While the 20 percent wheat tariff is hurting Ukraine, the 50 percent tax on peas is sending Russian pulse prices plummeting
KIEV/MUMBAI/MOSCOW (Reuters) — India’s decision to raise its wheat and pea import tax will reduce the flow of wheat shipments from 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 percent 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.
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“Twenty percent is basically a prohibitive tariff, and we are likely to leave the (Indian) market,” Yelizaveta Malyshko at UkrAgoConsult consultancy said.
The tax hike by India will reduce Ukraine’s wheat supplies to the country this season to about one million tonnes from the previously expected 1.5 to 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 short-lived.
“As monsoon rainfall was good in northern India, we are expecting another bumper crop in 2018,” said an official with the state-run Food Corporation of India.
India had imported 5.75 million tonnes of wheat in the 2016-17 fiscal year ending in March, the highest since the 2006-07 season. Wheat stocks with government agencies stood at 23.9 million tonnes as of Nov. 1, up 27 percent from a year ago.
“Supplies situation is very much comfortable now,” said Harish Galipelli of Inditrade Derivatives and Commodities.
“Local crop can easily fulfil demand. That’s why government wants to restrict import and support farmers.”
Indian farmers have started seeding new season wheat, which will be ready for harvesting in 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.
India is a small market for Russian wheat with supplies of 56,900 tonnes in July-September.
However, there is a risk that Kiev will have to decrease its wheat prices because of the partial loss of the Indian market, increasing pressure on the Black Sea prices, said Vladimir Petrichenko of the ProZerno consultancy.
Russia is expected to be affected more by India’s decision to impose a 50 percent import tax on peas, because 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 July 1, of which 27 percent were supplied to India, Dmitry Rylko of 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,” the trader said.
“A week ago, I saw bids at $230 to $240 per tonne. Now they are at $180.”
According to the trader, Russian farmers will reduce their pea area in the spring if the Indian import duty is not removed in the coming months.
