Scrapping wheat import duty may hit farmers hard

Crop growers could get discouraged with decline in prices, may slow down acreage under wheat

The government's decision to exempt wheat from import duty levy is likely to hit farmers hard during the ongoing rabi sowing season, despite favourable agro climatic conditions.

Since speculation surfaced about the exemption of wheat import duty two weeks ago, the price of the commodity in the global markets jumped by over 13 per cent to $205-210 a tonne currently, from $185 a tonne earlier. Despite this surge, the imported cost at the ports in southern India works out to Rs 200-250 a tonne cheaper than the prevailing price in the region.

Owing to two subsequent years of drought, India’s wheat production is estimated at 83 million tonnes by private assayer RML AgTech, resulting in about four million tonnes of supply deficit. The government, however, continues to estimate wheat output at 93.5 million tonnes for 2015-16 as against the country’s annual consumption of 87 million tonnes.

Supply deficiency, however, continues to push wheat prices up in the domestic markets. From the level of Rs 1,600 a quintal in the beginning of the last rabi season, wheat prices have surged to trade currently at Rs 2,100-2,150 in northern states. In order to cool down prices, therefore, the government lowered wheat import duty in September to 10 per cent from 25 per cent and again to “nil” earlier this week.

“The decision is a big blow for Indian farmers as they would be discouraged from bringing additional area under wheat this year due to the possibility of a price fall. Farmers are normally encouraged to sow crops that fetch higher prices during the sowing season. Bulk consumers in south Indian states would prefer importing to procuring locally,” said Veena Sharma, Secretary, Roller Flour Millers Federation of India.

Wheat output (million tonnes)
Crop year	Production
2011-12	94.88
2012-13	93.51
2013-14	95.85
2014-15	86.53
2015-16	93.50
Source: Ministry of Agriculture

In fact, sowing area under wheat has already increased by over 14 per cent so far this rabi season, as farmers were lured by elevated price levels this year. Data compiled by the Union Ministry of Agriculture showed wheat acreage at 17.39 million ha as of December 2 this year compared to 152.56 lakh ha around same time last year.

“With imported wheat being substantially cheaper than the domestic crop in spot markets, traders would bring in huge quantities to cool down prices locally. Farmers, therefore, would be discouraged to dedicate their fields for wheat sowing. Thus, some farmers might shift to other remunerative areas including oilseeds and cash crops,” said a wheat trader from Amritsar (Punjab).

According to experts, France would be the only source for import of good quality wheat, as Ukraine does not meet quality standards for direct consumption. Quality of wheat imported from Ukraine may be suitable for blending with local wheat in small proportions. Wheat harvest in Australia, however, is scheduled in mid-January, slightly ahead of the harvesting time in India. Hence, traders fear that France may monopolise wheat exports to India and thereby dictate prices.

“It’s a good move, though, as India needs wheat till its own harvesting begins in mid–February or beginning of March. So, the government’s decision to abolish import duty on wheat is a welcome move. Historically, the government has protected farmers by changing the policy frequently. So, it can levy import duty again at the time of harvesting local crop,” said Rajiv Tevtiya, Managing Director and Chief Executive Officer, RML AgTech.

India’s wheat import is estimated at 2.5 million tonnes this year of which 1.5 million tonnes have already hit the ports.