The containment of exports would be a major blow to India’s ambition to cash in on the global wheat rally
India banned grain exports on Saturday, just days after it said it was aiming for record shipments this year as a scorching heat wave reduced production and domestic prices soared to all-time highs.
The government said it would still allow exports backed by letters of credit already issued and to countries requiring supplies “to meet their food security needs.”
Global buyers were banking on supplies from the world’s second largest wheat producer following the collapse of exports from the Black Sea region following the Russian invasion of Ukraine on February 24. Prior to the ban, India was aiming to ship a record 10 million tons this year.
While not one of the top wheat exporters in the world, India’s ban could drive global prices to new highs given the already scarce supply, hitting poor consumers in Asia and Africa particularly hard.
“The ban is shocking,” said a Mumbai-based trader with a global trading company. “We expected a brake on exports after two or three months, but it seems that the inflation numbers have changed the government’s mind.”
Rising food and energy prices pushed India’s annual retail inflation near an eight-year high in April, reinforcing expectations that the central bank would raise interest rates more aggressively. .
Wheat prices in India have soared to record highs, reaching 25,000 rupees ($ 320) per ton in some spot markets, well above the government support minimum price of 20,150 rupees.
Rising costs of fuel, labor, transportation and packaging are also driving up the price of wheat flour in India.
“It wasn’t just wheat. The rise in overall prices raised concerns about inflation and that is why the government had to ban grain exports, “said a senior government official who asked not to be named as discussions on export limits were private.
“For us, it’s an abundance of caution,” he said.
India just this week outlined its record export target for the fiscal year that began April 1, saying it will send trade delegations to countries like Morocco, Tunisia, Indonesia and the Philippines to explore ways to increase shipments.
In February the government forecast production of 111.32 million tons, the sixth consecutive record harvest, but in May it reduced the forecast to 105 million tons.
A spike in temperatures in mid-March means the harvest could instead be around 100 million tons or even lower, said a New Delhi-based retailer with a global trading company.
“Government procurement has fallen by more than 50%. Spot markets are getting far fewer supplies than last year. All of these things point to a lower harvest,” the retailer said.
Cashing in on a rise in global wheat prices after Russia invaded Ukraine, India exported a record 7 million tonnes of wheat in the fiscal year to March, an increase of more than 250% over the previous year. ‘last year.
“The increase in the price of wheat has been quite moderate and Indian prices are still substantially below global prices,” said Rajesh Paharia Jain, a trader based in New Delhi.
“Indeed, wheat prices in parts of the country had jumped to their current level last year as well, so the move to ban exports is nothing more than an instinctive reaction.”
Despite a decline in production and government purchases by the Food Corporation of India (FCI), India could have shipped at least 10 million tons of wheat this fiscal year, Jain said.
The FCI has so far purchased just over 19 million tons of wheat from domestic farmers, compared to last year’s total purchases of 43.34 million tons. The FCI buys grain from local farmers to run a food welfare program for the poor.
Unlike in previous years, farmers preferred to sell grain to private traders, who offered better prices than the government’s fixed rate.
In April, India exported a record 1.4 million tons of wheat and agreements have already been signed to export around 1.5 million tons in May.
“The Indian ban will raise global wheat prices. There are no major suppliers on the market right now,” said another retailer.
($ 1 = 77.4700 Indian rupees)