Daily Management Review

Why Does India's Wheat Export Prohibition Matter To The Rest Of The World?


Why Does India's Wheat Export Prohibition Matter To The Rest Of The World?
Following concerns that its decision to limit wheat exports could worsen the global food supply situation in the aftermath of the Ukraine war, India has defended its decision to import a ban on export of the grain.
"If everyone starts to impose export restrictions... that would worsen the crisis," German Food and Agriculture Minister Cem Ozdemir said after the ban was announced in May.
However, India's Commerce Minister, Piyush Goyal, claims that the export ban should have no effect on world markets because the country is not a large wheat exporter.
The embargo was announced in India on May 13th, after extremely hot weather damaged the wheat crop, sending local prices skyrocketing. Despite the fact that India is not a large wheat exporter, the action shook global markets, with the Chicago benchmark wheat index surging nearly 6 per cent. Wheat prices climbed for many days, reaching a high on the 17th and 18th of May.
Wheat prices, like other food costs, had surged throughout March and April following Russia's invasion of Ukraine. Because of the disruption caused by the war, millions of tonnes of wheat have been unable to leave Ukraine, one of the world's largest exporters.
According to Kelly Goughary of the farm data analysis firm Gro Intelligence, India's prohibition caused a further price increase since "global customers were relying on supply from India after exports from the Black Sea region plummeted."
Although India is the world's second largest wheat producer, it accounts for less than 1% of global wheat commerce. It keeps a large portion of it to subsidise food for the poor.
However, just before the ban was announced, India was aiming to increase exports by shipping a record 10 million tonnes of wheat this year, up from two million the previous year.
It was supplying new markets in Asia and Africa, and even after the prohibition, numerous governments indicated they were in contact with India to maintain exports.
According to India, some countries would continue to get wheat exports, and the country will "continue to aid neighbours in their hour of need." Bangladesh, Nepal, and Sri Lanka are its biggest export markets, along with the United Arab Emirates (UAE).
According to the Observatory of Economic Complexity (OEC), Sri Lanka and the UAE purchased more than half of their wheat from India in 2019-20, while Nepal imported more than 90 per cent.
It is unclear if these countries would continue to get Indian wheat under existing commitments or will receive supply under future agreements. Egypt, on the other hand, has stated that government imports of Indian wheat will continue. It is one of the world's largest wheat importers.
The International Monetary Fund has urged India to reconsider its export ban, claiming that it might play a key role in alleviating the present wheat supply problem for those nations most affected by Ukraine's conflict.
Aside from the conflict in Ukraine, weather has had an impact on certain key wheat-exporting countries.
"Drought, floods and heat waves threaten crops in some other major producers [US, Canada and France]," says Kelly Goughary of Gro Intelligence.
According to a US government estimate, worldwide wheat production for the 2022-23 period will be the lowest in four years, and global wheat reserves will be the lowest in six years. According to Gro Intelligence, worldwide fertiliser prices have tripled in the last year, threatening "substantial" agricultural yield decreases this year.
It predicts that this, together with other reasons, has reduced global wheat stocks to their lowest level since the 2008 financial crisis.
Because of excessive rains in 2021, China, the world's top producer of wheat for its vast population, warned in March that its winter crop could be the "worst in history."
The real state of the harvest and whether or not it will be adversely affected remain unknown.
However, if it is, China may wish to buy on global markets to replenish its inventories, causing global supplies to tighten further and prices to rise.