Export ban shakes world markets, wheat prices up 6%

The unexpected ban by India, which accounts for about 5 per cent of world wheat exports, stoked prices further. In Chicago, futures rose 5.9 per cent to $12.47 a bushel on Monday, the highest in two months. The closing price in the previous trading session on May 13 — the day India imposed the ban — was $11.77 a bushel.

According to the Indian government’s Department of Commerce portal, the country exported 66.41 lakh tonnes of wheat in the first 11 months (April 2021 to February 2022) of financial year 2021-22 (1 tonne is 1,000 kgs or 2,204.6 pounds). This data conforms with the latest US Department of Agriculture’s May 2022 report, which estimates wheat exports from India in the 12 months from July 2021 to June 2022 at 10 million metric tons (1 ton is 2,000 pounds). The total world wheat exports during the period are estimated at 201.5 million metric tons.

In the current financial year – April 2022 to March 2023, the Indian government estimates about 45 lakh metric tonnes of wheat to have been contracted for exports. Of this, 14.63 lakh metric tonnes have been exported in April 2022 alone, substantially higher than 2.43 lakh metric tonnes in the same month last year. Besides, 95,167 metric tonnes atta have been exported in April this year, almost four times more than 25,566 MT in April 2021.

The Group of Seven (G-7) countries too expressed disappointment on India’s decision. After a meeting of G-7 agriculture ministers in Germany, German Agriculture Minister Cem Ozdemir said the export restriction would “worsen the crisis”. “If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,” Ozdemir said at a press conference in Stuttgart on Saturday.

India defended the decision. The ban was “essentially in view of the price rise”, Union Food Secretary Sudhanshu Pandey said Saturday during a media briefing. Retail inflation has been ruling over 6 per cent for four straight months in calendar year 2022, with the print for April soaring to 7.79 per cent, much higher than the upper band of RBI inflation target of 6 per cent. In the Consumer Price Index, wheat/ atta from PDS has a weight of 0.17 and wheat/ atta from other sources has a weight of 2.56.

Research analysts said the impact of India’s export ban would be felt disproportionately by low income developing countries. In a note after the ban, Nomura Global Markets Research pointed out that except India and Australia, most Asian economies depend on imported wheat for domestic consumption and are at risk from higher wheat prices globally, even if they do not directly import from India.

Bangladesh especially will feel the brunt, Nomura noted. Indeed, Bangladesh was the biggest buyer of Indian wheat, importing 38.04 lakh tonnes in 2021-22. Sri Lanka (5.48 lakh tonnes), UAE (4.24 lakh tonnes), Indonesia (3.66 lakh tonnes), the Philippines (3.52 lakh tonnes) and Nepal (2.90 lakh tonnes) were the other big importers of Indian wheat.

Nomura further said the impact on India’s domestic food inflation would be muted. “This export ban is a pre-emptive step and may prevent local wheat prices from rising substantially; however, with domestic wheat production likely limited by the heatwave, local wheat prices may not moderate materially. If India’s wheat ban leads to higher price of substitutes like rice, then there could be upward pressure on other food prices,” it said.

Commerce Secretary BVR Subrahmanyam said the ban serves three purposes: i) maintaining the country’s food security, ii) helping those in distress; if countries make a specific request, the Indian government will take a call, and iii) India’s reliability as a supplier is being maintained by not reneging on any existing contract. “So, if we say that roughly 1.6 or 1.7 million tonnes has gone out, we are still prepared to allow another 2.5 million (tonnes) to go if there are prior book valid orders with a letter of credit,” he said at the media briefing on Saturday.