India hikes wheat import duty to support local farmers

Workers remove dust from wheat at a wholesale grain market in Chandigarh - REUTERS

MUMBAI (Reuters) - India has raised its import duty on wheat to 40% from 30%, the government said late on Friday, as the world’s No. 2 producer of the grain tries to support local farmers.

The step comes as Prime Minister Narendra Modi’s party looks to contain rural discontent due to lower crop prices amid voting in a general election that began on 11 April and ends on 19 May.

Local wheat prices have fallen over 11% in 2019 due to ample supply from last year’s crop and forecasts of record output.

The hike in duty is likely to make imports of wheat unviable for flour mills even after recent declines in global prices, potentially dragging further on global grain markets.

“Local wheat production is higher. The government is now trying to ensure prices remain above support levels,” said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities in Mumbai.

India has raised the price at which it buys new-season wheat from local farmers by 6% to 1,840 rupees per 100 kg for 2019.

The government usually purchases about a quarter of such wheat from farmers at state-set prices to build stocks to run a major food welfare program.

India’s wheat production will rise 2% in 2019 from the year before to a record 99.12 million tons, according to estimates from the country’s agriculture department.

Only one wheat crop is grown in India each year, with planting starting in late October and harvesting in March.

Government wheat stocks stood at 17 million tons as of 1 April, up nearly 30% from the same time a year ago.

“At 40% import duty, imports are not viable for flour mills. They have to buy local crop,” said a Mumbai-based grain dealer with a global trading firm. He declined to be identified as he was not authorised to speak with media.

Indian flour millers imported 1.65 million tons of wheat in the 2017/18 fiscal year, down from 5.7 million tons the year before. Those shipments were mainly from Australia, Russia and Ukraine.