Impact of a U-turn on India’s wheat exports
- Wheat prices in India have risen in double digits since Nov ‘21, driven by a rise in India’s exports
- After India’s export ban, domestic wheat inflation has already started to ease
Wholesale wheat prices rose by 10.7% from a year earlier in April after gaining more than 14% in the previous month. In fact, wholesale wheat prices have been rising in double digits since November last year. This had started seeping into retail inflation, with the wheat (flour)/atta prices in the open market rising by 9.6% in April.
Why did this happen? The simplest answer lies in the fact that India exported much more wheat in FY22 at 7.23 million tonnes than its cumulative wheat exports of 6.78 million tonnes in the seven years over FY15-FY21.
Interestingly, two-thirds of last fiscal’s exports happened in the second half, peaking at close to a million tonnes in January. What is the explanation? By the second half of FY22, the probability of Russia attacking Ukraine increased dramatically. Russia is the world’s largest exporter of wheat. Ukraine comes fifth.
Wheat traders bet on the probability of the war and started purchasing it. This, in turn, pushed up wholesale wheat prices.
Of course, the central government took a while to figure out what was happening. The realization that wheat prices were rising unusually fast probably happened only when the Food Corporation of India’s (FCI’s) wheat procurement was much lower this year.
As of 16 May, the total wheat procured in the central pool for the rabi marketing season of FY23 was around 18.1 million tonnes. This was less than half of the 37.3 million tonnes procured as of 17 May in the rabi marketing season of FY22.
This is primarily because farmers were getting a better price from traders than from the government. Also, because of a severe heatwave in north India, wheat production might turn out to be lower than the government’s estimate of 111.32 million tonnes.
With an export ban in place, mandi prices of wheat have started to fall. Further, traders who had bought wheat for exports will have to now sell it in the open market. This will drive down prices further. In the process, more farmers will end up selling their wheat to FCI, as they are likely to get a better price than in the open market. The government has considered this possibility and extended the last date for wheat procurement. The date has been extended to 31 May in Punjab and Haryana and to 15 June in Uttar Pradesh and Madhya Pradesh, the four largest states for wheat procurement.
Hence, domestic wheat inflation will come down. This will have some impact on dampening overall food inflation. At the same time, the government will have enough wheat in its godowns to run the various food security programmes.
On the flip side, the move hasn’t gone down well internationally, especially as the government did suggest that Indian farmers will step in to feed the world and, thus, address global wheat shortage. While exports have been banned, the government has said that it will look into specific requests for wheat from neighbouring, food-deficit countries.
The Indian ban has pushed global wheat prices to record highs, making it difficult for countries that import wheat. Egypt, China, and Turkey are the world’s top wheat importers.
While a higher price of wheat globally will impact all importers, the impact of India’s export ban will be felt by Bangladesh and Sri Lanka. In FY22, Bangladesh imported 4.1 million tonnes of wheat from India or around 56% of Indian exports. Sri Lanka imported 583,123 tonnes.
All said, one thing is not clear. If wholesale inflation of wheat was in double digits from November, why couldn’t the government handle this in a better way? After all, by January, things were as clear as they could possibly be.
