March 23, 2023

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India bans wheat exports as heat wave damages crops and drives up domestic prices

India bans wheat exports as heat wave damages crops and drives up domestic prices

  • The ban could push global wheat prices to new highs
  • India was aiming to export 10 million tons of wheat before the ban
  • The heat wave weakens the size of the wheat crop and raises prices
  • Government procurement is down more than 50% from last year

MUMBAI (Reuters) – India banned wheat exports on Saturday, days after it said it was targeting record shipments this year as a severe heat wave curtailed production and domestic prices hit a record.

The government said it would continue to allow exports backed by letters of credit already issued and to countries requesting supplies “to meet their food security needs”.

Senior government officials said at a press conference that the move to ban foreign shipments was not permanent and could be modified.

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Global buyers were dependent on supplies from the world’s second largest wheat producer after exports from the Black Sea region plummeted following Russia’s invasion of Ukraine on February 24. Before the ban, India had aimed to ship 10 million tons this year. Read more

Officials added that there has been no significant drop in wheat production this year, but unregulated exports have pushed up domestic prices.

Commerce Minister B.V. R Subrahmanam told reporters in New Delhi: “We don’t want wheat trading to happen in an unregulated manner or for hoarding to happen.”

Despite not being one of the world’s largest wheat exporters, India’s ban could push global prices to new highs due to already weak supply, which will hit poor consumers particularly hard in Asia and Africa.

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“The ban is shocking,” said a Mumbai trader with a global trading company. “We were expecting export restrictions after two to three months, but the inflation numbers seem to have changed the government’s mind.”

Rising food and energy prices pushed India’s annual retail inflation close to an eight-year high in April, bolstering expectations that the central bank will raise interest rates more aggressively. Read more

Wheat prices in India have soared to record levels, reaching in some spot markets as high as 25,000 rupees ($320) per ton, well above the minimum government support price of 2,050 rupees.

The rising costs of fuel, labour, transportation and packaging have also driven up the price of wheat flour in India.

“Wheat was not alone. For us, there is an abundance of caution,” said another senior government official, who asked not to be named because discussions about export restrictions were private.

smaller crop

Wheat sludge harvesting on a tractor wagon in a field on the outskirts of Ahmedabad, India, March 16, 2022. REUTERS/Amit Dave

India this week set its record export target for the fiscal year that began on April 1, saying it would send trade delegations to countries such as Morocco, Tunisia, Indonesia and the Philippines to explore ways to boost shipments.

In February, the government expected a production of 111.32 million tons, the sixth consecutive record crop, but it lowered the forecast to 105 million tons in May. Read more

A sharp rise in temperatures in mid-March means the crop could instead be around 100 million tonnes or even less, a New Delhi-based trader with a global trading company said.

“Government purchases are down more than 50%. Spot markets are getting much less supplies than last year. All of these things point to a lower harvest,” the trader said.

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After benefiting from rising global wheat prices after Russia’s invasion of Ukraine, India exported a record 7 million tons of wheat in the fiscal year through March, up more than 250% from the previous year.

“The rise in wheat prices has been rather moderate and Indian prices are still much lower than world prices,” said Rajesh Bhariya Jain, a trader based in New Delhi.

“Wheat prices in some parts of the country jumped to the current level until last year, so the move to ban exports is nothing but an extraordinary reaction.”

Despite lower production and government purchases by the state-run Food Corporation of India (FCI), India could have shipped at least 10 million tons of wheat this fiscal year, Jain said.

So far, the committee has purchased just over 19 million tons of wheat from local farmers, compared to last year’s total purchases of 43.34 million tons. She buys grain from local farmers to run a food welfare program for the poor.

In contrast to previous years, farmers preferred to sell wheat to private traders, who offered prices better than the government’s fixed price.

In April, India exported a record 1.4 million tons of wheat and already signed deals to export about 1.5 million tons in May. Read more

Another trader said, “The Indian ban will raise world wheat prices. At the moment there is not a big supplier in the market.”

(1 dollar = 77.4700 Indian rupees)

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Additional reporting by Rajendra Jadhav in Mumbai and Mayank Bhardwaj in New Delhi; Additional reporting by Nupur Anand. Editing by William Mallard, Simon Cameron Moore and Mike Harrison

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