June 27, 2022

 

Wheat export ban's impact on India and the world

 

An eFeedLink Exclusive 

The world is depending on India for the supply of wheat as no fresh arrival is expected from anywhere in the world between now and July.

 

However, India banned wheat exports from May 13 after a heatwave swept across the country and affected wheat production. The Food Corporation of India (FCI) was unable to procure an ample quantity of the grain for supply through ration shops.

 

Meanwhile, wheat crops in Ukraine and Russia are expected to mature in August and September. However, no one knows the extent of damage to Ukraine's wheat fields, warehouses and ports as a result of its war with Russia.

 

Australian wheat, which competes with Indian wheat, will arrive only in November. Thus India may need to rethink its export policy.

 

For now, the protracted war in Ukraine was an opportunity for India to tap the global wheat market and sustain demand for its wheat even after the war ends. This was also a good opportunity to dispel the global negative perception of India's export policy.

 

Wheat production this year is estimated at 106 million tonnes lower than initial projections of a record 111.32 million tonnes. The FCI procured only 18.75 million tonnes of wheat as of May 30 against 43.44 million tonnes last year.

 

Last fiscal, India exported a record of over 7.5 million tonnes of wheat and this year, it had targeted to top it before hot weather and poor procurement derailed its plans. The country is not a top wheat exporter but the war in Ukraine has resulted in supply shortage and soaring prices, leading to demand for India's wheat.

 

Russia and Ukraine make up 30% of the global wheat market.

 

Five reasons can be attributed to India's ban on wheat exports:

 

    - India's wheat production this year is feared to be lower than 100 million tonnes against initial estimates of a record 111.32 million tonnes;

 

    - Procurement by the FCI dropped by over 50% compared with last year;

 

    - Wheat prices in India began to increase in the wake of export demand triggered by the war in Ukraine and soaring inflation;

 

    - A sharp surge in global wheat prices could have affected Indian consumers;

 

    -  Fertiliser prices have more than trebled since the war in Ukraine broke out. It will likely lead to lower sowing of wheat across the world and thus, the tight supply of wheat may continue into 2023.

 

India has received requests for the supply of more than 1.5 million tonnes of wheat from several countries that need the staple to overcome shortages.

 

The bulk of the request has come from Bangladesh; however, it is a regular buyer of Indian wheat. For the country, India's wheat is at least 30% cheaper than supplies from other origins, and it takes just about a week for Indian cargoes to reach there. Bangladesh imported a record four million tonnes of wheat from India in the fiscal year to March 2022 against 1.2 million tonnes bought a year earlier.

 

Despite the export ban, India could be open to specific requests for grain from foreign governments. Egypt, the world's biggest wheat importer, has requested the supply of 500,000 tonnes of the grain through diplomatic channels. Jamaica and a few Asian countries are among other buyers looking for wheat from India.

 

Additionally, the country has received requests for wheat from the United Nations' World Food Programme for the supply of the grain to countries such as Uganda and Ethiopia.

 

India did have an opportunity to increase wheat growers' income by tapping the export market and sharing the gains with farmers. Instead of immediately banning the export of wheat, policymakers could opt for a gradual reduction in the quantum of export to combat the speculation over food inflation.

 

However, the Indian government has allowed two kinds of shipments in its revised policy - government-to-government exports to other countries to meet their food security needs and fulfilling their need-based requests.

 

India is considering allowing traders to ship out some of their wheat sitting at ports after a sudden ban on exports of the grain prevented dealers from loading cargoes. The sudden ban on wheat exports trapped about 1.8 million tonnes of the grain at ports, potentially forcing traders to suffer heavy losses. Traders are also pressuring the government to further relax its ban.

 

India's wheat prices have dropped more than 4%.

 

- Dr. Dinesh Bhosale