Reliance emerges as a winner after India’s wheat ban
On the evening of May 13, India announced a sudden ban on exports of wheat, catching nearly all buyers and sellers of the grain unprepared. One notable exception was billionaire Mukesh Ambani’s Reliance Industries, which has since entered the business of trading grain and quickly became the country’s second-largest wheat exporter in the period after the ban.
That Friday in May, India’s commerce ministry ruled that only those exporters who had a bank guarantee – an irrevocable letter of credit (LC) – issued on or before that date, would be allowed to export wheat.Read More : How investments in tech are helping Asia's richest man diversify his business The unusual condition caught the industry off guard as most Indian exporters typically don’t use an LC, several traders Al Jazeera spoke to said.
One of the only firms that use LCs as part of normal business practice is India’s largest wheat exporter, ITC Ltd. But even ITC was caught on the back foot because it had yet to get LCs for future shipments, a person familiar with the development who is not authorised to speak to the media told Al Jazeera.
On May 13, however, there was another company that had an LC ready – Reliance Retail, which had at least one LC for $85m issued on May 12 for it to buy about 250,000 metric tonnes of wheat. Al Jazeera has seen a soft copy of the LC.
With that bank guarantee in hand, Reliance entered the grain trading business for the first time.
Policy flip-flops
The move to staunch wheat exports came on the back of soaring global prices which put “at risk” India’s “food security”, the government said in its notification. But the policy flip-flop came barely a month after Prime Minister Narendra Modi offered to use Indian stocks to feed the world as the Ukraine crisis shook food supplies.
The decision left both farmers and small traders saddled with huge losses. Small traders had been purchasing wheat at huge premiums, hoping to sell it at a profit in the international markets, and farmers were holding on to some of their crop, thinking prices would rise further.
But with one stroke, those plans were shattered as practically all the large exporters, including ITC and Reliance, triggered the “force majeure” clause in their contracts and refused to take wheat at previously agreed-upon prices, several traders told Al Jazeera.
Sandeep Bansal, a miller in Mathura, Uttar Pradesh, is one of the many impacted. On the Monday after the Friday ban, he received an email from his buyer ITC telling him to stop all deliveries to the company “with immediate effect”. Soon after, it cancelled the orders, citing “force majeure”. Al Jazeera has seen the emails.
“Traders had to accept this,” he said, adding, “Wheat is a cash crop – for farmer and for the trader. You sell it and get the payment. Traders are not in a position to hold for long, especially at negative sentiment.”
Some traders had filed for LCs on May 13, and they pleaded with the government to include them in those allowed to export, but the government rejected the pleas, insisting that only existing LCs counted.
A handful of those affected exporters had had agreements to sell wheat to the United Arab Emirates and applied to Emirati banks for their LCs on May 13. But that was the day the UAE’s long-ailing ruler Sheikh Khalifa bin Zayed Al Nahyan died and the country announced a three-day suspension of work, including in the private sector.
As a result, the LC requests only came through the following week and were rejected by the Indian government. “The government of UAE wrote to the Indian government saying this happened, but it had no bearing,” one trader, who declined to be named because he didn’t want to put himself into the crosshairs of government scrutiny, told Al Jazeera.
India restarted its exports around May 22, allowing only companies with LCs dated May 13 or earlier to ship wheat.
Of the 2.1 million tonnes of wheat that has sailed or is in the process of being shipped since, about 334,000 metric tonnes belongs to Reliance, second after ITC’s 727,733 metric tonnes, according to port data as of August 16.
Reliance’s growing impact
Reliance appears to have been preparing for agricultural exports since last year. The first hint was a stock exchange filing last October where it said it had newly incorporated wholly-owned subsidiary Reliance International Limited in Abu Dhabi to undertake activities relating to, among others, trading crude oil and agricultural commodities.
The newly incorporated unit is expected to supply both the company’s exports and its domestic business, industry watchers say.
The wheat export restrictions have given Reliance an opportunity to impact the domestic market as well, where it buys vast quantities of grain for its private-label products sold across its chain of more than 15,000 Reliance Retail shops.
Last week, Reliance Retail turned out to be the highest bidder to purchase wheat stocks from the states of Haryana and Madhya Pradesh. As per that tender, the governments were looking to sell 100,000 tonnes of wheat, with a minimum bid of 5,000 tonnes. In the past, Reliance has bought smaller quantities, industry players say. (The Madhya Pradesh tender has since been reissued as the original bids were found to be too low.)
The entry of a large firm like Reliance could impact the trade in other ways, experts say. Currently, India’s wheat supply chain is disorganised and consists of many small traders who collectively play a significant role. These players, by the nature of their size, usually have limited storage capacity, meaning they buy small lots of the harvest and rarely offer top dollar.
“A new big player could capture this portion as it would be able to attract farmers with better prices and also invest in logistics, including better storage facilities,” causing a disruption in how the market functions, says Sampad Nandy, global agriculture editor at S&P Global Commodity Insights.
That Friday in May, India’s commerce ministry ruled that only those exporters who had a bank guarantee – an irrevocable letter of credit (LC) – issued on or before that date, would be allowed to export wheat.
One of the only firms that use LCs as part of normal business practice is India’s largest wheat exporter, ITC Ltd. But even ITC was caught on the back foot because it had yet to get LCs for future shipments, a person familiar with the development who is not authorised to speak to the media told Al Jazeera.
On May 13, however, there was another company that had an LC ready – Reliance Retail, which had at least one LC for $85m issued on May 12 for it to buy about 250,000 metric tonnes of wheat. Al Jazeera has seen a soft copy of the LC.
With that bank guarantee in hand, Reliance entered the grain trading business for the first time.
Policy flip-flops
The move to staunch wheat exports came on the back of soaring global prices which put “at risk” India’s “food security”, the government said in its notification. But the policy flip-flop came barely a month after Prime Minister Narendra Modi offered to use Indian stocks to feed the world as the Ukraine crisis shook food supplies.
The decision left both farmers and small traders saddled with huge losses. Small traders had been purchasing wheat at huge premiums, hoping to sell it at a profit in the international markets, and farmers were holding on to some of their crop, thinking prices would rise further.
But with one stroke, those plans were shattered as practically all the large exporters, including ITC and Reliance, triggered the “force majeure” clause in their contracts and refused to take wheat at previously agreed-upon prices, several traders told Al Jazeera.
Sandeep Bansal, a miller in Mathura, Uttar Pradesh, is one of the many impacted. On the Monday after the Friday ban, he received an email from his buyer ITC telling him to stop all deliveries to the company “with immediate effect”. Soon after, it cancelled the orders, citing “force majeure”. Al Jazeera has seen the emails.
“Traders had to accept this,” he said, adding, “Wheat is a cash crop – for farmer and for the trader. You sell it and get the payment. Traders are not in a position to hold for long, especially at negative sentiment.”
Some traders had filed for LCs on May 13, and they pleaded with the government to include them in those allowed to export, but the government rejected the pleas, insisting that only existing LCs counted.
A handful of those affected exporters had had agreements to sell wheat to the United Arab Emirates and applied to Emirati banks for their LCs on May 13. But that was the day the UAE’s long-ailing ruler Sheikh Khalifa bin Zayed Al Nahyan died and the country announced a three-day suspension of work, including in the private sector.
As a result, the LC requests only came through the following week and were rejected by the Indian government. “The government of UAE wrote to the Indian government saying this happened, but it had no bearing,” one trader, who declined to be named because he didn’t want to put himself into the crosshairs of government scrutiny, told Al Jazeera.
India restarted its exports around May 22, allowing only companies with LCs dated May 13 or earlier to ship wheat.
Of the 2.1 million tonnes of wheat that has sailed or is in the process of being shipped since, about 334,000 metric tonnes belongs to Reliance, second after ITC’s 727,733 metric tonnes, according to port data as of August 16.
Reliance’s growing impact
Reliance appears to have been preparing for agricultural exports since last year. The first hint was a stock exchange filing last October where it said it had newly incorporated wholly-owned subsidiary Reliance International Limited in Abu Dhabi to undertake activities relating to, among others, trading crude oil and agricultural commodities.
The newly incorporated unit is expected to supply both the company’s exports and its domestic business, industry watchers say.
The wheat export restrictions have given Reliance an opportunity to impact the domestic market as well, where it buys vast quantities of grain for its private-label products sold across its chain of more than 15,000 Reliance Retail shops.
Last week, Reliance Retail turned out to be the highest bidder to purchase wheat stocks from the states of Haryana and Madhya Pradesh. As per that tender, the governments were looking to sell 100,000 tonnes of wheat, with a minimum bid of 5,000 tonnes. In the past, Reliance has bought smaller quantities, industry players say. (The Madhya Pradesh tender has since been reissued as the original bids were found to be too low.)
The entry of a large firm like Reliance could impact the trade in other ways, experts say. Currently, India’s wheat supply chain is disorganised and consists of many small traders who collectively play a significant role. These players, by the nature of their size, usually have limited storage capacity, meaning they buy small lots of the harvest and rarely offer top dollar.
“A new big player could capture this portion as it would be able to attract farmers with better prices and also invest in logistics, including better storage facilities,” causing a disruption in how the market functions, says Sampad Nandy, global agriculture editor at S&P Global Commodity Insights.
Source: www.aljazeera.com
