Skip to main content

Who Benefits From Soaring Wheat Prices in India?

Judging from experience, the Centre’s export ban may be temporary. Exports from India have been hitting records in recent months.
wheat procurment

India’s domestic wheat market has been on fire ever since the government said it was targeting record shipments this year after exports from the Black Sea region plunged following the Russia-Ukraine war in February. Wheat prices in India rose to record high levels in the last three months. In some spot markets, prices moved up by 25% to Rs. 25,000 per metric tonne as against the government’s minimum support price of Rs. 20,150. According to the export trade, India’s wheat exports hit a record 7.85 million tonnes in 2021-22.

India exported wheat to Bangladesh, South Korea, Sri Lanka, Oman, Qatar, and other countries. Most export deals were between $225 and $335 a tonne free on board (fob). In April, India said it aimed to export 10 million tonnes of wheat from 2022 to 2023. As a result, wheat prices in the domestic market started zooming. And, expectedly, the government procurement at the support price dropped by over 50% from a year ago. By banning wheat export, the government is now trying to calm local prices.

Only last month, India exported a record 1.4 million tonnes of wheat. Traders signed new deals to export around 1.5 million tonnes in May. The government said it would still allow exports for which letters of credit (LoC) have been issued and on request from countries trying to “meet their food security needs.” The government did not apply the Force Majeure clause, which refers to uncontrollable circumstances such as war, labour stoppages and extreme weather, to cancel export orders. One reason given by the government behind its quick somersault banning wheat export is the “extremely hot weather” prevailing in the major wheat-growing states such as Uttar Pradesh, Punjab, Haryana, Rajasthan, and Madhya Pradesh.

Uttar Pradesh accounts for nearly 38% of India’s total wheat output. India is the world’s second-largest producer of wheat after China. The country produced nearly 109 million tonnes of wheat last year, against China’s 135 million tonnes. Interestingly, in 2021, China’s wheat import rose by 16.6% to 9.77 million tonnes. Russia, the world’s third-largest wheat grower, produces close to 86 million tonnes. Last week, India’s agriculture ministry said the country’s wheat output this year may shrink nearly three per cent to 106 million tonnes—the first decline since 2014-15.

Given the population size of China (1.44 billion) and India (1.39 billion), which are close to each other, there is no reason to justify India’s wheat export at all. Obviously, the country’s so-called wheat and rice export surpluses may be at the cost of its poor people’s stomachs. China is also the world’s largest rice grower, producing around 148 million tonnes per annum. It also imports rice. India, the second-biggest rice grower, produces close to 122 million tonnes and is a major rice exporter. India exported rice to over 150 countries in 2021-22.

According to the Directorate General of Commercial Intelligence (DGCI), India had exported non-basmati rice worth US$2 billion in 2019-20, which rose to $4.8 billion in 2020-21 and $6.11 billion in 2021-22. India’s rice exports in 2021 totalled 21.4 million tonnes, up by 46% over the previous year. Bangladesh was the largest buyer of Indian rice in 2021 at 2.48 million tonnes, followed by Nepal, Benin and China. Nearly 20% of India’s poor live on cheaper grains such as pearl millet (bajra) and maize, which also get used in animal feed.

Ostensibly, India banned wheat exports to tame prices at home. The government also fears lower wheat production this year due to prevailing heatwaves. But these reported developments hardly explain why, only a few days ago, the government decided to make a record wheat export target, over 10 million tonnes, this year. What about the prime minister’s export assurance earlier this month? India’s sudden ban on wheat export has upset many countries. It has delivered a fresh blow to world markets already reeling under tight supplies due to output issues in traditional export powerhouses such as Canada, Europe and Australia and snarled supply lines in the war-torn Black Sea area.

In normal times, together, Russia and Ukraine are the world’s largest wheat supply sources. India’s decision has particularly upset the G-7 block. During his recent visit to Germany on May 1-2, Prime Minister Narendra Modi had said India could supply food grains to countries hit by an unusual situation. India also planned to send a trade delegation to nine countries to estimate the potential of wheat exports this year. However, the lately projected production shortfall is said to have suddenly changed the government’s stand. Export is curbed for the sake of domestic food security, while India now says there is no shortage of grain in the global market.

Yet, going by experience, there is no guarantee that India’s wheat export ban will last for long despite a lower output forecast. Even in 2014-15, when India’s grain production dropped sharply, traders managed to export wheat, rice and corn, although their combined export fell by 29% to 13.5 million tonnes. Much depends on the manipulative ability of the trade, which manages to export and import grains almost every year. Ironically, Indian traders are regularly importing wheat year after year.

Since the Modi government came to power, India’s largest wheat import was in 2016-17. Importers purchased 2.7 million tonnes of wheat from Australia, France and Ukraine, and another 1.2 million tonnes of grain were contracted later that year. Paradoxically, India also earned $50 million from wheat exports in 2016. In fact, private traders control imports, exports and prices of wheat, rice, cereals, sugar and edible oils no matter which government or political party is in power. The government’s latest ban on wheat export appears to be, at best, a temporary measure.

There are chances that the wheat export ban will be lifted or softened as early as June end. Less than a week after the export ban, traders in certain domestic markets had already brought down wheat prices. This price decline clearly indicates how traders control the agri-market. Price movements in the domestic wheat market will also depend on the trend of the ensuing south-west monsoon. The government’s meteorological department (IMD) predicted a week ago that the monsoon would come sooner this year, courtesy of cyclones Asani and Karim.

The IMD has predicted a normal southwest monsoon in 2022. Near-uniform rainfall distribution is forecast, though some specific parts may receive less rainfall. Barring Punjab, Haryana and the western part of Uttar Pradesh, most other wheat-growing states are expected to get good rains by the middle of June itself. The southwest monsoon sets typically in those northwestern states in the first week of July. However, domestic wheat prices are unlikely to show a downtrend.

(IPA Service)

Get the latest reports & analysis with people's perspective on Protests, movements & deep analytical videos, discussions of the current affairs in your Telegram app. Subscribe to NewsClick's Telegram channel & get Real-Time updates on stories, as they get published on our website.

Subscribe Newsclick On Telegram

Latest