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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


20 February 2014

USDA GAIN: India Grain and Feed Annual 2014USDA GAIN: India Grain and Feed Annual 2014

Indian MY 2014/15 wheat production should hit 96 MMT from 31.5 MHA (both records) if favorable weather and moisture conditions continue. MY 2014/15 rice production is forecast at 104 MMT from 44 MHA but depends on the 2014 monsoon. Pulse production is forecast down to 18 MMT on production shifts to wheat. MY 2013/14 guar output was down on lower area planted due to weaker prices. MY 2014/15 exports of wheat, rice and corn are forecast down from the year prior due to softening global prices.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities:

Wheat

Production:

Riding on a wave of back-to-back bumper crops since 2005, India is heading for another record wheat harvest this summer on record planting and favorable growing conditions in major wheat growing areas. Assuming normal weather conditions through harvest (April), Post forecasts marketing year (MY) 2014/15 wheat production at 96 MMT compared to last year’s 92.5 MMT and the previous record of 94.9 MMT in MY 2012/13.

Timely harvest of the preceding kharif (winter harvested) crops coupled with good late season (September-October) monsoon rainfall provided favorable soil moisture conditions for wheat planting in most growing areas. The timely announcement of the minimum support price (MSP) of wheat by the Government of India (GOI), relatively strong market prices in MY 2013/14 and the expectations of additional bonuses from the state governments (over and above the GOI’s MSP) due to the upcoming Parliamentary elections in April 2014 encouraged farmers to plant additional area to wheat. The Ministry of Agriculture’s latest provisional wheat area planted estimate for MY 2014/15 is 31.5 million hectares, an unprecedented increase of more than six percent over last year’s record area.

Adequate soil moisture and relatively low temperatures during November/December provided optimal conditions for emergence and tillering. Scattered rains during December/January have been beneficial for the standing wheat crop, currently in the flowering and early seed setting stages. There have been no incidents of pest or disease outbreaks in the major growing areas. These conditions have fueled the expectation of a bumper 2014 wheat harvest as trade sources are currently estimating the crop in the range of 94 to 98 MMT. While the official advance estimates for the upcoming wheat crop have not been released, media reports have quoted senior government sources as expecting the crop to touch 100 MMT.

Weather from February through harvest (April) will be critical as a rise in temperature during critical grain filling in February/March and/or rains and hailstorms at the time of harvest in March/April could affect productivity prospects. An extended winter and low temperatures through the first week of April, as experienced in the record production year of 2012, could bolster yield prospects. Assuming normal weather conditions from now on, Post forecasts the MY 2013/14 wheat yield lower at 3.0 tons/hectare compared to the MY 2012/13 record yield of 3.2 tons/hectare.

Indian wheat is largely a soft/medium hard, medium protein, white bread wheat, somewhat similar to U.S. hard white wheat. Wheat grown in central and western India is typically harder, with higher protein and gluten, compared to wheat grown in northern India. India also produces around one million tons of durum wheat, mostly in the states of Madhya Pradesh and Rajasthan. Farmers are increasingly shifting from durum wheat to higher yielding non-durum varieties as the durum yield is significantly lower than that of regular wheat varieties and the government’s continued increase of MSP has reduced the price premium. Most durum wheat is typically purchased by the private trade at a price premium for processing into higher value/branded bakery and confectionary products.

Source: Ministry of Agriculture, GOI; and FAS/New Delhi estimates for MY 2014/15

India’s wheat production has exceeded trend in the last four years on higher planting and productivity due to the government’s policy of steady increase in the MSP and generally favorable weather conditions. Despite wheat’s being largely irrigated (more than 91 percent), monsoon rainfall affecting ground water availability and soil moisture conditions at the time of planting are critical for a good harvest. Indian wheat cultivation faces two major future threats – global warming/climate change and Ug99. Unscientific irrigation practices and over-exploitation of ground water are increasingly causing water table depletion and soil salinity in the wheat growing areas in northern India. Depletion of irrigation water resources is likely to put pressure on wheat cultivation in north India in the next few years, forcing farmers to explore less water intensive crops like corn, pulses and oilseeds.

Most commonly sown wheat varieties available to farmers were released more than a decade ago and are showing signs of obsolescence as farmers continue to reuse farm grown seeds with seed replacement rates around 20 percent in most wheat growing states. The Indian Council of Agricultural Research (ICAR) institutes and various state agricultural universities (SAUs) continue to develop new wheat varieties with higher yield potential and better grain qualities, largely through traditional breeding methods. Given that seed production and marketing are largely done by public sector institutions, the new wheat varieties have failed to make sufficient inroads due to limited seed multiplication, distribution and extension facilities. Current biotechnology applications in wheat are limited to experimental marker-assisted breeding for resistance to biotic and abiotic stresses and for quality traits.

There is a growing concern among policy makers and researchers about the vulnerability of the wheat crop to global warming and changing climatic conditions, particularly the rise in temperatures during March/April at the grain filling stage. Of the total area under wheat cultivation, researchers estimate that about 10 million hectares are prone to terminal heat stress. According to some local research, a one-degree Celsius rise in temperature during the growing season can result in a 3-to-7 percent decrease in grain yields. The Indian Council of Agricultural Research (ICAR), India’s apex agriculture research agency, along with various state agriculture universities (SAUs) is closely researching the potential climate risks to wheat to develop appropriate response mechanisms and technologies to mitigate risks.

Indian wheat also faces the threat of the dreaded wheat rust Ug99, as more than three-fourths of wheat acreage is planted to varieties susceptible to the disease. Although agricultural researchers assert that the agro-climatic conditions in the major wheat belt of northern India are not conducive to the spread of Ug99, the highly mutative nature of the Ug99 strain could make India’s wheat growing belt vulnerable to this rust. Consequently, ICAR and the SAUs continuously survey and monitor the wheat crop for various rusts, including Ug99. ICAR is also screening newly developed wheat varieties in the country for resistance to Ug99. The government has been encouraging replacing susceptible varieties with Ug99-resistant varieties in the major wheat growing area.

Consumption:

Wheat consumption (FSI) in MY 2014/15 is forecast at 87 MMT on sufficient domestic production and expected higher supplies of subsidized government wheat through the Public Distribution System (PDS) with the implementation of the new National Food Security Act (NFSA, see GAIN reports IN3105 and IN3037). Expected near-record government procurement is likely to increase the already ‘more-than-sufficient government wheat stocks, forcing the government to continue sale of wheat at subsidized prices to local millers through the Open Market Sales Scheme (OMSS). Wheat for feed consumption and residual is forecast at 4.5 MMT on expected steady demand from the dairy feed sector and damage to the abnormally large government-held wheat stocks.

Wheat (FSI) consumption in MY 2013/14 is estimated to increase by more than eight percent to 86.9 MMT on higher government wheat sales under the PDS and OMSS programs. Since November 2013, local millers have been sourcing government wheat for meeting the bulk of their consumption requirement as open market availability of wheat has been very tight. Wheat for feed consumption in MY 2013/14 is estimated at 4.8 million tons on strong demand from the dairy/poultry sector and higher supplies of damaged/inferior wheat from government stocks. Market sources report that a significant portion of the lower quality wheat leaked from the PDS finds its way into the livestock feed sector.

Wheat is the staple food for most Indians, mostly consumed in the form of homemade chapattis or rotis (unleavened flat bread) using custom milled atta (whole wheat flour). Some wheat is also used for various wheat-based processed products like raised breads, “biscuits” (cookies) and other bakery items. Their share of the market is gradually rising. With growth in the economy and an expanding middle class, Indian households are diversifying their consumption patterns with an expanding share of high-value and high-protein items, like fruits, dairy products, meat, and processed foods. Recent National Sample Survey Organization surveys indicate that per-capita consumption of wheat at household levels has been relatively flat over the last decade (see IN2026).

Typically, whole wheat is distributed through the public distribution system to be subsequently custom milled by the household for home use. Most wheat retained by farmers (40-45 percent), after saving some quantities for seed use for the next season, is also custom milled, mostly in the chakkies (small flour mills) for home consumption and small quantities for feed use (mostly lactating cows and buffaloes). Nevertheless, branded and packaged wheat atta marketed by large food companies is gaining market share in urban areas due to convenience.

The organized milling sector is relatively small with about 1,000 medium to large flourmills in India, with aggregate milling capacity of 24-25 MMT, which mill mostly maida (flour) and semolina to cater to institutional demand, and produce bran flakes for the mixed feed industry. However, the average capacity utilization by these mills is only around 45-50 percent, processing about 12 million tons wheat every year.

Some quantity of government-held wheat (mostly spoiled or of inferior quality) is also used for animal feed. Market sources report higher usage of wheat for animal feed in the last few years due to higher spoilage and leakage from the government PDS at significantly lower prices.

Government Procurement

Due to a steady increase in the government support price and back-to-back record production, government food grain (wheat and rice) procurement increased strongly during 2007 to 2012. However, government wheat procurement in MY 2013/14 went down to 25.1 MMT, a whopping 34 percent below the previous year, largely due to relatively high open market prices and speculation about domestic production lower than officially claimed. Forecast record production and the higher procurement price (MSP plus expected additional state bonuses) are likely to fuel the MY 2014/15 wheat procurement higher to 36 MMT. However, domestic prices and limits to the effectiveness of government procurement operations may temper the overall procurement prospects.

Given the likelihood of Parliamentary elections in April 2014, the formation of the new government will coincide with the peak wheat arrival and government procurement season (May-June). Post-election formation and functioning of the new government will also influence wheat procurement volumes, particularly in the states of Uttar Pradesh, Madhya Pradesh and Bihar, where the crop comes late. Market sources report that wheat procurement may exceed 40 MMT (against the previous record of 38.2 MMT in 2012) if domestic market prices fall under the influence of weak international prices and the government ensures effective procurement in most states.

Upcoming high wheat procurement will likely aggravate the government’s food grain storage problems, particularly in the major origination states of Punjab, Haryana, and Madhya Pradesh. The government’s current roofed storage capacity, including leased space, is estimated at around 53-54 MMT, wherein higher value rice gets priority over wheat for storage. Assuming a normal pace of procurement and sales by the government, wheat stocks on June 1, 2014, are likely to balloon to an estimated 48 MMT while rice stocks are estimated at 31 MMT. Consequently, large quantities of government wheat will have to be kept in the open under tarpaulin cover and plinth (CAP) storage including temporary open storage space during the procurement period (May-July). Storage under these conditions results in significant losses due to damage from rain, temperature fluctuations, rodent/pests, and losses to pilferage.

National Food Security Act (NFSA) to Raise Food Subsidy

According to official data, over the last eight years, the government’s unit cost of wheat has nearly doubled to INR 21,290 ($343) per ton in 2013/14 due to the steady increase in MSP and higher overhead costs associated with long-term leasing of private warehouses. With the PDS sales price of wheat unchanged since 2002, the GOI’s food subsidy spending is likely to balloon significantly higher than the GOI’s budgeted estimate of INR 900 billion ($14.5 billion) in Indian Fiscal Year (IFY) 2013/14 on high cost and larger off-take of wheat under PDS, and subsidized sales under OMSS and export quota.

On September 12, 2013, India’s much debated National Food Security Bill, 2013, was signed into law. This Act creates an entitlement for eligible beneficiaries (50% of the urban and 75% of the rural populations) to receive 5 kilograms of rice, wheat or coarse grain (millet) at subsidized prices of 3, 2 and 1 rupee per kilogram, respectively, for at least the first three years after enactment. This equates to about two thirds of India’s population, or roughly 820 million people. This measure will likely raise the food subsidy bill to over INR 1.12 trillion (approximately USD 18.4 billion) per annum. See GAIN Report IN3105 for more details. The GOI and the state governments are exploring the possibility of phased implementation of the proposed law by 2015, but the actual implementation will depend on its priority as accorded by the new government after the upcoming Parliamentary elections.

Prices

Source: Agmarket News (http://agmarkweb.dacnet.ic.in), Ministry of Agriculture, GOI

Despite sufficient domestic supplies (near-record production and record opening stocks), domestic wheat prices in MY 2013/14 have been very firm on strong demand and relatively tight open-market wheat supplies. Domestic prices have started weakening since January on expectation of a record upcoming crop and weak international prices. Spot prices in the first week of February 2014 were ranging between INR 15,200 ($245) to INR 17,700 ($285) per metric ton in major producing states. Government wheat is currently available to local millers under the OMS scheme in the price range of INR 15,400 ($248) to INR 17,500 ($281) per ton. More than sufficient opening stocks, expected weak international prices and forecast record domestic production will pressure the domestic prices further through the first quarter of MY 2014/15. However, government’s support price and procurement operation would contain any significant decline in domestic wheat prices.

Trade:

Indian wheat exports took off in August 2012 after the GOI announced exports of wheat from government stocks. However, weak international prices have affected government wheat exports during MY 2013/14, forcing the government to lower the export floor prices from $300 per ton to $260 per ton in November 2013. The increasing implied subsidization of government wheat exports is a major concern for the government on meeting its World Trade Organization commitments, and the government is unlikely to lower the export floor price below $260.

India’s MY 2014/15 wheat exports are forecast to decline to 3 MMT, most of which will be private exports (open-market wheat procured by private trade) and some spillover of government wheat from the existing current two MMT quota announced in August 2013. With international prices expected to remain depressed during the upcoming marketing year, it will be very difficult for the government to export wheat with $260-per-ton floor price. Due to the increase in the procurement price (INR 14,000 ($225) to INR 15,500 ($250) per ton) for the upcoming season, the government will have to raise the subsidy significantly higher to off load any wheat in the export market. With OMSS reserve prices in major states ranging from $248-$281 per ton, domestic millers, opposition politicians and foreign competitors will object to any lowering of the minimum export price. However, export prospects may improve if either international prices improve or the value of Indian rupee declines significantly.

MY 2013/14 wheat exports are estimated at 6 million tons as Indian wheat has not been very price competitive in the international market. The government announced the two-MMT export quota in August 2013, but global wheat prices have been on a downward trend and the government parastatals assigned to export the quota are struggling to find buyers. See IN4001 for more information on the government wheat tenders and export performance through January 2014.

Provisional official trade statistics indicate that wheat exports for April to November 2013 reached 3.8 million tons, with the major export destinations being Bangladesh, Korea, Indonesia, Saudi Arabia, Djibouti, Yemen, Philippines and other Asian countries (see Table 4). A significant share of India’s wheat exports is meant for feed use, particularly in southeast Asia and the Middle East. Due to tight open-market wheat supplies, private exports of wheat have come down significantly since November 2013, and most recent wheat exports have been from government-held stocks. In addition, wheat product shipment is estimated at around 100,000 metric tons, mostly wheat flour. At the current pace of exports, MY 2012/13 exports are estimated to reach 6.0 million tons (1.2 million tons government wheat and the balance private exports and wheat products).

Despite continuation of the zero import duty policy, opportunities for imports of wheat into India since MY 2011/12 have been precluded due to subsidized sales of wheat under OMSS. Imported wheat is relatively costlier to local millers vis-à-vis local wheat after accounting for shipping, clearance and inland transport costs.

Stocks:

Government wheat stocks have been drawn down in MY 2013/14 due to lower procurement and higher sale of wheat in the domestic market. Government-held wheat stocks on February 1, 2013, were estimated at 24.2 MMT compared to 30.8 MMT at the same time last year, but still significantly higher than the government’s desired peak stock of 20.1 MMT (on July 1).

Source: Food Corporation of India, GOI

Assuming current pace of exports and domestic off take in February/March, MY 2013/14 ending stocks are estimated at 19.0 MMT compared to 24.2 MMT for MY 2012/13 ending stocks. MY 2014/15 ending stocks are forecast to increase to 20.5 MMT on expected higher procurement and lower offtake of government wheat for exports. Nevertheless, these stocks are more than three times the government’s desired stocks of 7 million tons (4 million tons buffer and 3 million tons of strategic reserve).

Estimates of privately-held wheat stocks are not available, but are expected to be minimal due to risks stemming from anti-hoarding provisions of the Essential Commodities Act. The PS&D table does not include privately held stocks.

Policy:

Research & Development:

The agriculture sector is a high priority for the GOI, wherein the planned allocation for agriculture and allied sectors was raised by 18 percent to INR 187.81 billion ($3.4 billion) in the budget for Indian fiscal year 2013/14 (April-March). While the crop wise allocation is not available, rice and wheat account for the majority of spending as they have been the focus crops for food security. The GOI supports research, development and extension activities for transfer of new varieties and improved production technologies (seed, implements, pest management) to farmers. ICAR conducts wheat research and development at the national level, which is complemented by state agricultural universities, regional research institutions, and state agricultural extension agencies at the regional and state levels.

The central and state governments also support farmers by subsidizing input supplies and agricultural credit at affordable prices.

In 2007, the government launched a National Food Security Mission (NFSM) (http://nfsm.gov.in/) to address food security concerns due to the slowdown in the growth of food grain production in the last decade (2000). Given that further growth in area under wheat is limited, the NFSM seeks to bridge the yield gap through promotion and dissemination of improved technologies: seed, integrated nutrient management, integrated pest management and resource conservation technologies, particularly in the western and central states. Besides the NFSM, other targeted programs like the National Agriculture Development Program (Rashtriya Krishi Vikas Yojana) and Special Program to Bring the Green Revolution to Eastern India are being implemented by the GOI through the state governments.

Price Support:

The GOI establishes a minimum support price (MSP) for wheat on the basis of recommendations by the Commission for Agricultural Costs and Prices (CACP). Some states also provide additional bonus to their farmers over and above the MSP out of their own exchequers. The state governments of Rajasthan and Madhya Pradesh gave a bonus of INR 1,500 ($24) per ton to their farmers under the MSP program in MY 2013/14 and are likely to extend it in MY 2014/15 also. Government parastatals like the Food Corporation of India (FCI) and various state marketing agencies bear the mandate to procure wheat at the MSP for central government stocks. Subsequently, the government allocates wheat for distribution through the public distribution system and welfare schemes at a subsidized price. In years of surplus procurement and stocks, the government sells wheat in the open market to the private trade at market prices. The government policies relating to the MSP for essential agricultural crops and the price for the PDS supply serve the twin objectives of providing remunerative prices to farmers and affordable prices to poor consumers. See tables 1 and 18 for historical MSPs.

Trade Policy:

On September 9, 2011, the GOI removed the ban on exports of wheat, which had been enforced since February 2007, with some exceptions – occasionally allowing exports to countries like Nepal, Bangladesh and Afghanistan on humanitarian grounds. On July 3, 2012, the government approved exports of two million tons of wheat from government-held wheat stocks to bring the government food grain stocks down to a more manageable level. Three government parastatals were designated to undertake the exports through open tenders, and the two-million-ton quota was exhausted by December 2012. On December 26, 2013, the government approved the export of an additional 2.5 million tons of wheat from government-held stocks for shipment through June 2013 (see IN3001). In August 2013, the government announced a new 2-MMT export quota, but had to lower the export floor price from $300 per ton to $260 per ton in November 2013. The off take of the government wheat has been very slow due to weak international prices. Exports of wheat from government-held stocks are unlikely to continue unless international prices improve significantly.

Currently, wheat imports by the government and private trade incur zero import duty. The government lowered the duty on wheat imports to zero in September 2006 for a short period and this was subsequently extended indefinitely in October 2007. The GOI’s phytosanitary requirement pertaining to the 31 specified quarantine weed seeds (wheat sample drawn from a single consignment not to contain more than 100 quarantine seeds per 200 kg sample) and other SPS issues have effectively barred U.S. wheat shipments to India.

Marketing:

The rapidly growing fast food industry and modernizing wheat-based food industry generate demand for specialty flours (used in pizzas and burger buns) that require varieties of wheat India does not grow. In addition, market sources report steadily declining acreage under local ‘hard and high-protein’ wheat varieties like Sharbati and Lok-1 grown in central India could create a shortage of high-protein wheat for blending of flour for the rapidly growing baking/confectionary industry. However, U.S. wheat continues to be denied market access to India despite numerous discussions at the technical and policy levels.

Commodities:

Rice, Milled

Production:

Assuming normal weather conditions and normal southwest monsoon (June –September), India’s MY 2014/15 (October/September) rice output is forecast higher at 104 MMT from 44.0 million hectares, marginally higher than the estimated MY 2013/14 production of 103 MMT. Timely and well distributed 2013 monsoon rains lowered cost of cultivation and supported good yields. Relatively strong prices during MY 2013/14 (Figure 5) further augmented farmers’ returns, which should encourage them to continue to plant rice in the upcoming season upon the onset of 2014 monsoon. While the weakening of global prices may affect local prices for the upcoming rabi (winter planted) rice, expectation of continued increase in the government’s MSP mitigates rice growers’ concerns about potential significant price declines. However, a timely and well distributed (over space and time) monsoon would be critical for the MY 2014/15 rice crop. A poor/erratic 2014 monsoon could bring down production by 10-12 million tons from the forecast level as more than 40 percent of rice area is unirrigated.

Despite higher planting of kharif rice, ‘below-normal’ monsoon rains during July-August in the states of Uttar Pradesh, Bihar and some pockets of other eastern states affected yield prospects. Planting of rabi (winter) rice is currently ahead of last year’s level on improved soil moisture due to the late monsoon rains in September/October. Consequently, Post estimates MY 2013/14 rice production at 103 million tons (90 million tons kharif rice and 13 million tons rabi rice).

Rice is one of the most important food crops of India, cultivated throughout the country and contributing more than 40 percent of total food grain production. Rice is predominantly a rainfed crop, planted in the kharif season after the onset of the monsoon in June. However, there is a small rabi crop taken in the states of West Bengal, Andhra Pradesh, Odisha and Tamil Nadu. India’s rice production shows a steady upward trend, but production is subject to wide year-on-year fluctuations compared to wheat as a significant portion of the crop is not irrigated.

Source: Ministry of Agriculture, GOI; and FAS/New Delhi estimates for MY 2013/14 and 2014/15.

Normal and near-normal monsoons since 2010 have supported higher yields, but Indian rice yields are below the world average. There are both wide variation in the levels of rice productivity among the major producing states in the country and scope for increasing productivity by expanding irrigation facilities and adopting technology. In 2010/11, the government launched a Special Program to Bring the Green Revolution to Eastern India by promoting the Green Revolution and other improved technologies to the eastern region of the country comprising Bihar, Chhattisgarh, Jharkhand, eastern Uttar Pradesh, West Bengal, and Odisha. The government is promoting a “System of Rice Intensification” technology in some rice growing states, which requires less water and chemical fertilizer but is highly labor intensive. The eastern states have realized significant productivity gains due to the various government programs supporting Indian rice production in the last few years.

Many agricultural experts have expressed concerns that the current rice production techniques impose serious environmental burdens and cannot sustain projected food demand after 2020. Surplus rice growing states like Punjab, Haryana, Uttar Pradesh, and Andhra Pradesh follow intensive rice-wheat or rice-rice cropping systems, and are facing severe environmental issues, including declining water tables, deteriorating soil health and emergence of resistant disease/pests in the growing areas. Indian rice cultivation also faces the challenge of climate change as a significant share of the rice crop is produced in coastal regions, which are susceptible to a rise in the sea level. Climate change issues like glacier melting and aberrations in the monsoon rain patterns may also potentially affect the rice crop. However, a significant cropping shift out of rice is not imminent in the near future due to the government’s continued emphasis on supporting rice-wheat production through minimum support price (MSP) procurement and a lack of more profitable crop rotation alternatives.

India’s long-grain Basmati rice production has been growing strongly after the introduction of the PUSA 1121 variety, an evolved high-yielding variety. Indian Basmati rice is traditionally grown in Punjab, Haryana and western Uttar Pradesh. Market reports suggest that cultivation of PUSA 1121 has spread to other parts of Uttar Pradesh ad Madhya Pradesh. Basmati rice production in MY 2013/14 is estimated at 7.5 MMT from 1.8 million hectares compared to record production of 7.8 MMT from 1.9 million hectares in MY 2011/12. Basmati growers have realized good prices during the current season on strong export demand. Consequently, Basmati production in MY 2014/15 is forecast to increase to 8.5 MMT from 2.0 million hectares.

There are about 45-50 varieties of hybrid rice, most developed by private seed companies, of which about 25 are popular in the market. The National Food Security Mission set a target to plant three million hectares to hybrid rice by 2011-12. Despite sustained government efforts, area under hybrid rice is estimated not to have gained in the recent years, and was estimated at 1.8 million hectares in 2013/14, unchanged from last year. Most of the hybrid rice is cultivated in eastern India - eastern Uttar Pradesh, Bihar, Jharkhand, and Chhattisgarh. Growth of area under hybrid rice is severely hampered by (i) the inability of the existing hybrids to cater to the vast diversity in consumer preference for rice, (ii) low incremental yields, and (iii) poor milling quality over traditional varieties. Nevertheless, several private seed companies and public sector institutions are developing improved hybrid rice varieties targeting quality and yield enhancement traits, which should accelerate hybrid rice adoption by Indian farmers.

Efforts are also underway, mostly in the private sector, to develop transgenic rice varieties to incorporate resistance to various pests, diseases and abiotic stresses. However, approvals and commercialization of transgenic rice are still years away.

Consumption:

Rice is the major staple food for a majority of Indians (about 70 per cent of the population) across the country. Rice consumption in MY 2014/15 is forecast to increase by three percent to 98 million tons on expected sufficient domestic supplies and higher sales of government rice through the PDS as various states implement the new NFSA. Rice consumption in MY 2013/14 is estimated at 95.0 MMT compared to 93.5 MMT in MY 2012/13, a modest increase of 1.5 percent, almost equal to the population growth rate (1.4 percent per annum). Strong domestic prices have restrained growth in domestic consumption in the last two years.

Source: Agmarket News (http://agmarkweb.dacnet.ic.in), Ministry of Agriculture, GOI.

Domestic rice prices have shown a strong upward trend since the beginning of MY 2012/13 (see Table 8), fueled by significant hikes in the MSP for paddy rice (Table 6) and relatively tight domestic supplies (strong government procurement and exports). Domestic prices have started weakening since December 2013 on faltering exports.

More than 4,000 varieties of rice are grown in India to meet the varied consumer preferences. For government procurement purposes, rice is classified into two categories - Common (length to breadth ratio less than 2.5) and Grade A (length to breadth ratio more than 2.5). In the past, most rice under the government procurement program came through a mandatory levy on local millers. Depending on the state, local rice millers must sell to the government a fixed portion of their milled rice (ranging from 75 percent in Punjab and Haryana to 50 percent in Andhra Pradesh, and even lower in marginal surplus states) at pre-established rates, called the “levy price,” which are linked to the MSP of paddy rice plus milling costs. With the government’s raising the MSP significantly in recent years, local millers have reduced their purchases of paddy rice for milling. Thus, the government has been procuring larger quantities of paddy rice bought at the support price, which is subsequently custom-milled for the government by private millers at government expense for storage and distribution through PDS.

The government raised the MSP for paddy rice by nearly 5 percent for the MY 2013/14, and has set a rice procurement target of 36 MMT against last year’s procurement of 34.0 MMT. Government rice procurement as of February 7, 2014, was estimated at 21.9 MMT compared to 23.8 MMT last year during the corresponding period. However, recent weakening of open market price of rice may support government rice procurement in coming months. Consequently, total GOI rice procurement in MY 2011/12 is expected to reach 31.0 million tons, much lower than the government target. As in the case of wheat, there has been no increase in the retail price of rice distributed through the PDS since July 1, 2002, while the MSP has more than doubled over the last decade, contributing to the GOI’s growing food subsidy budget.

The livestock feed industry uses deoiled rice bran, rice waste from the milling industries, and small quantities of broken/damaged rice in the poultry and livestock feed sectors. However, there are no official or industry estimates available of feed consumption.

Trade:

India’s rice exports for MY 2014/15 are forecast lower at 8.0 MMT (split equally between Basmati and non-Basmati) on expected weak international prices and expected lower import demand from Iran. An expected increase in the MSP for the upcoming season will sustain domestic prices and affect MY 2013/14 export prospects. However, a depreciation in the value of the Indian rupee or an increase in global prices could raise the exports higher than the current forecast.

Since CY 2012, India has emerged as the world’s leading exporter of rice. Preliminary CY 2013 export figures from official and private sources indicate export sales totaling 10.5 MMT. Major export destinations were Iran, Saudi Arabia, Senegal, South Africa, U.A.E, Cameroon and other African countries. Iran emerged as a major buyer of Indian rice (mostly long grain PUSA 1121 variety) under the India-Iran rupee escrow mechanism against the oil import bill. Trade sources report that exports of long grain Basmati rice to Iran have slowed since October 2013 following the withdrawal of Iran sanctions by the United States and five other nations.

Source: Monthly exports through November 2013 from DGCIS, GOI; December 2013 derived from rice shipping data compiled by a private source, which does not break out Basmati and non-Basmati

Based on preliminary official trade data and shipping data compiled by a private source, India’s MY 2012/13 rice exports for the first three months are estimated at 2.4 MMT compared to 2.8 MMT last year during the same period. Although official trade data are not available, market sources report that exports have recovered since December 2013 as domestic prices eased and stronger export demand. Post continues to estimate MY 2013/14 exports at 10.0 MMT assuming no significant changes in the price parity of Indian rice in the international market. However, global prices and the value of Indian rupee will affect exports prospects in the coming months.

Stocks:

Due to the relatively weak rice procurement in the ongoing MY 2013/14, government-held rice stocks on February 1, 2014, declined to 31.7 MMT compared to 35.4 MMT at the same time last year. At the current pace of domestic sales and expecting higher rabi season procurement, government rice stocks on October 1, 2014 (MY 2010/11 ending stocks) are expected to decline to 20.0 MMT compared to 23.1 MMT on October 1, 2013, but still more than double the desired stocks of 14.2 million tons.

Source: Food Corporation of India, GOI

There is no published information, official or industry, about privately held rice stocks. Expected weak export demand and domestic prices are likely to result in higher buildup of privately held MY 2013/14 ending stocks, estimated at 3.1 MMT compared to 2.0 MMT at the end of MY 2012/13. The rice PS&D table includes both government stocks and estimated privately held stocks.

Policy:

Production:

The government’s production policy for rice is the same as for wheat. Additionally, the GOI, with the support of state governments, has undertaken various rice-specific development schemes like the Special Rice Development Program (SRDP) and Promotion of Hybrid Rice (price subsidies on seed).

Price/Market Support:

The government undertakes a domestic price support, procurement and distribution program for rice similar to that for wheat. The GOI has banned futures trading in rice since September 2007 on price inflation concerns as policy makers believe that futures trading may lead to speculation.

Trade:

On September 9, 2011, the government lifted the export ban on non-Basmati rice, which had been in effect since September 2007 (with ad hoc humanitarian exports exempted from time to time). Exports of Basmati rice continued without quantitative restriction throughout the period, subject to a minimum export price (MEP), which changed from time to time. On July 4, 2012, the government removed the MEP requirement on exports of Basmati rice.

In March 2008, the GOI removed the import duty on rice, although there has been no importation of rice since then.

Marketing:

Indian high-quality Basmati and select premium ‘short grain’ varieties compete against U.S. rice in several markets, particularly Middle East and European countries.

Commodities:

Barley
Corn
Millet
Sorghum

Author Defined:

Coarse Grains

Production:

Assuming normal 2014 monsoon and weather conditions, India’s MY 2014/15 coarse grain production is forecast higher at 41.7 MMT, compared to MY 2013/14 production of 40.5 MMT, on higher planting. Relatively low market prices during MY 2013/14 will affect planting of corn in the upcoming season while planting of sorghum and millet should recoup some area that had shifted to competing crops last year. The MY 2014/15 production forecast includes 22 MMT of corn, 12 MMT of millet, 6 MMT of sorghum and 1.7 MMT of barley. Most coarse grains are cultivated in the kharif season (more than three fourths), with some corn, sorghum and barley taken as rabi season crop. With only about 15 percent of the coarse area under irrigation, performance of 2014 monsoon rains is critical for planting and productivity of the kharif coarse grain crops. While monsoon rains also affect planting prospects of the rabi crop, winter rains are essential for higher yields and prolonged frosts during the critical crop growth stage (December-January) could temper yield prospects.

The timely and well distributed 2013 monsoon and consequent excellent soil moisture conditions encouraged farmers to shift area from ‘low value’ coarse grains like sorghum and millet to other competing crops (corn, pulses, oilseeds, and to some extent wheat). The Ministry of Agriculture’s provisional planting estimates show lower planting of millet and sorghum in MY 2013/14. However, favorable planting conditions coupled with relatively firm domestic prices in MY 2012/13 resulted in a 7-percent increase in planting of MY 2013/14 corn. Consequently, Post’s total coarse grain production estimate for MY 2013/14 is estimated at 40.54 million tons, which includes a record 23.0 MMT of corn, 10.5 MMT of millet, 5.2 MMT of sorghum, and 1.7 MMT of barley.

Source: Ministry of Agriculture, GOI; and FAS/New Delhi estimates for MY 2013/14 and 2014/15

Corn production in India has shown a steady upward trend in recent years on higher planting and improving productivity due to wider adoption of hybrid seeds. Market sources report planting of hybrid corn at 60 percent, which is expected to grow further in the near future as farmers shift area out of traditional cultivars to higher-yielding hybrid varieties. Corn production has also been supported by growing demand from the local poultry, animal feed and starch industry and exports. However, largely rain-fed millet and sorghum production fluctuates year to year depending on the performance of the monsoon. In the absence of any major productivity enhancing technology breakthrough and demand from commercial/industrial sector in decades, these crops are facing increasing competition from corn, cotton, soybeans, and pulses in major states, especially with the expansion in irrigation.

Production of barley, a relatively small winter crop in north India, has also been relatively steady around 1.7 MMT in recent years on continued demand from the malting and brewing industry, which has been growing at 10-12 percent per annum in the last decade. Traditionally barley production in India consists of feed-type, six-row varieties, unsuitable for malting. In the last few years a few good malting-type barley varieties have been developed under public-private breeding programs, which are gradually replacing feed barley. Trade sources report that some malting and brewing companies have started contract farming of malting barley in Rajasthan, Punjab and Haryana.

Several Indian seed companies and public sector research institutions are working on the development of various genetically engineered (GE) crops, including corn and sorghum. While public opinion of GE crops has been generally ambivalent, the regulatory policy environment has been regressive in the last few years. Several anti-biotech environmental and consumer groups have been running aggressive and sustained campaigns against GE crops and products in India. See GAIN report IN3083 for further information on agricultural biotechnology in India.

Consumption:

Coarse grain consumption in MY 2014/15 is forecast to increase to 38.6 MMT compared to 37.0 MMT in MY 2013/14 on expected higher domestic production and strong demand from animal feed and industrial users on expected low prices. With corn prices declining since the beginning of MY 2013/14, there has been a strong resurgence in demand for corn and other coarse grains by poultry and animal feed sector and industrial users (starch, ethanol). Given sufficient domestic supplies, demand from these sectors is likely to remain strong in MY 2014/15 assuming no major change in the current price and economic growth environment.

Food use accounts for a major share of consumption of sorghum, millet, and barley, while corn is increasingly being used for feed and industrial use, particularly poultry feed and starch. Some new barley varieties are being used for brewing (around 600,000 metric tons).

Traditionally, coarse cereals were the staple diet of Indians. Since early 1970s, coarse cereals have been increasingly replaced by rice and wheat due to genetic improvement (Green Revolution) and the government’s focus on these two crops for food security. Economic growth has also led to a steady shift away from coarse grains as they are perceived as inferior to rice and wheat by consumers with rising income levels. Nevertheless, coarse grains remain the staple diet for a large section of the subsistence farmers and rural poor in growing areas. Consumption of coarse grains is also improving among particularly “health conscious” and diabetes-prone Indians for their richer nutrient and fiber contents.

Growing demand from the animal feed (poultry) and industrial starch sectors continues to fuel consumption of corn. After two consecutive slowdown years, the poultry industry has bounced back in MY 2013/14 with improved profit margins due to relatively low corn prices and stable poultry product prices. Assuming stable price parity, corn demand from the poultry industry is expected to grow by 12 percent in MY 2013/14 and 8 percent in MY 2014/15. Corn demand for starch, mainly used by the textile industry, has also recovered strongly on improved demand resulting from a rebound of the textile industry following MY2012/13’s slowdown. In MY 2014/15, more than half of corn consumption will go for feed use (10.8 MMT), primarily for poultry feed, with about 1.8 MMT consumed by the starch industry, about 1.2 MMT for alcohol and other industrial use, and the balance for food.

Sorghum and millet are largely used for food while inferior quality products (rain damaged) go for cattle feed. The high tannin content of Indian sorghum restricts its use in poultry rations, but its use in the production of spirits, industrial alcohol, and starch is reportedly increasing. India’s domestic ethanol program is based on molasses, a sugar industry byproduct, as feed stock, and does not allow use of cereal grains for producing ethanol for fuel. Consequently, the domestic ethanol program does not affect the domestic market for food, feed and trade in cereal grains and their byproducts.

Prices

Despite strong domestic demand, corn prices have declined in MY 2012/13 on weak international prices and strong domestic supplies.

Source: Agmarket News (http://agmarkweb.dacnet.ic.in), Ministry of Agriculture, GOI

Corn prices across the major markets in the first week of February 2013 ranged from INR 11,800 ($190) to INR 13,250 ($213) per metric ton, about 5 percent lower than previous-year prices during the corresponding period. Prices of other coarse grains have been higher on lower production. National average sorghum prices in the first week of February 2013 were estimated at INR 18,300 ($295) per metric ton, about 7 percent higher than last year, and pearl millet prices at INR15,600 ($251) per metric ton, about 24 percent over last year.

Trade:

India’s corn exports in MY 2014/15 are forecast lower at 2.5 million tons on expected strong domestic demand. Typically Indian corn is discounted for quality vis-à-vis other origins and export volumes largely depend on the price competitiveness of Indian corn in the global market. Consequently, any significant improvement in international corn prices or weakening of the value of Indian rupee may improve the export prospects. India exports most of its corn to southeast Asian countries like Vietnam, Indonesia, Malaysia, Taiwan, and neighboring Bangladesh. Occasionally, India exports small quantities of sorghum and barley, largely to neighboring countries and the Middle East. Relatively tight domestic supplies are likely to limit exports of sorghum and barley in MY 2014/15 to small quantities.

After two consecutive years of record corn exports, MY 2012/13 exports are estimated to decline to 3 MMT on relatively weak export demand and strong domestic off take. Market sources report that Indian corn is barely competitive in the global market due to weak international prices. Provisional export figures compiled by a private source for the first two months of MY 2013/14 (November-December 2013) estimate corn shipments at about 440,000 metric tons compared to 780,000 metric tons during the corresponding period last year. Market sources report that export prospects are likely to improve after the harvest of rabi corn in March, bringing down domestic prices. India’s ability to ship in relatively small lots is also an important selling factor in neighboring and south Asian markets.

Assuming stable global corn prices for the remaining part of the season, MY 2013/14 exports are estimated to reach 3.0 million tons, more than 36 percent lower than last year’s record exports.

Policy

Production:

The GOI production policy and programs for coarse grains are nominally the same as for wheat and rice, but with significantly lower attention and budgetary support. The government’s minimum support price (MSP) procurement program and food distribution program through public distribution system (PDS) for coarse grains are very limited and less effective than those for rice and wheat. During the current season, the government has had to intermittently undertake MSP operations in the states of Andhra Pradesh, Karnataka and Maharashtra, procuring about 500,000 metric tons of corn by end of January 2014.

Unlike wheat and rice, the government does not typically maintain a buffer stock of coarse grains to keep prices in check. The GOI does not allow use of food grains, including coarse cereals, for ethanol for fuel. Efforts to produce ethanol from other feed stocks like sweet sorghum stover and crop waste are still in an experimental stage.

The current biotech regulatory policy environment continues to hamper approval of genetically engineered corn, even though some of the events are at an advanced stage of regulatory approval. Most biotech events in other coarse grains are still at the developmental stage, and are yet to be submitted for regulatory approval.

Trade:

Currently, GOI imposes no restrictions on exports of corn, millet, sorghum, or barley, and imports are allowed subject to the effective import duty and phytosanitary conditions specified in the Plant Quarantine (Regulation of Imports into India) Order 2003. The basic import duty on sorghum and millet is 50 percent, and zero for barley. Imports of corn outside the TRQ are subject to a 50-percent import duty.

India’s existing trade policy allows imports of corn under a tariff rate quota (TRQ) of 500,000 metric tons at zero duty. To import corn under TRQ at zero duty, the importer must obtain a Tariff Rate Quota Allocation Certificate issued by the Directorate General of Foreign Trade (DGFT). The Certificate is issued in accordance with the procedure as may be specified by the EXIM Facilitation Committee from time to time through a public notice. However, TRQ imports are managed only through specified state trading enterprises and cooperatives, and thus are not accessible to private trade. The TRQ was not utilized in 2012/13 and imports under TRQ are unlikely in the coming marketing year.

The GOI’s phytosanitary requirement pertaining to the limitation on weed seeds, ergot and other SPS issues, and absence of approval of biotechnology events have effectively banned U.S. coarse grain exports to India, including corn and barley. Imports of any biotech product, including genetically modified corn and products, are subject to approval by India’s biotech regulatory agency, the Genetic Engineering Appraisal Committee (GEAC). The GEAC has approved no biotech coarse grains or byproducts for import.

Marketing

India currently does not import corn or other coarse grains. However, the growth of the poultry and starch industries may eventually create demand for imported corn in next five to ten years, while growth in the brewing industry may fuel demand for malting barley in near future.

February 2014

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