India bans wheat exports as heat damages crops and domestic prices rise

The government said it would continue to allow exports secured by letters of credit already issued and to countries that request supplies “to meet their food security needs.”

As senior government officials said at a press conference, the decision to ban foreign supplies was not indefinite and could be reconsidered.

Global buyers have relied on supplies from the world’s second-largest wheat producer after exports from the Black Sea region plummeted following Russia’s February 24 invasion of Ukraine. Prior to the ban, India was aiming to ship a record 10 million tons this year.

Officials added that there had been no sharp drop in wheat production this year, but unregulated exports had driven up local prices.

“We don’t want wheat trading to happen in an unregulated manner or to be hoarded,” BVR Trade Minister Subramanyam told reporters in New Delhi.

While India is not one of the top wheat exporters in the world, India’s ban could push global prices to new peaks given already tight supply, hitting poor consumers in Asia and Africa especially hard.

“The ban is shocking,” said a dealer from a Mumbai-based international trading firm. “We were expecting export restrictions in two to three months, but it looks like the inflation figures have changed the government’s mind.”

Rising food and energy prices pushed India’s annual retail inflation near an eight-year high in April, fueling expectations that the central bank will raise interest rates more aggressively.

Wheat prices in India have soared to record highs, reaching Rs 25,000 ($320) per ton in some spot markets, well above the government support floor of Rs 20,150.

Rising costs of fuel, labor, transportation and packaging are also pushing up the price of wheat flour in India.

“It wasn’t just the wheat. The increase in general prices raised concerns about inflation, and so the government had to ban wheat exports,” said another senior government official, who asked not to be named because the discussion of export restrictions was private. “For us, it’s an abundance of caution.”

smaller harvest

This week, India outlined its record exports for the fiscal year that began April 1, saying it would send trade delegations to countries like Morocco, Tunisia, Indonesia and the Philippines to explore ways to boost supplies.

In February, the government forecast production at 111.32 million tons, the sixth straight record harvest, but in May it lowered the forecast to 105 million tons.

A spike in temperatures in mid-March means a crop could be around 100 million tons or even less, a New Delhi-based dealer for the global trading firm said.

“Government purchases have decreased by more than 50%. There are far fewer offers on the spot markets than last year. All this indicates a lower yield,” the dealer said.

Forget oil prices.  Watch the cost of bread

Taking advantage of rising global wheat prices following Russia’s invasion of Ukraine, India exported a record 7 million tons of wheat in the fiscal year to March, more than 250% more than the previous year.

“The increase in wheat prices has been quite moderate and prices in India are still well below world prices,” said Rajesh Paharia Jain, a New Delhi-based trader.

“Wheat prices in some parts of the country jumped to current levels last year, so the export ban is nothing more than a reflex reaction.”

Despite falling production and government purchases by the state-owned Food Corporation of India (FCI), India could supply at least 10 million tons of wheat this fiscal year, Jain said.

So far, FCI has purchased just over 19 million tonnes of wheat from local farmers, compared to last year’s total purchases of a record 43.34 million tonnes. He buys grain from local farmers for a food aid program for the poor.

Unlike in previous years, farmers preferred to sell their wheat to private traders who offered better prices than the government’s flat rate.

In April, India exported a record 1.4 million tons of wheat, and in May, agreements were already signed for the export of about 1.5 million tons.

“An Indian ban will push up world wheat prices. There is no major supplier on the market right now,” another dealer said.

Leave a Reply

Your email address will not be published.