Production:

Assuming normal weather conditions, Post forecasts MY 2015/16 wheat production at 94 MMT, marginally lower than last year's record production due to less acreage. Although the Ministry of Agriculture's preliminary estimate pegged 2015 wheat production at a near record 95.8 MMT, trade sources estimate production between 92 to 95 MMT. Due to expectations of higher prices on strong consumer demand, Post estimates MY 2015/16 durum production to increase to 1.2 MMT, 200,000 tons more than last year.

Wheat grown in central and western India typically has higher protein and gluten in comparison to northern India (Indian wheat is similar to U.S. hard white wheat). Planting commenced on schedule (October to December) under ideal soil moisture and temperature conditions. Since December 2014, widespread and well distributed rains and relatively low temperatures provided optimal conditions for crop growth and early tillage. There have been no reports of any pest or disease outbreaks in major growing areas. Acreage is marginally lower due to poor monsoon rainfall (which affected some unirrigated areas in Uttar Pradesh, Rajasthan, and Gujarat) and less states offering additional bonuses to farmers (which increases profit margins).

Wheat yields across major growing states show large variations due to soil health, irrigation availability, and technology. For example, wheat yields in irrigated areas of northern India (Punjab, Haryana, and Western Uttar Pradesh) are above 4.5 tons per hectare, while yields in central and western states (Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, and Bihar) are relatively lower (2.4-2.8 tons per hectare).

India generally produces approximately 1.0 to 1.2 MMT of durum (mostly in the states of Madhya Pradesh, Rajasthan and Maharashtra). Most durum wheat is purchased by the private trade at premium pricing for higher value bakery and confectionary products. In the last ten years, more farmers have shifted to higher yielding non-durum varieties due to stronger profit margins.

Due to annual government minimum support price (MSP) increases and favorable weather, India's wheat production has remained strong since MY 2011/12. However, market sources report that irrigated wheat area with dependable water supplies may decline due to interest from urban developers and other non-agricultural businesses. Moreover, in northern India soil salinity issues (due to the over-exploitation of ground water and flood irrigation) and a declining water table may cause farmers to switch to less water intensive crops like corn, pulses and oilseeds.

Most commonly sown wheat varieties are showing signs of fatigue (the seed replacement rate is around 20 percent). The Indian Council of Agricultural Research (ICAR), India's apex agriculture research agency, and various state agricultural universities (SAUs) are involved in developing new wheat varieties with higher yield potential and better grain qualities, largely through traditional breeding methods. Given that seed production and marketing are administered by public sector institutions, the new wheat varieties have been slow to make sufficient inroads due to inadequate seed multiplication, distribution, and extension facilities. Although Indian researchers acknowledge that biotechnology can be a valuable tool for meeting India's growing food security needs, biotechnology applications for wheat are limited to experimental marker-assisted breeding in order to develop resistance to biotic and abiotic stresses.

Vulnerability of the wheat crop to changing climatic conditions, particularly the 'earlier-than-normal' rise in temperatures at the grain filling stage (March/April) continues to remain a concern among policy makers and researchers. Of the 30-31 million hectares under wheat cultivation, researchers estimate that about 10 million hectares are prone to terminal heat stress. According to some local research, a one-degree Celsius rise in temperature during the growing season can result in a 3-to-7 percent decrease in grain yields. ICAR and other SAUs are developing appropriate response mechanisms (like early planting) and technologies (like short duration varieties) to mitigate potential climate risks.

Ug99, a wheat rust, may be a concern in the near future. Although agricultural scientists assert that the agro-climatic conditions in northern India's wheat belt are not conducive to Ug99, other reports suggest that 75 percent of India's total wheat acreage is susceptible to the disease. Consequently, ICAR and the SAUs continuously survey and monitor the wheat crop, and newly developed varieties, for various rusts, including Ug99. The GOI has encouraged replacing susceptible varieties with Ug99-resistant varieties.

Consumption:

MY 2014/15 and 2015/16 total consumption levels are forecast marginally higher at 93.7 and 94.5 MMT due to a growing population. However, per capita consumption is easing due an expanding middle class that is diversifying its consumption patterns by buying higher value items like fruits, dairy products, meat, and processed foods. The government is likely to continue selling wheat at subsidized prices through the public distribution system (PDS) and to local millers through the Open Market Sales Scheme (OMSS). Wheat use for feed consumption and residual is forecast at 4.5 MMT on steady demand from the dairy sector.

Wheat is the staple food for most Indians consumed in the form of homemade chapattis or rotis (unleavened flat bread) using custom milled atta (whole wheat flour). Some wheat is also used for various wheat-based processed products like raised breads, "biscuits" (cookies) and other bakery items. Typically, whole wheat is distributed through the open market and public distribution system (PDS) to be subsequently custom milled by the household for home use. A lot of wheat retained by farmers (40 to 45 percent) is also custom milled, mostly in the chakkies (small flour mills) for home consumption; however, small quantities are also milled for feed use (mainly for lactating cows and buffaloes). Some wheat is procured by organized mills for the hotels, restaurants, and institutional (HRI) sector, and a small share is distributed as branded and packaged wheat flour and atta, which is slowly gaining market share in urban areas due to convenience.

There is very limited use of wheat by the organized feed sector. Most commercial feed caters to poultry and aquaculture farms, which largely uses corn, oil meals, and other coarse grains including small quantities of spoiled/inferior quality wheat. With the average dairy herd size estimated around 2 to 3 animals per farm, feed use is typically restricted to lactating animals, and includes some oil cakes, household food waste, and other grain mixes. Some open market and government-held wheat (mostly spoiled or of inferior quality) is also used for animal feed. Market sources believe that because government held stocks are poorly managed, more government-held wheat will be diverted to animal feed when government stocks are high due to high spoilage. In MY 2014/15, expectations of lower wheat stocks may cause less wheat leakage in comparison to the previous year.

The organized milling sector is relatively small with about 1,000 medium to large flourmills in India (aggregate milling capacity of 24 to 25 MMT), which mill mostly maida (flour) and semolina to cater to HRI sector demand, and produce bran flakes for the mixed feed industry. However, the mills operate at approximately half capacity, and process about 12 MMT of wheat per year.

Government Procurement and Supplies for Food Programs

In MY 2013/14 and MY 2014/15, government wheat procurement was low due to relatively strong open market prices. MY 2015/16 wheat procurement is expected to ease to 24.2 MMT due to less government incentives and more competitive pricing from other sources. A GOI advisory to the state governments discouraged offering additional bonuses to farmers (which increases profit margins), which in the last few years helped states such as Madhya Pradesh and Rajasthan (which offered an additional bonus of INR 1,000 to 1,500 per ton) incentivize farmers to sell wheat to the government procurement system.

The government's current roofed storage capacity, including leased space, is estimated at around 57 MMT, while remaining stocks (16 MMT) are under tarpaulin cover and plinth (CAP) structures. Because of lower stock levels, the GOI is likely more able to manage its stocks and prevent losses caused by rain, temperature fluctuations, rodent/pests, and pilferage.

Government Wheat Procurement and PDS Operation

Marketing Year

Production

GOI Procurement /1

MSP

GOI Total Cost

Offtake from GOI Stocks

PDS Issue Price

Food Subsidy

(Apr–

Mar)

(Million

Tons)

(Million

Tons)

Rs.

per ton

Rs.

Per ton

(Millio

n Tons)

Rs. per ton

Rs.

Billion

APL

BPL

AAY/NFSA

2005/06

68.64

14.79 (21.6)

6,400

10419

16.71

6,100

4,150

2,000

230.80

2006/07

69.35

9.23 (13.3)

7,000

11,778

11.88

6,100

4,150

2,000

240.10

2007/08

75.81

11.13 (14.6)

8,500

13,118

12.25

6,100

4,150

2,000

312.60

2008/09

78.57

22.69 (28.9)

10,000

13,806

14.89

6,100

4,150

2,000

437.50

2009/10

80.68

25.38 (31.5)

10,800

14,246

22.38

6,100

4,150

2,000

584.43

2010/11

80.80

22.51 (27.8)

11,000

14,944

23.03

6,100

4,150

2,000

638.44

2011/12

86.87

28.34 (32.6)

11,700

15,953

24.27

6,100

4,150

2,000

728.23

2012/13

94.88

37.92(40.0)

12,850

17,526

33.23

6,100

4,150

2,000

850.00

2013/14

93.51

25.09(26.8)

13,500

19,083

30.61

6,100

4,150

2,000

920.003

2014/15

95.80

28.02(29.2)

14,000

20,476

26.202

6,100

4,150

2,000

1150.003

2015/16 /2

94.00

24.20(25.7)

14,500

Na

Na

6,100

4,150

2,000

Na

Sources: Ministry of Agriculture, Food Corporation of India, and GOI Budget

Notes: Exchange rate INR 62.10 = US$ 1 on February 10, 2015

/1 Figure in parentheses is GOI procurement as percentage of total production

/2 FAS/New Delhi estimate

/3 GOI budget estimate, actual expected to be higher

PDS - Public Distribution System

APL - Above Poverty Line

BPL - Below Poverty Line

AAY -Antyodaya Anna Yojana (Poorest of the Poor)

NFSA-National Food Security Act

In the last ten years, cost of wheat procured under the MSP program has nearly doubled due to steady increases in procurement price (MSP) and high food grain stocks.. Since 2002 the GOI has not revised the wheat sales price under the various PDS programs. Consequently, the GOI's food subsidy spending has ballooned in the recent years.

On September 12, 2013, India enacted the National Food Security Act (NFSA) 2013 that creates an entitlement for eligible beneficiaries (50% and 75% of the urban and rural populations) to receive 5 kilograms of rice, wheat, or coarse grain (millet) at subsidized prices of INR 3, 2 and 1 per kilogram, respectively, or at least for the first three years after enactment. This equates to about two thirds of India's population, or roughly 820 million people. The commitment includes supplying about 61.4 MMT of food grain annually. While the government initially hoped to implement NFSA by end of March 2015, no states have completed the process. Market sources report that the government is likely to extend the deadline for state governments to implement the Act by the end of September 2015.

In MY 2014/15, domestic wheat prices have fluctuated in a narrow range on sufficient domestic supplies and relatively weak international prices. Spot prices in the first week of February 2015 were ranging between INR 14,550 ($234) to INR 16,500 ($266) per MT in major producing states. Expectations of strong domestic supplies and weak international prices are likely to pressure new crop domestic prices for the upcoming marketing year (April-July).

Trade:

India's MY 2015/16 wheat exports are forecast to decline to 2.0 MMT, with exports restricted to neighboring countries like Bangladesh and Nepal, and some African countries. Due to its WTO obligations, the GOI is unlikely to export government wheat except in rare circumstances such as food aid. Market sources report that Indian wheat is currently about $20-25 per MT higher than wheat from competing origins in major export destinations (Middle East, Africa and South Asia). Domestic prices are unlikely to decline significantly due to high MSPs. However, market prices may decline in the states where the government procurement system is not very effective, and be competitive for export markets.

In May 2014, the GOI discontinued exports of government procured wheat in order to adhere to its World Trade Organization obligations. Exports of wheat sourced from the open market continues to be permitted, MY 2014/15 is estimated to decline to 3.5 MMT on less competitive prices. MY 2014/15 exports includes about 3.1 MMT wheat and 0.4 MMT wheat products (wheat equivalent). Provisional official trade statistics indicate that wheat exports for April to November 2014 reached 2.64 MMT, with major export destinations including Bangladesh, U.A.E, Indonesia, Sudan, Nepal, Yemen, and Oman.

Despite a zero import duty policy, imported wheat is relatively more expensive than local wheat due to shipping, clearance, and inland transport costs.

Stocks:

MY 2014/15 ending stocks are estimated at 16.5 MMT, 1.3 MMT less than last year, but still more than double minimal government-held stock requirements. The Food Corporation of India (FCI) estimates that on February 1, 2015 government-held wheat stocks were 22.0 MMT, 2.2 MMT less than last year. Estimates of privately-held wheat stocks are not available, but are expected to be minimal due to provisions in the Essential Commodities Act. The PS&D table does not include privately held stocks.

Policy:

Research & Development:

The growth of wheat production following the Green Revolution was the cornerstone of India's food security. The GOI continues to prioritize wheat and rice as the focus crops for food security. The GOI supports research, development, and extension activities for new varieties and improved production technologies (e.g., pest management). ICAR conducts wheat research and development at the national level, which is complemented by SAUs, regional research institutions, and state agricultural extension agencies at the regional and state levels. The central and state governments also support farmers by subsidizing input supplies and agricultural credit at affordable prices.

The stagnation of food grain production (wheat and rice) in the last decade (2000) was a serious concern for the policy makers. In 2007, the government launched a National Food Security Mission (NFSM) to address food security concerns. Given that arable land is limited, the NFSM seeks to bridge the yield gap through promotion and dissemination of improved technologies, particularly in the western, central and eastern states; these technologies include: seeds, integrated nutrient management, integrated pest management, and resource conservation technologies. Besides the NFSM, other targeted programs like the National Agriculture Development Program (Rashtriya Krishi Vikas Yojana) and Special Program to Bring the Green Revolution to Eastern India are also being implemented by the GOI through the state governments.

Price Support:

The Commission for Agricultural Costs and Prices (CACP) recommends the MSP for wheat. Government-owned enterprises like the Food Corporation of India (FCI) and various state marketing agencies procure wheat at the MSP for central government stocks, and make arrangements for storage and distribution. Subsequently, the government allocates wheat for distribution through the PDS and other welfare schemes at a subsidized price. During surplus years, the government sells wheat in the open market to the private trade at market prices. The objective of the MSP is to provide remunerative prices to farmers and affordable prices to poor consumers.

In August 2014, the GOI set up a high level committee (HLC) to review FCI's activities and suggest improvements to its operational efficiency and financial management. On January 19, 2015, the HLC submitted its report to the GOI, which included recommendations to increase beneficiaries, re-orient the PDS system to target vulnerable consumers at a lower cost, and improve storage and distribution. Sources report that the Ministry of Consumer Affairs, Food, and Public Distribution is reviewing the recommendations. Some of the recommendations may require further consultations with other ministries and state governments, including parliamentary approval.

Trade Policy:

Since May 2014, the GOI has discontinued exports of government wheat. However, there are no restrictions on private exports (wheat procured from the open market) after the export ban on wheat was removed in September 2011. Wheat imports incur a zero import duty. The government lowered the duty on wheat imports to zero in September 2006 for a short period, and extended the measure indefinitely in October 2007. Indian phytosanitary requirement (i.e., a wheat sample drawn from a single consignment should not contain more than 100 quarantine seeds (31 quarantine seeds have been specified) per 200 kg) and other SPS issues have effectively barred U.S. wheat shipments to India.

Marketing:

The rapidly growing fast food industry and modernizing bakery/confectionary industry generate demand for specialty flours (used in pizzas and burger buns) that require different wheat classes that are not produced in India. In addition, despite growing demand, market sources report steadily declining acreage of locally produced 'hard and high-protein' wheat varieties like Sharbati and Lok-1 (grown in central India) due to a lack of incentives and uncompetitive pricing.

India: Wheat, PSD

(Area in Thousand Hectares, Quantity in Thousand Metric Tons, Yield in MT/Hectare)

Wheat

2013/2014

2014/2015

2015/2016

Market Begin Year

Apr 2013

Apr 2014

Apr 2015

India

USDA

New Post

USDA

New Post

USDA

New Post

Official

Official

Official

Area Harvested

30,000

30,000

30,600

31,525

0

30,600

Beginning Stocks

24,200

24,200

17,830

17,830

0

16,500

Production

93,510

93,510

95,910

95,850

0

94,000

MY Imports

25

25

45

45

0

50

TY Imports

22

22

45

45

0

50

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

117,735

117,735

113,785

113,725

0

110,550

MY Exports

5,899

6,053

3,500

3,500

0

2,000

TY Exports

5,354

5,399

2,200

2,200

0

2,000

Feed and Residual

4,800

4,800

4,500

4,500

0

4,500

FSI Consumption

89,206

89,052

89,485

89,225

0

90,000

Total Consumption

94,006

93,852

93,985

93,725

0

94,500

Ending Stocks

17,830

17,830

16,300

16,500

0

14,050

Total Distribution

117,735

117,735

113,785

113,725

0

110,550

Yield

3.1170

3.1170

3.1343

3.0404

0.0000

3.0719

India: Wheat /1, Export Trade Matrix

Time Period

April-March

Units

Tons

Exports for

MY 2013/14

MY 2014/15 /2

U.S.

149

U.S.

48

Others

Others

Bangladesh

1,974,308

Bangladesh

913,056

Korea RP

754,729

UAE

357,631

UAE

664,870

Indonesia

347,852

Indonesia

325,508

Sudan

112,025

Yemen

303,041

Nepal

105,606

Djibouti

300,939

Yemen

104,381

Oman

179,372

Oman

103,192

Saudi Arabia

138,744

Malaysia

78,813

Afghanistan

114,738

Philippines

78,351

Philippines

103,894

Korea RP

66,405

Malaysia

89,347

Vietnam

55,672

Thailand

85,793

Qatar

38,001

Total for Others

5,035,283

Total for Others

2,360,985

Others not Listed

516,059

Others not Listed

277,631

Grand Total

5,551,491

Grand Total

2,638,664

/1 Trade figures in the PSD includes wheat products

/2 Provisional data for the period April through November 2014