BMI View: We forecast India to deliver a record wheat harvest of 95.0mn tonnes in 2014/15, up 1.6% on the 2013/14 season, based on expansion in area planted and near-record yields. Despite this record crop, we believe that India is unlikely to significantly increase its wheat exports over our forecast period to 2018.
We believe India will deliver a record wheat harvest of 95.0mn tonnes in 2014/15 on the back of expansion in area planted and near-record yields. Planting for the 2014/15 season was boosted by an increase in the minimum support price of wheat by India's government in late 2013, combined with expectations that additional subsidies from state governments would occur following parliamentary elections in April. In February, the Ministry of Agriculture estimated that the area planted to wheat for 2014/15 rose 6% year-on-year to 31.5mn hectares. Moreover, favourable rainfall towards the end of 2013 and an increase in the use of inputs such as fertiliser and pesticides will boost yields above their five-year average.
|India - Wheat Area Harvested ('000 ha, LHS) & Yield (tonne/ha)|
The record harvest in 2014/15 follows a trend that has existed for the last half-century. Government support schemes focusing on increasing input use and planting area has seen Indian wheat production rise eightfold since the early 1960s. We believe this trend will continue and forecast output to rise 6.5% between 2012/13 and 2017/18 to reach 101.0mn tonnes. This would result in India maintaining its status as the second largest wheat producer in the world behind China, which we expect to produce 129mn tonnes of wheat in 2017/18, up from 120.6mn tonnes in 2012/13. The wheat sector is regulated by State procurement, according to which the government buys at a set price and stockpiles wheat to meet domestic consumption requirements.
|India - Rolling 5-Year Wheat Production Balance ('000 tonnes)|
Strong growth in India's wheat production in recent years has resulted in output comfortably meeting the country's wheat consumption requirements. However, India's wheat production remains volatile, and is mainly helped by increasingly generous public support. In spite of the overall growth in production in the past year, India has not completely eliminated food insecurity concerns, which resulted in bans on wheat exports in the past. Indeed, the 2008 export ban on wheat which lasted to 2011 was only overturned as huge amounts of grain were unable to be stored following large grain surpluses. Since then, wheat exports have risen strongly.
|Entirely Dependent On Policy|
|India - Wheat Exports ('000 tonnes)|
Our core view is that the status quo - in terms of government control, grain wastage and limited exports - will continue over our forecast period to 2018. Exports will remain volatile as the government continues to ensure adequate stocks for its subsidy programme. In times of ample supply, exports have the potential to reach elevated levels like in 2012/13, when exports amounted 4.5% of the global wheat trade. However, exports will be almost non-existent when domestic production declines. This decline would be more conspicuous by the large waste in production due to insufficient infrastructure. In 2013/14 for example, about 25mn tonnes of wheat and rice in India will have to be stored outside under tarpaulin by June owing to inadequate storage facilities, according to unofficial USDA reports.
We are yet to see any change in policy that would help improve the current situation. A switch to open trading between farmers and brokers and investment in domestic storage facilities would improve the situation. However, wheat exports are likely to remain volatile, with the government assigning annual quotas based on yearly harvests and procurement demand.
|Wheat Production, '000 tonnes 1||94,880.0||93,510.0||95,000.0||98,000.0||99,500.0||101,000.0|
|Wheat Consumption, '000 tonnes 2||83,820.0||89,855.0||92,550.7||94,864.5||97,330.9||99,764.2|
|Notes: f BMI forecasts. Sources: 1 Ministry of Agriculture; 2 USDA.|