India’s Potential to Increase Cereals Export

• 15 Jan 2021

Why in News

The US Department of Agriculture (USDA) has noted in its latest Grain: World Markets and Trade report that exports of wheat and rice from India are likely to increase.

Key points

• Findings:
  
  • Increase in Wheat Exports: The US Department of Agriculture (USDA) has recently upped its forecast of Indian wheat exports for 2020-21 (July-June) to 1.8 million tonnes (mt), as against its earlier estimate of 1 mt.
  • Increase in Rice Exports: USDA has also estimated India’s rice exports to have hit a record 14.4 mt in 2020, up from the preceding two years.
• Causes for Increase in Wheat Exports:
  
  • Chinese Stockpiling: The key driver of global price turnaround seems to be China. The reasons for its building strategic stockpiles of everything aren’t as fully clear as their effect on international prices.
  • Rising Global Prices: For example, the Russian government is levying an export tax on wheat in response to high domestic prices. Bangladesh, a potential importer of wheat from Russia is beginning to shift its purchases towards India.
  • Ultra-low interest rate money increasingly being invested into agri-commodity markets.
    
    • In the wake of Covid 19 Pandemic Various Countries such as the USA, India, Russia are reducing their interest rates.
    • For example: Bank of England current bank rate: 0.1%
      
      • Reserve Bank of India current RBI repurchase rate: 4%
• Causes for Rise in Rice Exports:
  
  • Impact of drought:
    
    • The country’s closest competitors Thailand and Vietnam have been facing drought leading to decline in rice productivity.
    • Increase in demand in Bangladesh
• Potential Challenges to Rise in Export:
  
  • Indian wheat is still not competitive at the government’s minimum support price (MSP) of Rs 19,750 per tonne. Further additional cost of cleaning, bagging, loading and transport to port would be in addition making export uncompetitive.
  • Solution: Procurement of wheat below MSP from Uttar Pradesh, Bihar, Gujarat and Maharashtra, where not much government procurement happens.
• Significance:
  
  • Estimates for increase in these exports will be beneficial as India’s own domestic production of rice and wheat has touched an all-time-high of 118.43 mt and 107.59 mt, respectively, in 2019-20.
  • Government agencies also procured an all time high in 2019 -20 thus burdening government exchequer.

Cereals Exports of India

• India is one of the largest producers as well as exporter of cereal products in the world.
• The important cereals are - wheat, paddy, sorghum, millet (Bajra), barley and maize.
• Previously in 2008, India had imposed a ban on export of rice and wheat etc. to meet domestic needs.
  
  • Owing to huge demand in the global market and country's surplus production, India allowed limited amounts of export of the commodity.
• Rice (including Basmati and Non Basmati) occupy the major share in India's total cereals export with 95.7% in 2019-20. Whereas, other cereals including wheat represent only 4.3% share in total cereals exported from India during the year 2019-20.
• Major Export Destinations (2019-20) of Wheat : Nepal, Bangladesh , UAE, Somalia.
• Major Export Destinations (2019-20) of Non Basmati rice: Nepal, Benin, UAE, Somalia.
• Major Export Destinations (2019-20) of Basmati Rice: Iran, Saudi Arab, Iraq, UAE.

Source:IE