In a surprise move, the government has “prohibited” export of wheat citing spike in local food prices. The decision was taken on account of “sudden spike in the global prices of wheat arising out of many factors”, the Ministry of Commerce and Industry said. However, the government will still allow exports backed by already issued letters of credit and to countries that request supplies “to meet their food security needs”.
Hours after the announcement, the government dismissed reports of threat to food security, saying there was no dramatic fall in wheat output this year but unregulated exports had led to a rise in local prices.
“We don’t want wheat trade to happen in an unregulated manner or hoarding to happen,” a senior government official briefed media in the national capital.
The move comes as a surprise as the commerce ministry had on Thursday announced that it will send trade delegations to nine countries including Morocco, Tunisia, and Indonesia to explore possibilities of boosting wheat shipments. The country had recently set a target of a record 10 million tonnes of wheat in the 2022-23 after having exported 7 million tonnes of wheat during the last fiscal. Interestingly, the announcement comes barely a month after Prime Minister Narendra Modi had offered to supply India’s food stock to the world. Speaking about his US visit during an event on April 12, PM Modi had said, “I was speaking to the US President, and he also raised this issue… If the WTO gives permission, India is ready to supply food stock to the world from tomorrow.”
The ban will be effective on wheat exports through private route, the centre can still prioritise wheat export through government channels apart from fulfilling national requirement. The global agriculture market has been destabilised by the Russian invasion of Ukraine. The two countries together export more than a quarter of the world’s wheat but the supplies have been disrupted due to the war resulting in nearly 45% rally in global wheat prices. Apart from price rise, the rise in export could also be attributed to a weaker rupee against the dollar and improved internal logistics that made shipments from India attractive.
The government has revised wheat production estimate by 5.7 per cent to 105 million tonnes in the 2021-22 crop year ending June, from the earlier projection of 111.32 million tonnes, as the productivity is likely to take a slump due to the early onset of summer. It is to be noted that the current wheat output estimate (105 million tonnes) is not very despairing. However, the wheat procurement by government agencies this year declined by nearly 38% compared to the previous year. Due to the rising global demand, private exporters are offering farmers prices significantly higher prices than the MSP offered by the government. While government has the power to restrict export of agricultural commodities in critical situations, the current ban makes little economic sense because it will deprive the farmer of reaping the benefits of global prices when these are high. With the ban on exports becoming effective today, farmers will have no option but to sell to government at MSP, much below than what they were getting currently
It’s not easy to compete with private players especially when the food grain is being secured for its welfare requirements. It’s an opportune time for government to introspect and work towards bridging gaps in storage and supply to reduce spoilage and pilferage. The government could also have offered a market price at a premium to the MSP to fulfill its minimum stocking requirement while contracting supplies as needed in the futures market.