India's surprising U-turn to ban wheat exports

Is this ban on wheat export long-term, or will it be reversed once domestic food inflation is controlled and the government has adequate wheat stocks?

Citing a threat to food security, India has amended the export policy of wheat from free to prohibited category with effect from May 13. The notification further stated that wheat shipments will be allowed "on the basis of permission granted by the Government of India to other countries to meet their food security needs and based on the request of their governments." The export ban, in the wake of a sudden spike in global prices and supply-side shocks, is expected to add to the spate of rising protectionism in the global agricultural market with Russia's invasion of Ukraine.

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The timing of the announcement is surprising, given the government decided to send a delegation to nine countries to explore wheat exporting opportunities last week. Second, Indian traders have an export window only till June, when Argentina will supply wheat, increasing the global availability. India may also face competition from Russia, which is expecting a wheat production of 87 million tonnes (MT) this year.

First, let us understand what has been happening lately in the international wheat market.

For many years, Indian wheat was not competitive in the international market on account of higher prices. Incidentally, the situation changed in 2020, when the global prices of wheat (US hard red winter No 2 variety) rose considerably much above India's domestic (wholesale) wheat prices. Between April 2021 and 2022, the international wheat prices rose by 76 per cent (year-on-year (y-o-y)), which was unprecedented. This gave a window of opportunity to Indian wheat exporters, with domestic wheat becoming competitive in the global market. In 2021-22, India exported a record 7 MT of wheat (valued at $2.05 billion). This year too, India had set a target to export 10 MT of wheat in 2022-23 amid rising global demand for wheat due to escalating geopolitical tension between
Russia and Ukraine.

Then, why did India ban wheat exports with immediate effect?

First, the Indian government has gone cautious about exports to ensure the domestic availability of wheat. Recently, India revised the estimates for wheat production downwards to 105 MT in the 2021-22 crop year from the earlier projections of 111.32 MT (announced on February 16 2022), factoring into account the decline in wheat productivity due to the early
onset of summer, which has resulted in shrivelled grains this year.

Also Read | Wheat prices start falling after govt ban

Second is the high inflationary pressure at the retail end, with overall food inflation reaching 8.38 per cent and wheat and wheat flour spiking to 9.59 per cent in April 2022 (y-o-y)). This could also be due to the low availability of wheat post the harvest season and the non-intervention of the government to offer wheat under OMSS (open market sale scheme) given a low procurement this year. In the 2022-23 rabi marketing season, the wheat procurement by government agencies was only 16.2 MT till May 1 as against the record of 43.3 MT in 2021-22, which is the lowest in the last 15 years. This year procurement price of wheat is pegged at Rs 2015 per quintal, but wheat prices in the market are ruling much above the minimum support price (MSP).

According to the government reports, private traders have contracted to export 4 MT of wheat till June 2022, of which 1.1 MT are already shipped in April. The sudden decision to ban wheat exports may prove costly to the farmers who are holding back their wheat stocks in the hope of fetching higher prices. There is uncertainty if farmers will hold on to their stocks or sell their produce to the government procurement agencies at MSP at a price much lower than they are currently getting.

The moot question is if this ban on wheat export is long-term, or will it be reversed once domestic food inflation is controlled and the government has adequate wheat stocks to meet its own food security needs?

(Kriti Khurana is PhD scholar at BITS-Pilani, Hyderabad and Shyma Jose is a Fellow at ICRIER)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.