India’s Wheat Exports Are Booming - Can It Continue?

Published 2021년 11월 11일

India has experienced a boom in wheat exports from April to August 2021 with an 811.77% export volume increase year-on-year. High harvest quantities domestically and supply issues in normal suppliers to the neighboring countries have paved the way for India’s reemergence as a significant wheat exporter. Production and freight situation forecasts suggest that India’s wheat export boom can continue well into 2022.

Export boom in first eight months of 2022

In the first half of the Indian market year (MY) 21/22 running from April 2021 to March 2022, India’s wheat export has skyrocketed. According to data from The Agricultural and Processed Food Products Export Development Authority (APEDA), India exported a total of 1,99 mil. MT, which is nearly equivalent to the total MY 20/21 export volume of 2.09 mil. MT. Comparing the H1 21/22 Indian export with H1 of MY 20/21, the volume has increased by 811.77 % and the value by 763.63%. The export of H1 20/21 represents an eight-year high as similar volumes and quantity values have not been seen since H1 13/14.

Source: APEDA

The reasons for India’s emergence as a major wheat exporter in the first eight months of 2021 are plentiful. High global demand, lower exportable quantities from major exporters and an abundance of domestic supply all played a role. In addition, the continued increase in freight rates during 2021 have seen India gain a competitive advantage in exporting to nearby markets, particularly Sri Lanka and Bangladesh.

Supply issues in major wheat exporting countries paved the way for India

The 20/21 market year* in Ukraine, Canada and Russia, all of whom typically export large quantities of wheat to Sri Lanka and Bangladesh, offered challenges affecting the exportable quantities negatively.

Ukraine failed to meet the production volume expectations ahead of their 20/21 market year, as the total production volume landed at 24.9 million MT due to unfavorable weather conditions - a fall from 29.1 Mil. MT in MY 19/20. The lower production put a squeeze on exports and forced buyers to seek new sources of supply.

In the winter of 2021, Russia introduced export quotas and higher taxes in an attempt to stabilize domestic prices. An export quota of 17.5 Mil. MT for the period between Feb. 15th-Jun. 30th 2021 was set. Along with the doubling of the export tax to 60,5 USD per MT in March 2021, the measures saw Russian wheat becoming uncompetitive.

Canada enjoyed a decent harvest of 35 mil. MT in the MY 20/21, but their exports to Sri Lanka and Bangladesh have been severely affected by increasing freight rates globally. From the beginning of 2021 till the end of August 2021, the International Grain Council’s Canada Sub freight index increased from staggering 68.40% from 105 to 177.

Source: IGC

As a result of the high sea freight cost, buyers in Sri Lanka and Bangladesh turned to neighboring suppliers of India in their quest for supplies of wheat.

Good harvest allowed India to export

On the global scene, India plays an important role as the second largest producer of wheat. Between 10/11 and 20/21 the production volume has increased 80.8 Mil. MT in 10/11 to a 107.9 Mil. MT in 20/21. The explanation for the increase in production volume is partly to be found in the Indian government’s minimum support prices for wheat, that have frequently been increased during the past decade, as the higher minimum support prices have increased incentives for producers to expand wheat production areas. In addition to minimum support prices for producers, the Indian government purchases great quantities and holds considerable stocks of wheat.

Since 2014, India has exported low quantities of wheat as the price of Indian wheat was uncompetitive. Indian wheat export prices were continuously above those of the world market.

Source: Trademap

When prices of wheat rose worldwide during the latter part of 2020 due to production and logistics challenges of major wheat exporters, Indian wheat gradually regained its competitiveness and exports to nearby markets soared. This was made possible by the large harvest volume in India that resulted in excess exportable quantities and allowed India to drive down their stocks.

Source: APEDA

Perspectives for India as a wheat exporter

The continuous increase in Indian wheat production volumes and a projected 21/22 harvest of 109.52 Mil. MT offers some indication that India may keep their position as a significant wheat exporter in the years to come. As in H1 of 21/22, however, this will greatly depend on the global market situation.

As for main competitors, Ukraine, Canada and Russia, for exports to India’s neighboring countries the outlook for the short-term are somewhat mixed.

Canada’s exports are forecasted to fall to 15 Mil. MT in 21/22, against 26.4 Mil. MT

During August and September, the first two months of the MY 21/22, exports were down 24% year-on-year compared to the year before

Ukraine on the other hand, is projected to bounce back from the 20/21 harvest of 24.9 Mil. MT and are forecasted to harvest 33 Mil. MT in MY 21/22. The export forecast is 24.9 Mil. MT for MY 21/22 against 16.6 Mil. MT in MY 20/21.

Russia’s export tax will continue in MY 21/22, but was loosened in the summer of 2021, where it changed form from a fixed tax per MT to a floating tax likely to be lower than the 60.5 USD per MT. Export quotas may be introduced at short notice during the MY 21/22 as demonstrated by the quota implementation in the winter of 2020. The production forecast for Russia is 74,5 Mil. MT for 21/22, which represents a significant fall from the 85,4 Mil. MT harvested in 20/21.

As for the freight industry, experts have told The Economic Times that the growth in demand following Covid-19 disruptions can continue until midway through 2022.The high prices may continue until 2023, where large fleet replacements are expected to take place.

A continuation of the high freight prices are positive news for the Indian wheat exporters, as this would help to keep Indian wheat prices competitive on nearby export markets, especially in comparison to wheat from North America due to long freight routes. India can expect increased competition from Ukraine in 21/22, whereas Russia is looking unlikely to fully recover their previous export rates. Given these circumstances, India seems set to retain their position as a significant wheat exporter in the coming year.

*Notes:

Ukraine market year (July-June)

Russia market year (July-June)

EU market year (July - June)

India market year (April-March)

Canada market year(August-July)

Sources

Reuters: India's wheat exports could quadruple to 8-year high as global prices rally

USDA: Grain: World Markets and Trade Nov. 2021

APEDA: India export statistics

World-Grain: India re-emerges as rice and wheat exporter

World-Grain: India forecast to increase wheat exports