India's changing tastes lift wheat demand

NEW DELHI - India is importing wheat for the first time in seven years as farmers fail to keep up with a growing appetite for bread, biscuits and noodles.

The world's second-biggest wheat grower will buy at least 500,000 tonnes of wheat this year, worth about US$70 million ($110 million), and analysts say imports are likely to keep rising as production falls further behind demand. The purchases are likely to boost sales for suppliers such as Australia's AWB and Swiss-based Glencore.

"The country will be a permanent importer of wheat from this year onward," said Vijay Iyengar, managing director of Singapore-based Agrocorp International. "India may need to import millions of tons of wheat in the coming years as consumption is rising, while crop yields are almost stagnant."

The imports mark a reversal for India's so-called "green revolution," which used new hybrid grain seeds in the 1960s to bring the country close to self sufficiency.

Now, lack of arable land and low fertiliser use are restraining harvests, while Indians are eating more wheat-based products as incomes climb.

Indian demand "will definitely push up international wheat prices", said Ravi Chandra, chief consultant at TransGraph Consulting, which advises commodity traders, in the southern city of Hyderabad. "Producers in Australia and the European Union will mainly benefit."

India has the world's second-fastest growing major economy after China.

Wheat for July delivery rose US5.75c, or 1.6 per cent, to US$3.68 a bushel on the Chicago Board of Trade on Tuesday with analysts believing prices could reach US$4.40.

Eating habits are changing in the traditionally rice-consuming southern Indian states. The annual per capita income in India has risen 62 per cent in the past six years to 25,778 rupees ($902) in the year ended March.

Wheat consumption may increase to 74.5 million tons in the year ending in March 2007, up 9 per cent from 68.25 million tons three years earlier, as the country adds about 20 million people a year, says the US Department of Agriculture.

ITC Foods, which controls some 8 per cent of India's biscuit market, planned to double purchases of wheat to 1 million tons this year to feed rising demand, chief executive officer Ravi Naware said from Bangalore. "Wheat is seen as a more nutritious product," he said.

Almost 2 million tons of biscuits are produced in India each year and consumption is growing at 10 to 12 per cent annually. Naware estimates ITC's sales of wheat products may have risen 40 per cent in the year ended March.

AWB, Australia's monopoly wheat exporter, won a contract to supply 500,000 tonnes of wheat to India. Melbourne-based AWB's pool manager, David Johnson, said demand from India would be important as Australia tried to sell its second-biggest wheat crop ever.

"Their stock situation has tightened dramatically in the last year," he said.

In February, the Indian Government lowered its estimate of the March-April wheat harvest to 73.06 million tonnes because of hot weather, down from 76 million tonnes forecast in December.

As a result, India's wheat stockpile may plunge to 1.4 million tonnes in the year ending March 2007 from 4.1 million tonnes two years ago.

M.S. Swaminathan, 80, who heads a government panel on farm output, fears India is losing self reliance in grain production.

In the late 1960s, Swaminathan was the architect of the green revolution, a plan to import high-yielding varieties of wheat, which increased the nation's output to 16.5 million tons from 11.4 million tons.

Some scientists believe India can still increase yields.

"We are trying to identify varieties which are heat tolerant," A.K. Singh, director of state-run Indian Agricultural Research Institute, said in New Delhi.

Farmers in India produce an average of between 2.5 and 3 tons of wheat per hectare, compared with about 5 tons in the US and China.

 

- BLOOMBERG