flour Millers Federation of India (RFMFI) is seeking a reduction from the current 40pc duty to somewhere in the 5-10pc range, stating it will help flour millers in South India and increase wheat availability across most of the country. India increased the duty on wheat imports from 30pc to 40pc in April 2019, and it has remained at that level since.
Waiting for harvest
According to RFMFI president Navneet Chitlangia, once this year’s harvest is finished and the government procurement program is complete, the balance remaining in the domestic marketplace will be known. At that point, the government should reassess the need for a duty and calibrate it in a way that enables imports if required.
“Even if 2-3 million metric tonne of wheat is imported, then the narrative of India having a low crop size will be ended. It needs to be ended because our industry goes through a very difficult time… That’s why we are asking the government that post-procurement, you should rationalise the 40pc duty on wheat imports” he said.
RFMFI vice president Rohit Khaitan also chipped in, stating that “today Indian production is almost equivalent to the supply. Although there is no scarcity at the moment, there is not sufficient wheat to meet any contingency”. He later added that “this is like walking on a tightrope where a slight wrong step can result in a dire situation.”
Meanwhile, India’s farmers are once again staring at the prospect of a reduced wheat harvest as above-average temperatures threaten the winter crop. Harvest of the early planted fields in central and southern states has already commenced but growers are concerned hot and dry conditions will threaten yields of the later harvested crops.
India experienced its warmest February since records began 125 years ago, and the Indian Meteorological Department is forecasting above-normal maximum and minimum temperatures over most parts of the country for March and April. Consequently, the country’s wheat farmers, particularly in Punjab, Haryana, Uttar Pradesh, and Madhya Pradesh, find themselves vulnerable to yet another weather-induced production setback.
According to IMD, India’s wheat-growing states in the central and northern areas are likely to see a sudden jump in maximum temperatures from the second week of March, with registrations as much as 6 degrees Celsius above the long-term average possible.
A premature rise in temperatures, like that experienced in February, can shrink grain size, reducing both yield and quality. A similar scenario played out in 2022 when an unexpected heatwave destroyed notions of record wheat production, forcing the government to hastily halt exports in May, exacerbating global supply concerns.
If the weather pattern follows a similar trajectory, and production fails to meet the projected 2025-26 demand of 112.5Mt, the government may have little choice but to reconsider its import policies aimed at protecting domestic producers. For the past three years, wheat stocks have fallen as wheat output has struggled to meet increasing demand, despite the New Delhi administration’s lofty production estimates suggesting otherwise.
Prices already climbing
The persistent rise in domestic prices, a reflection of the dwindling stockpiles, indicate that another shortfall could have dire consequences for domestic food inflation. If yields are significantly affected, authorities may be compelled to lower or eliminate the 40pc import tax, allowing private traders to import wheat from overseas markets.
Other winter crops, such as chickpeas and canola, may also suffer under rising temperatures, further straining the domestic food supply and the rural economy. Heat stress can decrease oilseed yields, thereby reducing edible oil production, while reduced chickpea output could drive up prices of a key protein source for a majority of the populace.
Central pool wheat stocks held by the Food Corporation of India as of March 1 were estimated to be 14.4Mt. This is expected to drop to around 10Mt by April 1, which is uncomfortably close to the government-mandated buffer of 7.5Mt, and significantly lower than the 10-year average of 16.7Mt.
At the end of February, the food ministry announced that wheat procurement by government agencies at the upcoming harvest is expected to be 31Mt, down from the 2024 target of 34.2Mt. However, it is 18.7pc higher than the final quantity purchased from growers in 2024 after the program fell well short of the government’s goal at 26.1Mt.
Wheat area up
According to local pundits, the area planted to wheat in India last autumn increased compared to the previous season. Both RFMFI and leading research provider AgPulse are using 32.8 million hectares (Mha) compared to 31.8Mha in 2023. The government is reportedly using an area of 32Mha, 2.2pc higher year on year.
However, final production numbers are on a downward plane as the adverse weather bites into yield expectations. The latest wheat forecast from RFMFI is 110Mt against 106Mt last year, and industry analyst Agriwatch released its first crop estimate last week, landing on a very similar number of 109.9Mt compared to 105.8Mt last year.
Many private forecasters and merchants already have lower expectations, with numbers in the 102-107Mt range quite common. The government, which is always optimistic, recently confirmed its final 2024 production number of 113.3Mt, and a revision to its early season new crop estimate of 115Mt is reportedly imminent.
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Source : Grain Central
