India to pay heavily for scrapping wheat tender

India's decision to scrap an import tender for 1 million tonnes of wheat will prove costly, given clear signs the country will be forced to buy large volumes from overseas markets just as prices have surged to an 11-year high.
India cancelled a tender to import 1 million tonnes of wheat in May, saying that prices of around $263 a tonne were high. But policy makers might in hindsight be thinking this was a mistake, as purchases now would cost around 15 percent more.
With world wheat stocks seen falling to their lowest level in 30 years, erratic weather disrupting the US winter wheat harvest, and drought in Ukraine and Russia, analysts expect little respite for prices in the near term.
"India will now have to pay anywhere close to $300 a tonne to buy wheat as prices have been soaring at the Chicago Board of Trade," said Atoll Chaturvedi, president of Aden Exports Ltd, a commodities trading firm which was among the bidders for the tender New Delhi cancelled.
"In retrospect, it seems the government should not have scrapped the tender." Wheat on the Chicago Board of Trade rose to 11-year highs of above $6 a bushel last week. But the market ended mixed on Friday. The July contract settled unchanged at $6.06-1/2 a bushel, below on Thursday's contract high of $6.19-1/4.
This month, Farm Minister Shared Pawar said the country would need to import 5 million tonnes between August and December to ensure that there was enough wheat in the next crop year beginning April 2008.
Government officials have said New Delhi would hold a tender to import 2 million tonnes of the grain by the end of June. "The market is looking extremely tight," said Radian Panicked, head of commodity research at Man Financial India.
"The fact that India is looking to buy has added support to the international scenario." Analysts said it would be tough for India not to buy, as global supplies could fall further in coming months. And the new Australia crop was not expected until October. "The government is indeed interested in importing wheat. The idea is to build large buffer stocks," said a senior government official.
Though India will need to import wheat, New Delhi isn't desperate to do so officials maintain there is enough grain to meet domestic demand until next April. In April 2007, when the current marketing year began, the government had around 5 million tonnes of wheat in its bins against 4 million tonnes normally.
It has since procured about 11 million tonnes from farmers, against 9.2 million a year ago. Moreover, if the country harvests a crop of 73 million tonnes as forecast, against 69.3 million tonnes last year, the grain situation would be comfortable, given an annual domestic consumption of about 70 million tonnes.
Analysts said the government is aiming for a relatively larger buffer stock to keep a lid on prices throughout 2008, and to avoid a similar situation it faced in 2006, when domestic prices failed to come down despite large imports of 5.5 million tonnes. "It is a question of food security and we don't have the luxury to play around with prices," saidAvinash Raheja, senior vice-president of Commtrendz Risk management.