After months of reaping the benefits of a lopsided global food market the government has suddenly stepped on the brakes of a train moving at breakneck speed. The implications on this are far and wide. On Saturday, 14th of May 2022, the government banned wheat exports on an emergency basis. Only relaxation was extended to the shipments for which letters of credit were issued. The Notification kept a discretionary window open to the Directorate General of Foreign trade to allow export on a case to case basis upon request from countries. No sooner than the ban was announced, a political slugfest was put on display with the opposition crying foul to the distress caused to the farmers. The global community has also reacted with wariness. Undoubtedly Indian wheat was a good alternative to the global buyers fast running out of options. With the sudden brakes the situation is fast turning grim. But what could be the reasons for this?
The mindless conflict between the powerful Russia and its minnow of a neighbor Ukraine presented an opportunity like no other for the Indian wheat market. Together the two warring neighbours control a whopping 28.47% or roughly 1/3rd of the global wheat trade.
Indiscriminate bombing has sounded a deadly blow to the Ukrainian trade with both production and export now looking difficult. Not only that, with the majority of the population dislocated, migrated or worse, dead restarting labour intensive farming activities will be an uphill task for the Ukrainians. Moreover, with America and with its NATO allies vowing to block all Russian trade routes and implementing sanctions on top of sanctions, the Russian agriculture sector shall also remain affected for the considerable future.
India and its huge agrarian population looked like the perfect standby to this global crisis. Traditionally Indian wheat suffered from low quality and higher prices. Now with global prices of wheat increasing the situation is fast changing. Buyers visited Indian wheat growing centers in droves over the past few months to check and approve varieties and prices for emergency shipments. Egypt, the largest wheat importer, also approved India as a verified importer to the state in view of the current geopolitical turmoil. Countries like Turkey, China, Bosnia, Sudan, Nigeria, and Iran were also in discussion with the Indian government. This was an opportunity unlike any other for the country to grow its minuscule wheat exports markets. Not only would this have helped to shore up foreign exchange but it would have also helped offset trade deficit thanks to the huge and ever burgeoning oil bill. Had it not been for the present twist of events the Indian farmers would have even realised a good rate for their principal crop.
The Indian prime minister in his address to the Indian diaspora in Germany announced that the Indian farmer has stepped forward to feed the world. The government was also in the midst of sending trade delegations to various countries to achieve a record target of 10 million tons wheat export for the financial year 2022-2023.
Farmers were also reaping the windfall. Wheat prices surged to top the Minimum Support Price set by the government by more than 25%. This too was in ready cash as the exporters were besieged by export orders. The farmers naturally were jubilant and made a beeline to the ‘mandis’ to sell their crop to the highest bidder. Indian inflation surged to record highs of 7.9% in April straining the already pandemic hit allets of the nation’s working class. The biggest reason would be the increase in global oil prices and its spillover effect on the oil dependent post COVID Indian economy. Therefore to control the food inflation the wheat prices also needed to be kept in check and hence this decision may have come about.
In the recent past, the country is experiencing one of the worst heat waves with temperatures soaring up to as high as 45 degrees in the northern parts. The heatwave has temperatures shooting up and the water levels shrinking across the country especially in the cereal growing farmlands of central and northern India. The heatwave has, furthermore, affected the farm outputs and the country has reduced its forecast from 111 million tons to 105 million tons due to this.
The PDS system in the country provides free or subsidised food grains to the most vulnerable members of the Indian society. The program covers more than 81.35 crore people with monthly rations of rice and wheat. It is therefore that there needs to be a stock cushion wherein the people dependent on this largess are not left in the lurch.
The market for wheat is ever evolving with the demand being high and the supply being low, pushing the prices even higher. The rates for wheat have gone up in the international market. Wheat, being a winter season crop, will have the next ideal season a good 10 months to one year from now. Therefore, there is every possibility of the prices going higher from the current levels. This could mean the countries with good stockpiles profiting immensely from this.
India did find new markets in various countries such as in Europe, Africa and Asia as exports from Ukraine had taken a halt due to the war and it was India, the second largest wheat producer in the world, which was feeding the population of many countries around the globe. However, due to uncontrollable and unpredictable fluctuations in the weather, India had to ban exporting wheat in order to ensure its own food security and control the domestic prices so that local people were able to afford to buy wheat which was a necessity. While countries may argue that this was not a right decision since it would lead to escalating the crisis even further, India as a country had to place itself at the topmost priority regardless of other countries interpreting this as a selfish decision. This was a decisive and a calculated measure taken by the Indian government to prevent inflation escalating at a rapid rate. There are continuous meetings taking place between countries and there is little hope that the ban would soon be lifted up but at the moment, the situation is very volatile and unstable and nothing can be guaranteed.
