Move seen as a bid to tackle inflation, 6-year low production, poor FCI procurement, impact of Russia-Ukraine war
The Indian government has banned wheat exports with immediate effect in order to address a slew of issues ranging from lower-than-expected production to soaring inflation mainly arising out of the Russia-Ukraine war.
In a notification issued late on Friday night, the Centre, through the Directorate-General of Foreign Trade, justified its decision saying there has been a sudden spike in prices of wheat “arising out of many factors ” as a result of which the “food security of India, neighbouring and other countries are at risk”.
Exports for which letters of credit have already been opened till Friday will be allowed, while shipments that are permitted by the government would also be approved, the notification said.
The ban, coming after 7.87 million tonnes (mt) of shipments last fiscal, caught the wheat trade by surprise as also government officials, while farmers’ organisations denounced the move. An official said the ban was expected but they did not expect the government “to act so fast”.
Catching all by surprise
The export ban has been triggered by factors such as fears of a six-year low production of wheat this year, since 2016 when the output was 92.29 mt, amidst high demand for exports in view of the Russia-Ukraine war and a sharp drop in procurement for buffer stocks by the Food Corporation of India (FCI).
Soaring retail inflation, which surged to an eight-year high in April at 7.79 per cent, and skyrocketing wheat prices both in the domestic and global markets were other reasons for the government’s worry.
A flour miller told BusinessLine that during a meeting with the Union Food Ministry officials on Thursday there were clear indications of the wheat crop being below 100 mt. “The Ministry of Agriculture has been asked to review the crop situation and it is feared it could be around 95 mt,” the miller said on condition of anonymity.
If the production drops to 95 mt, it will be the lowest since 2015-16 when the output was 92.29 mt. This year, wheat production has been affected by the heatwave that set in across the country in March and April. This led to the shrivelling of the crop and affected the output.
Export demand and lower crop concerns have pushed up wheat prices in retail markets across the country to ₹29.70 per kg as of May 12 against ₹28.10/kg three months ago.
This resulted in wheat prices in agricultural produce marketing committee (APMC) yards in wheat-growing States ruling at over ₹2,100 a quintal, well above this year’s minimum support price of ₹2,015. As a result, farmers preferred to sell their produce to private traders than to the FCI for buffer stocks.
Farmers oppose ban
As of May 13, the FCI could procure only 17.9 mt since April 1, lower by over 50 per cent compared with the same period a year ago. The Centre had fixed a 44 mt procurement target for this year but Food Secretary Sudhanshu Pandey told the media last week that it could top 19.5 mt only.
On the other hand, at least 5.1 mt of wheat had been contracted for exports with a little over 2.5 mt being shipped out of the country between April 1 and May 13. “Exporters, including global trading firms, have at least 18 million tonnes in various warehouses near the ports of loading,” an exporter said on condition of anonymity.
Farmers’ organisations questioned the Centre’s move to ban wheat exports with Samyukt Kisan Morcha leader and President of All India Kisan Sabha Ashok Dhawale saying the move is against the interest of farmers.
“We oppose the ban on exports of wheat. The farmers were getting a slightly higher price for wheat due to the situation in Ukraine. But because the summer started early in March, the yield is much less in northern States this year. The government procurement has gone below half. Now the government worries that the export will impact food security. It’s a catch-22 situation for the Centre,” he said.
Domination over rice
Wheat exports had begun to dominate rice shipments, which had to take a back seat with even warehouses overflowing with the wheat stocks meant for exports.
According to a trade analyst, the Centre has been forced to ban wheat exports as reports from other parts of the world, especially from the US Department of Agriculture, indicated a shortage of foodgrains, including wheat, maize and soyabean. “The government seems to have been worried after it got reports earlier this week,” the analyst said.
As the government notification pointed out, global prices, too, have surged to a two-month and near a 14-year high of $11.77 a bushel ($432.32 a tonne) on the Chicago Board of Trade.
According to the International Grains Council, wheat prices in the US jumped by $25 a tonne to $476 for the Soft Red Winter Wheat and $538 for the Hard Red Winter Wheat on Friday. Argentina’s wheat offers increased by $5 to $460 and Europe was quoting at $430.
The Ukraine war is seen as the primary reason for not just the rise in wheat prices but also other commodities such as maize, oilseeds and edible oils. Russia and Ukraine supply nearly 60 mt or 30 per cent of wheat to the global market, while Ukraine is a crucial source of maize and sunflower oil supplies.
The war has affected shipments from both nations, while prices of agricultural commodities are also rising in view of skyrocketing crude oil prices, which are ruling above $110 a barrel for both Brent and WTI grades.
Traders and analysts say the ban could be “temporary” and the Centre could allow shipments once it gets a proper assessment of the wheat situation in the country. According to official sources said the Centre will consider exporting wheat on a government-to-government basis.
The government order curbing wheat exports also said the move was “to manage the country’s food security and support the needs of neighbouring and vulnerable countries”.
In saying that exports will be permitted with government permission, the Centre implies it is open to government-to-government deals, where India could look at helping any country facing food security.
With inputs from AM Jigeesh, Prabhudatta Mishra, New Delhi
Published on May 14, 2022