Im­port tax hike hits Black Sea wheat ship­ments to In­dia

The Gulf Today - Business - - REGION -

MUM­BAI/MOSCOW: In­dia’s de­ci­sion to raise its wheat and peas im­port tax will re­duce the flow of wheat ship­ments from the main Black Sea pro­duc­ers Ukraine and Rus­sia and has al­ready hit the Rus­sian mar­ket for peas, traders and an­a­lysts said.

In­dia has dou­bled its im­port tax on wheat to 20 per cent on Wed­nes­day, as the world’s sec­ond big­gest pro­ducer tries to rein in im­ports to sup­port lo­cal prices.

The move is a sig­nif­i­cant blow for Ukraine, In­dia’s largest sup­plier, and there are con­cerns that Kiev will now need to cut prices to com­pete more fiercely in other mar­kets which could be bad news for ri­vals such as Rus­sia and the Euro­pean Union.

“Twenty per cent is ba­si­cally a pro­hib­i­tive tar­iff, and we are likely to leave the (In­dian) mar­ket,” Yeliza­veta Malyshko at Ukrago con­sult con­sul­tancy said.

The tax hike by In­dia will re­duce Ukraine’s wheat sup­plies to the coun­try this sea­son to about 1 mil­lion tonnes from the pre­vi­ously ex­pected 1.5 mil­lion-1.6 mil­lion tonnes, a trader in Ukraine said. Ukraine ex­ported a to­tal of 5.8 mil­lion tonnes of wheat in July-septem­ber, of which 360,000 tonnes went to In­dia.

In­dia im­ports wheat mainly from Ukraine, Aus­tralia, Bul­garia and Rus­sia, and its sup­ply and de­mand bal­ance along with good prospects for the next year show that the de­ci­sion on the wheat im­port tax is un­likely to be short­lived. “As mon­soon rain­fall was good in north­ern In­dia, we are ex­pect­ing an­other bumper crop in 2018,” said an of­fi­cial with state-run Food Cor­po­ra­tion of In­dia.

In­dia had im­ported 5.75 mil­lion tonnes of wheat in the 2016-17 fis­cal year ended on March, the high­est since the 2006-07 sea­son. Wheat stocks with gov­ern­ment agen­cies stood at 23.9 mil­lion tonnes as on Nov.1, up 27 per cent from a year ago.


“Sup­plies sit­u­a­tion is very much com­fort­able now. Lo­cal crop can eas­ily ful­fil de­mand. That’s why gov­ern­ment wants to re­strict im­port and sup­port farm­ers,” said Har­ish Galipelli at Indi-trade De­riv­a­tives & Com­modi­ties.

In­dian farm­ers have started sow­ing new sea­son wheat that will be ready for har­vest­ing from March. In­dia’s wheat pro­duc­tion rose to a record 98 mil­lion tonnes in 2017 af­ter poor crops in 2015 and 2016.

“The duty hike has erased im­port par­ity. Im­ports from Ukraine or Aus­tralia have be­come ex­pen­sive,” said a dealer in Mum­bai.

For Rus­sian wheat, In­dia is a small mar­ket with sup­plies of 56,900 tonnes in July-septem­ber. How­ever, there is a risk that Kiev will have to de­crease its wheat prices due to the par­tial loss of the In­dian mar­ket, in­creas­ing pres­sure on the Black Sea prices, said Vladimir Pet­richenko at Proz­erno con­sul­tancy.

Rus­sia is ex­pected to be af­fected more by In­dia’s de­ci­sion to im­pose a 50 per cent im­port tax on peas, an­nounced also, as prices of pulses fell below the gov­ern­ment-set sup­port level in the lo­cal mar­ket.

Rus­sia had ex­ported 550,000 tonnes of peas since the start of the sea­son on July 1, of which 27 per cent were sup­plied to In­dia, Dmitry Rylko at the IKAR con­sul­tancy said.

In­dia is the sec­ond largest mar­ket for Rus­sian peas af­ter Turkey, and the duty hike has al­ready hit the Rus­sian mar­ket, a Rus­sia-fo­cused trader said.

“No­body knows where to sell their (Rus­sian) peas now and there are not too many op­tions. A week ago, I saw bids at $230-240 per tonne, now they are at $180,” the trader said.

Ac­cord­ing to the trader, Rus­sian farm­ers will re­duce their area un­der pea sow­ings in spring if the In­dian im­port duty is not re­moved in the com­ing months.

Mean­while, Rus­sia’s grain ex­ports are run­ning smoothly af­ter a crack­down on tax avoid­ance in the coun­try’s agri­cul­ture trade, a se­nior Rus­sian Tax Ser­vice of­fi­cial said.

Rus­sian au­thor­i­ties and some Rus­sian grain ex­porters agreed that from July 1, the start of the 2017-18 sea­son, traders would avoid work­ing with firms sus­pected of fail­ing to pay taxes.

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