Wheat export ban should have been avoided
The Directorate General of Foreign Trade (DGFT) in the Union government, through a notice in the Gazette on Friday, banned the export of wheat from India with immediate effect. The DGFT’s principal reason for this decision is to “manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries”. This comes after unusually high temperatures in the north of India in particular affected the crop, possibly halving yields in some parts of the area under cultivation. Meanwhile, the Russian invasion of Ukraine — a major wheat producer and exporter — has led to a spike in the world price for wheat. Wheat prices in the markets have increased by more than 40 per cent year to date.
The consumer price inflation rate for April surged to 7.8 per cent year-on-year, driven in part by food prices. It is possible that this alarming print, the highest level in eight years, may have precipitated the DGFT’s action. The government has also scaled up its distribution of foodgrain during the pandemic. Given that global prices were far higher than the minimum support price, farmers are preferring to sell to exporters than to the procurement system. As a result, the government is struggling to reach the revised procurement target of 19.5 million tonnes, which is lower by over 50 per cent than the January estimate. However, India has enough stock of foodgrains and the government has done well to increase the allocation of rice in public distribution. The combined stock of wheat and rice is at a similar level as in May 2020.
The decision is not just bad economics, but also hugely damaging to India’s international credibility. The prime minister himself had recently assured the world that Indian wheat would help feed it in a time of crisis. The DGFT has rendered the PM’s own assurance null and void. India is the world’s second-largest producer of wheat, but comes behind many other countries — including Ukraine, Argentina, Australia, Canada, the European Union, and Russia — in terms of export. The United States Department of Agriculture had forecast that during 2022-23, Indian exports of wheat would have been less than 10 million tonnes as compared to almost 40 million tonnes from the Russian Federation and almost 50 million tonnes or so from Canada and Australia put together.
However, in spite of India’s relatively low rank as a wheat exporter, the export ban will nevertheless have a major effect on global food security. The notification attempted to allay some of these fears by saying that this was not a blanket ban as such, and that exports would still be allowed of shipments with irrevocable letters of credit, and to countries with specific food security-related needs at the request of their governments. The ban will also affect farm income. When prices are low, they are allowed to export; but when prices are high, they find themselves faced with export bans. This unfairly reduces their income in the long run. To deal with the wheat problem, the government could well have introduced one-time measures, like a temporary surcharge to the minimum support price. There are market-based measures that could have ensured food security for India. But sadly the government chose the worst possible mechanism.