Issued by CEMO Center - Paris
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India Bans Wheat Exports, Putting More Pressure on Global Food Supplies

Sunday 15/May/2022 - 02:52 PM
The Reference

India said it would ban wheat exports, in a move that will add to global inflationary pressure and further strain global food supplies that have been disrupted by the war in Ukraine.

 “The food security of India, neighboring and other vulnerable countries is at risk,” India’s Directorate General of Foreign Trade said in a notice on Friday explaining the ban.

Global buyers are depending on India—the world’s second-biggest producer of wheat—for supplies after shipments from the Black Sea region have dropped since the Russian invasion of Ukraine in late February. The United Nations has warned the world faces potential food shortages.

The disruptions due to the crisis have driven up the prices of wheat and other commodities globally. In April, India’s wheat prices hit their highest level since 2010. After five years of bumper crops, a searing heat wave and a lack of rain have reduced yields. Authorities say the rise in prices has led to hoarding by some wheat traders.

Last week, the Indian government lowered its wheat production estimate by 5.7% to 105 million metric tons for the crop year ending June. The government had earlier projected wheat production at a record of about 111 million tons, which would have made it the sixth season in a row to produce a surplus. India produced nearly 110 million tons of wheat in the previous crop year.

 “It’s all due to early summer,” India’s food secretary, Sudhanshu Pandey, said last week.

India has sweltered through its hottest March and April in more than 100 years, causing a 6% loss to the yield, Mr. Pandey said, with top grain-producing states of Punjab, Haryana, Madhya Pradesh and Uttar Pradesh among the worst-affected.

India is a crucial supplier of wheat to its neighbors. Afghanistan recently received large consignments of wheat from India on humanitarian grounds. Bangladesh is another big importer of Indian wheat.

India said exports will still be allowed to countries that require wheat for food-security needs. Shipments of wheat for letters of credit that have already been issued will also be allowed to proceed, the notice from the Directorate General of Foreign Trade said.

About 4 million tons of wheat has already been contracted for export this year, and about 1.1 million tons had been exported by April.

Vikram Singh, joint secretary of the All India Agricultural Workers’ Union, said the ban on wheat exports wouldn’t prevent hoarding by private traders. “They will continue to hoard to cash in on huge profits in the domestic and international markets amid high prices of wheat,” he said.

India’s agriculture policies—particularly its policy of setting minimum prices to subsidize farmers—have long been an area of contention with developed countries such as the U.S. Indian authorities say the country needs an unfettered ability to subsidize its farmers and stockpile food for its needy and malnourished citizens, and also as a buffer against the risk of famine.

Wheat stocks at government-run warehouses stood at 30 million tons on May 1. India says it needs at least 25 million tons of wheat each year to run its food welfare program. Mr. Pandey said that after meeting the requirement of welfare programs, India would have stocks of 8 million tons of wheat, higher than the minimum requirement of 7.5 million tons.

India had a vast surplus of food grains before the pandemic. Those excess stocks got strained by distribution of free grain during the pandemic to about 800 million people, especially vulnerable groups such as returning migrant workers and the poor. The program has been extended until September.

India’s domestic grain distribution system is plagued by problems and inefficiencies. Warehouses in grain-producing states sometimes overflow, while those elsewhere sit half-empty. What doesn’t move often rots in storage. Rice and wheat that do reach India’s hundreds of thousands of villages can get held up in other ways. Local officials are responsible for managing the lists of eligible households and distributing the grain to village shops. In parts of the country, allegations of bribery and theft are common.

Rising prices of food and other goods, partly stemming from the war in Ukraine, have weighed on India’s economic recovery from the pandemic, partly stemming from Ukraine war. Earlier this month, India’s central bank raised interest rates to 4.40% from 4%, joining other central banks who have started tightening monetary policy in an effort to tame inflation.

India central bank governor Shaktikanta Das said at a news conference last week that continuing inflation pressures are becoming more acute, particularly on food prices.

Consumer price index-based inflation rose to 7.8% in April year on year, remaining above the Reserve Bank of India’s target for a fourth month in a row, data released by the National Statistics Office showed on Thursday. This was higher than 6.95% in the previous month and 4.23% a year earlier.

Spiraling prices of food and fuel have made it tough for consumers—already struggling to cope with losses during two years of the pandemic—to meet household expenses.

Geeta Goel, a 47-year-old homemaker in New Delhi, said she has moved to buying smaller sizes or cheaper options of regular brands to save money.

 “Everything has suddenly become expensive,“ she said. ”Even online grocery stores are hardly offering any discounts. It’s starting to hurt our pockets. It’s a tough time for us.”

Luv Agarwal, 47 years old, who works as a salesman in a clothing company in Kanpur city in the northern state of Uttar Pradesh, said the higher prices of daily food items and fuel are eating into his spending power.

He recently moved out from his one-bedroom rented apartment to a shared accommodation with two others, saving about 3,000 rupees a month. He has also stopped eating out.

“Prices of everything from pulses to wheat flour to fruits and tea packs have gone through the roof. Where do you cut the expenses?” Mr. Agarwal said.