India is the world’s second-largest wheat producer, and has about 10 per cent of the world’s grain reserves, according to data from the United States Department of Agriculture. For months now, global buyers were banking on wheat supplies from India to help make up for global supply shortages that are heavily affected due to the Russia-Ukraine war.
India on Saturday banned exports of wheat with some exceptions, days after saying said it was targeting record shipments this year. The move came at a time when scorching heatwave in northern parts of the country has curtailed output and domestic prices had hit a record high. “The move to ban overseas shipments was not in perpetuity and could be revised,” news agency Reuters quoted senior government officials as saying. As per the official notification, the government had taken the decision “in order to manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries”.
What is the exception to India’s wheat export ban?
In the official notification, the Central government said it will allow only export shipments for which letters of credit have been issued on or before Friday. Besides, the government will also allow exports on requests from other countries, the notification issued by the Directorate General of Foreign Trade (DGFT) said.
Why did India ban wheat export and how it will affect inflation?
Rising food and energy prices have pushed India’s annual retail inflation near an eight-year high at 7.79 per cent in April. Due to rising inflation, wheat prices in India have risen to record highs, in some spot markets hitting 25,000 rupees per tonne, well above the government’s minimum support price of 20,150 rupees.
There was no dramatic fall in wheat output this year, but unregulated exports had led to a rise in local prices, news agency Reuters reported quoting government officials.
“We don’t want wheat trade to happen in an unregulated manner or hoarding to happen,” commerce secretary BVR Subrahmanyam told reporters in New Delhi, according to Reuters.
Rising fuel, labour, transportation and packaging costs are also boosting the price of wheat flour in India.
“It was not wheat alone. The rise in overall prices raised concerns about inflation and that’s why the government had to ban wheat exports,” the agency quoted another senior government official as saying who asked not to be named as discussions about export curbs were private. “For us, it’s the abundance of caution,” they added.
Earlier this week, India had outlined its record export target for the fiscal year that started on April 1, saying it would send trade delegations to countries such as Morocco, Tunisia, Indonesia and the Philippines to explore ways to boost shipments.
How Heatwave affected wheat production in India?
The government in February had forecast wheat production at 111.32 million tonnes, the sixth straight record crop, but in May, it had cut the forecast to 105 million tonnes.
Quoting a New Delhi-based dealer with a global trading firm, Reuters reported that a spike in temperatures in mid-March means the wheat crop could instead be around 100 million tonnes or even lower. “The government’s procurement has fallen more than 50 per cent. Spot markets are getting far lower supplies than last year. All these things are indicating lower crop,” the dealer said.
How will India’s ban on wheat export affect global grain rates?
Russia and Ukraine are two of the world’s biggest wheat suppliers. The war has interrupted wheat production, while the blockades in the Black Sea have disrupted the transport of the grain. Further, poor harvests in China, along with a heatwave in India and drought in other countries, have further snarled the global grain supply.
India is the world’s second-largest wheat producer, and has about 10 per cent of the world’s grain reserves, according to data from the United States Department of Agriculture. The country has a large surplus resulting from its heavily subsidizing of its farmers. For months now, global buyers were banking on wheat supplies from India to help make up for global supply shortages that are heavily affected due to the Russia-Ukraine war.
Before the ban, India was aiming to export a record 10 million tonnes of wheat this year. Now, India’s ban could drive global prices to new peaks given already tight supply, hitting poor consumers in Asia and Africa particularly hard, according to the Reuters report.
Meanwhile, cashing in on a rally in global wheat prices after Russia invaded Ukraine, India has reportedly exported a record 7 million tonnes of wheat in the fiscal year to March, up more than 250 per cent from the previous year.