INDIA ELECTIONS: Restrictive steps for wheat, rice exports may persist amid sticky inflation

India is expected to maintain its stance of heightened monitoring of wheat and rice inventories amid persistent food inflation, which is seen holding up even after the ongoing general elections end, a trend that would keep a lid on exports of the two grains.

India, which is the world's largest rice exporter, once emerged as a key supplier to global wheat markets in the absence of Black Sea wheat during the Russia-Ukraine war.

India's food inflation dipped in January, leading market participants to think that the government may ease trade restrictions. However, in February and March, it picked up, with the government further tightening supply controls to keep prices in check. In March, the inflation rose for the second straight month to 190.6 points, up 7.68% compared with the year before, according to government data.

In India, any rise in prices of rice and wheat, which are critical agricultural commodities being staple foods, has created political upheavals in the past.

Market participants said they expect the government to continue with the current policies even after polling ends in June.

India mandated traders, private warehouses, retailers and processors to declare their rice and wheat stocks on a weekly basis since February and April, respectively. This measure is in addition to export restrictions already placed on the grains. India also has maintained lower import tariffs on vegetable oils.

Rice export ban likely in place until October

India is expected to continue with curbs on rice exports at least until October, trade participants said.

"We do not expect the government to relax the restrictions before the kharif rice crop is harvested in October, as local prices have remained firm despite the regulations," a rice exporter based in New Delhi said.

In 2022 and 2023, India banned exports of non-Basmati white rice, imposed a 20% duty on parboiled rice exports and fixed a minimum export price for Basmati at $950/mt, creating a stir in global markets as prices soared. The move was led by expectations of lower domestic production.

In the 2023-24 crop year (July-June), India's summer rice production, harvested in October, declined due to dry weather conditions, exacerbated by the El Nino weather phenomenon. In India, which practices biannual rice cultivation, the summer kharif crop is larger than the winter rabi crop.

India's non-basmati rice supplies are crucial for West African nations. However, with export restrictions in place, India may lose market share in the region, according to traders.

In MY 2022-23 (April-March), India shipped 10.4 million mt of rice to West, East and North Africa and 4.4 million mt to the West Asian countries, which include the Gulf Cooperation Council countries, according to Agricultural and Processed Food Products Export Development Authority data.

Trade sources said that global demand for Basmati rice was largely steady, but higher logistics costs and the presence of minimum export price dampened buyers' appetite.

India currently has huge rice stocks in its reserves, so the government may relax export restrictions after the monsoon harvest in October to avoid a supply glut, another trade source based in New Delhi said.

On April 1, the Food Corporation of India had 53 million mt of rice, nearly four times the buffer requirement of 13.5 million mt.

India turns marginal player in global wheat trade

India, the world's second-largest wheat producer, halted wheat exports in May 2022 due to soaring domestic prices amid tight supplies and increased global demand.

This decision relegated India to a minor role in the global wheat market after it doubled exports to 7.2 million mt in MY 2021-22 (April-March), APEDA data showed.

New Delhi had planned to export over 10 million mt of wheat in the MY 2022-23, but only shipped 5 million mt due to the export ban, as domestic prices rose after a heatwave weighed on crop yields.

"The export ban has erased any gains India made in the global market since 2020," a Mumbai-based trader said, highlighting the loss of market share in countries like Bangladesh, Indonesia, Nepal, and the UAE.

As the government aims to replenish its reserves, which hit a 16-year low of 7.5 million mt in April, expectations of export restrictions to ease are dimming.

While official estimates project a slight uptick in wheat output for crop year 2023-24 (July-June) to 112 million mt from 110.55 million mt a year ago, a market survey by S&P Global Commodity Insights points to a decrease on the year to 107 million-108 million mt.

Traders anticipate export curbs to persist until March 2025 as the government plans to procure around 33.5 million mt wheat, against 26.2 million mt of actual procurement a year ago, to run several social welfare schemes for over 810 million beneficiaries.

"Higher procurement will tighten spot market supplies, limiting options for traders and exporters," a New Delhi-based trader said.

Despite export restrictions, domestic prices have remained elevated, sparking speculations about potential wheat imports to meet local demand. The government has been reluctant to allow imports, maintaining a 40% import duty to safeguard farmer interests and electoral prospects.

However, some traders said that New Delhi may have to consider options to import wheat in the case of any crop failures in the coming years.

Vegetable oil import tariffs

India's vegetable oil imports reached a record high in 2023 after the government reduced import duties and allowed unrestricted imports of refined palm oil despite protests from the domestic vegetable oil industry.

In January, India extended a reduced import duty on vegetable oils until March 2025. The ruling is the latest in a series of policy moves by New Delhi to keep cooking oil prices low in India -- the world's largest buyer of vegetable oils.

Continued cooking oil imports at lower tariffs, along with ample purchase of refined palm oil, helped keep vegetable oil prices in check. According to government data, the Consumer Price Index for oils and fats was at 158.2 points in March 2024, down 11.7% from a year ago.

Globally, meal demand, energy prices, biodiesel policies of various countries and geopolitical issues are all expected to drive prices of vegetable oils, Sudhakar Desai, head of the Indian Vegetable Oil Producers Association and CEO of Emami Agrotech had said earlier in March.

India's vegetable oil imports account for close to 60% of its annual domestic consumption of around 25 million mt, making the correlation between international and domestic prices strong.