India’s decision to raise import tax on wheat and peas 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 UkrAgoConsult consultancy said.

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

Bumper crop in 2018

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 Food Corporation of India.

India had imported 5.75 mt 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 mt as on November 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 Inditrade 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.

Import tax on peas

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 on Wednesday, 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 percent 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.

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