Easing wheat prices and the surge in rice demand
Published on: November 14, 2023.
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Wheat and Rice Prices Move in Opposite Directions in Global Market
Prices of wheat and rice have experienced contrasting trends in the global market, with wheat prices crashing and rice prices soaring. Wheat prices at the Chicago Board of Trade futures exchange reached a record high of $13.64 per bushel ($501 per tonne) in March 2022, shortly after Russia invaded Ukraine. Meanwhile, rice prices have more than doubled, with the UN Food and Agriculture Organization’s Food Price Index (FPI) touching a record 159.7 points in March 2022.
Decline in Wheat Prices
The price of wheat has since declined significantly, falling to $5.75 per bushel ($211.4 per tonne). The FPI has also decreased to 120.6 points in October 2023. The decline in prices has been particularly noticeable for cereals and vegetable oils, as shown in the chart below.
Current Situation in Wheat
Currently, Russia is exporting wheat at $227 per tonne free-on-board, excluding ocean freight and insurance charges. When factoring in these additional costs, the price at Indian ports would be approximately $265-270 per tonne or Rs 2,200-2,250 per quintal. This price is just below the minimum support price of Rs 2,275/quintal set by the Indian government for the 2023-24 wheat crop.
When considering port handling-cum-bagging and internal transport charges, imported Russian wheat would cost Rs 2,500-2,600/quintal at flour mills in South India. This makes imports more feasible compared to a year ago. Table 1 illustrates the decline in export prices of wheat from various origins since March 2022.
The US Department of Agriculture (USDA) has projected that wheat shipments from the country will reach a record 50 million tonnes (mt) in 2023-24, up from 47.5 mt in the previous year. Higher exports from the European Union, Canada, and Kazakhstan are expected to compensate for reduced quantities from Ukraine over the same period.
“Wheat availability has improved overall. International prices have eased, and the Indian government has effectively managed its own stocks,” said S Pramod Kumar, president of the Roller Flour Millers Federation of India.
As of November 1, 2023, wheat stocks in Indian government godowns stood at 21.88 mt, slightly higher than the previous year’s 21.05 mt but significantly lower than the 41.98 mt recorded on the same date in 2021. The government has been supplying 10 kg of free or heavily subsidized rice or wheat per person per month through the public distribution system (PDS) since April 2020. However, with stocks depleting, the quota for PDS beneficiaries was reduced to the original 5 kg per person per month starting this year.
The government currently channels 1.2-1.3 mt of wheat per month through the PDS and has begun selling from the Food Corporation of India’s (FCI) stocks in the open market to cool prices. These sales, with a minimum auction reserve price of Rs 2,125/quintal, have increased from 0.2 mt to 0.3 mt per week since November 2023. Kumar stated that even with the possibility of increasing open market sales to 0.5 mt per week from January 2024 and maintaining PDS supplies at 1.2-1.3 mt per month, FCI warehouses would have 7-7.5 mt of wheat stocks by April 1. This is close to the required minimum buffer of 7.46 mt, and the new crop is expected to arrive in the market by that time.
Tight Situation in Rice
Unlike wheat, India’s status as the world’s top rice exporter means the country has limited flexibility for rice imports. India’s share in the global rice trade has ranged from 36.6% to 40.7% in the past three years, making it the largest exporter. As a result, India does not import rice.
In contrast to wheat, global rice export prices are higher than they were a year ago or in March 2022. This is due to export restrictions imposed by the Indian government. Since July 2023, India has banned exports of all white non-basmati rice and has implemented a minimum export price (MEP) of $950/tonne and a 20% duty on basmati and parboiled non-basmati rice shipments.
India’s export curbs in rice have benefited Pakistan, whose rice exports are expected to reach 5 mt this year, up from 3.6 mt in 2022-23. However, the Pakistan government has also set floor prices below which rice cannot be exported. These MEPs range from $450/tonne for 100% broken rice to $900/tonne for white, parboiled, and steamed basmati rice to ensure stable domestic supply.
Implications for Inflation
In India, cereal inflation averaged 10.65% year-on-year in October, surpassing the general retail inflation of 4.87% and the 6.61% increase in consumer food prices for the same month. Both rice and wheat inflation are primarily influenced by domestic production levels. While the availability of cheap wheat imports has made imports economically viable, political concerns may prevent the Indian government from allowing imports ahead of upcoming national elections.
By contrast, India heavily relies on imports to meet approximately 60% of its edible oil consumption. In the most recent marketing year, vegetable oil imports reached an unprecedented 16.71 mt. However, global price collapses due to normalizing supplies from Indonesia and Russia-Ukraine led to a decrease in imports from $19.60 billion in 2021-22 to $16.65 billion in the 2022-23 oil year. Consequently, retail edible oil inflation was -13.73% in October.
The course of cereal inflation in India will largely depend on the size of the crops harvested by Indian farmers.
Source: Indian Express
