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The role of India in the wheat markets

06 July 202210 min reading

The US Department of Agriculture (USDA) revised down its wheat export forecasts for India after the Modi government's decision to restrict wheat sales to abroad as of May 13. In a report released by USDA on 8 June, India's export forecast for the 2022-23 season (July-June) was revised as 6 million tons with a decrease of 2 million tons. The export ban comes after a heatwave scorched India’s wheat belt this spring, leading to a smaller-than-expected 2022 crop.

India’s export ban removes another source of affordable wheat for many low-income importing countries, adding stress to an already tight global market. Strong global demand has outpaced production, driving world wheat prices to their highest levels in a decade. In 2020/21, India emerged as an important wheat exporter to the Middle East and South 

Asia. Wheat exports in 2021/22 had been growing significantly, with exports reaching a record 6.8 million tons in the first 9 months of the trade year. Additionally, India’s exports have extended to markets traditionally supplied by Ukraine. India has suggested it may allow some exemptions to the ban on a case-by-case basis for government-to government sales for food security reasons. It has received requests for more than 1.5 million tons from several countries under the exemption.


In addition to the export ban, the government of India is adjusting its domestic food security policies. Due to the tight wheat supply situation, the government has shifted to procuring and distributing more rice and less wheat in its food security programs. As a result, overall wheat consumption in India is forecast to decline, while rice consumption is forecast to rise.

Unlike wheat, India rice supplies are plentiful in 2022/23. Rice exports are forecast to remain robust as India remains the dominant global rice exporter. Following multiple seasons of record crops, rice stocks have more than doubled in recent years, leaving ample room for both exports and higher domestic use. Despite increased exports and more distribution for the government’s food security programs, India’s rice stocks are still expected to rise. The ample supply situation suggests that export restrictions on rice are less likely.

India is the world’s second-largest producer of rice and wheat and by far the largest producer of pulses. Wheat and rice are the cornerstones of India’s food security policy. The Indian government allocates significant funding to support research, development, and extension activities to educate farmers about new varieties and improved production technologies for these crops. Central and state governments also support farmers by subsidizing inputs (water, fertilizer, seed, power, irrigation, chemicals, and agricultural credit) for crops like wheat.

Wheat is the staple food in northwest and central India. It competes with rice in wheat non-growing regions in south and east India. Households, local restaurants, and eateries account for about 80 percent of the wheat domestically consumed in India. Some wheat is used for processed food products such as raised bread, biscuits (cookies), and other bakery items (about 12-15 percent). There is also a small market for high-quality wheat (4-5 MMT) for western-style pasta, and baking/confectionery foods.


On May 19, 2022, the Ministry of Agriculture and Farmers Welfare (MOAFW) released the Third Advance Estimates of Production of Food Grains for the Indian Crop Year (ICY) 2021/2022 (July-June), lowering the forecast grain production estimate to 314.5 million metric tons (MMT). The forecasted lower production is due to the expected lower wheat (106.4 MMT) and barley (1.6 MMT) harvests resulting from unprecedented high and sustained temperatures during the critical milking/seed setting stage. The grains crops’ overall forecasted decline, however, is partially offset by expected higher production of rice (record 129.7 MMT), corn (record 33.2 MMT), pulses (record 25.8 MMT).

USDA lowered its India MY 22/23 (April-March) wheat production forecast to 99 MMT compared to the pre-harvest forecast of 110 MMT. “New Delhi Post is lowering the forecast on the reported yield loss due to extreme temperatures which began the second week of March during the critical milking/seed setting stage throughout the major wheat-growing areas,” USDA noted in its India report. The latest forecast of the Indian government is 106.4 million tons.

The Indian government will permit wheat exports to continue to neighboring countries including Bangladesh, Nepal, Sri Lanka, and other food security vulnerable countries. Most trade sources had been expecting India to export about 5-6 MMT of wheat and wheat products as Indian wheat is now highly competitive in the nearby region ($50 to $80 lower than other origins). Assuming no momentous change in the existing export policy, USDA forecasts MY 22/23 wheat and wheat products exports to reach 6 MMT. And based on the forecast of lower government wheat stocks and expected government wheat offtake under various programs during the year, USDA’s MY 22/23 ending wheat stocks figure is lowered to 8.5 MMT.

There are some obstacles to India's goal of increasing wheat exports, such as logistical bottlenecks at ports and railways, high freight rates and a lack of containers. For India to be a long-term supplier, it must also achieve the desired standard in wheat quality. India was the second-largest wheat producer with a share of approximately 14% in world wheat production in 2020, but its share in global wheat exports remained below 1%. India is an erratic participant in the international wheat market. It imports wheat in low production years, and exports when local supplies are sufficient and prices are competitive.

BREAD AS A STAPLE MODERN INDIAN DIETS

Bread, like in many other nations worldwide, has rapidly come to be an indispensable part of Indian diets. The consumption of grain bread is gaining ground due to faster lifestyles, with myriad varieties being produced and commercialized in markets and bakeries nationwide. Not surprisingly, India is also gearing up to be an indispensable part of the global frozen bakery market landscape, and is expected to have a healthy share in the business in the years to come.

Studies suggest that nearly the per capita consumption of bread in various zones in the nation spans 1.5kg to 1.75 kg, with the vast range of bread reshaping daily meal trends in India. Aside from the western style loaf bread available in the markets, Indians also consume several ethnic varieties of bread such as naan bread cooked in tandoors, or roti and parathas prepared on cookware such as pans. These main ingredients in these bread types are usually flours derived from wheat, millet, chickpeas, and other legumes.

The same lifestyle trends that have influenced the consumption of bread in India also hold for pasta consumption, with the product gaining rapid popularity over the recent years, especially in younger populations.

According to a recent SEMrush study focused on examining the types of recipes searched for by Indian users between February and March 2020, the most popular non-Indian dish searched for by consumers was pasta, with online recipe searches showing a nearly 50% increase, as compared to the pre-COVID period.

Urbanization has triggered several changes in lifestyles, especially food and diet. Practical eating habits have gained massive popularity among younger and busier generations, with pasta and bread taking the lead as the most convenient meal options.

PASTA CONSUMPTION İNCREASED RAPIDLY IN THE PANDEMIC

According to reports, pasta exports in India increased from $ 2.81 million to nearly $ 22.29 million in the 11-year period stretching from 2003-2004 to 2014-2015. Considering this volume, it was also observed that exports during the same period rose from 3,300 tons to 13,300 tons. The study also highlighted that nearly 71.3% of the pasta exports in India were carried out to Nepal, the United States, the United Kingdom, Bhutan Kingdom, and Canada.

Analysts keeping track of the cuisine, economic trends and cultural behaviors in the country have opined that the bread and pasta markets in India will continue to witness considerable growth in the future. This development will be fueled mainly by the rising popularity of Italian cuisine among urban populations in India, given its robust variety and the burgeoning shift in food consumption trends towards ready-to-cook foods.  

For instance, FieldFresh Foods, a seller of premium packaged food and beverage products under the Del Monte brand, saw a substantial increase of over 80%-200% in sales of pasta, sauces, olive oil, as a result of the boom in home cooking activities during the COVID-19-induced lockdown phase. The in-house cooking trend that gripped the nation during the lockdown period also facilitated the two-fold rise and registered volume growth of product ranges such as pasta and olive oil.

FACTORS AFFECTING OF THE BREAD AND PASTA MARKETS IN INDIA

India is a vast country with a population of over 1.2 billion, accounting for almost 17% of the population worldwide. For this reason, the country is also considered to be among the most lucrative consumer markets across the globe, given the rapid rise in income levels as well as population segments.

Food and grocery constitute the largest share of the spending capacity of the consuming class, thereby opening up lucrative avenues for the growth of bread and pasta industries in India. According to reports from NCAER, consuming classes with annual incomes of $980 or more are growing consistently and are projected to account for over 80% of the overall population in the coming years.

As populations in India, especially younger generations in urban regions, become more literate and attuned to western lifestyles, a significant transition in mindsets and preferences across the nation is likely to be observed. Growing number of nuclear, double-income households, as well as a marked increase in the working women population in urban areas, are influencing several facets of modern lifestyle, most notably food. The surging demand for ready-to-cook products and packaged foods, for instance, has added impetus to the penetration of the bread and pasta markets in India in recent years.


Also, urban populations are showing a higher preference for more westernized meals, such as traditional English breakfasts consisting of eggs, bread, and some form of spread. Aside from breakfast, bread is slowly making its way into nearly every meal in an Indian household, be it as a replacement for roti or paratha, or as an accompaniment for soup and salad dinners.

Modern Indian consumers are also becoming increasingly more health-conscious, especially in the COVID-19 era. This, in turn, has resulted in the emergence of a new trend in packaged foods, from organic or gluten-free pasta to artisanal whole-wheat or multigrain bread. Premium bread is especially popular in health-conscious urban Indian households, as they are said to contain nearly 4-7g of fiber, which is an essential nutrient for digestion.

With the presence of the bread and pasta industries in India becoming stronger by the day, many entities in the food & beverage domain have taken up targeted efforts to address changing food trends in the country, from product innovations such as the introduction of organic, vegan and gluten-free pasta to special high-quality bread products.

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