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Should India rethink the ban on wheat exports?

Domestically and in the neighbourhood, too, India’s ban only creates fresh uncertainties despite the government’s assurance that government-to- government contracts will be honoured, writes N. Chandra Mohan for South Asia Monitor

N Chandra Mohan May 17, 2022
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Wheat farmers of Punjab (Photo: Youtube)

Global wheat prices surged after India decided to ban fresh shipments of wheat except for valid export contracts with irrevocable letters of credit and to neighbouring and other vulnerable countries. This sudden, if not kneejerk, decision by the Modi government came barely a day after contemplating sending trade delegations to nine countries “for exploring possibilities of boosting wheat exports from India”.  

A month ago, India’s Prime Minister Narendra Modi had told US President Joseph Biden that India stood ready to supply wheat to the world if the World Trade Organization permitted it. Not surprisingly, the US and the G-7 grouping of rich nations have urged India to reconsider the ban although, surprisingly, China has come to its defence.

Wheat prices are soaring due to supply uncertainties due to the ongoing Russian offensive in Ukraine. There is a disruption in the Baltic Sea region that has impacted exports from Ukraine and Russia, which together account for 30 percent of the world’s traded wheat.  
 

Ban and global prices  

India’s ban is perceived to impact global prices as it is the world’s second-largest wheat producer with 10 percent of grain reserves, according to the US Department of Commerce. But its shipment of 7.22 million tonnes is only a small part of global wheat exports of 191 million tonnes in 2021-22 (July-June). India’s ban nevertheless worsens the supply squeeze, triggering inflation. In this milieu, if the G-7 decides to also reduce wheat exports, they are in no position to criticize India, as China has pointed out.

The proximate causes for India’s export ban relate to surging food prices with wheat inflation of 9.59 percent and lower output and procurement that threaten its food security. The scorching temperatures in March dampened hopes of record wheat production of 111.2 million tonnes in 2021-22 (July-June), resulting in premature ripening and shrivelling of grains.  
 

Wheat yields in vanguard agrarian states like Punjab and Haryana have sharply dropped by 10-15 percent from last year. The government’s internal revised estimates of wheat production are now 98 million tonnes, the lowest since the 92.3 million tonnes in 2015-16, according to the Sunday Express, although the Secretary of the Ministry of Agriculture states that the yield losses are not that high with output in the ball-park of 105-106 million tonnes.

Dropping procurement  

As a result, the government’s wheat procurement from farmers fell to a 15-year low of 18 million tonnes in the just concluded rabi marketing season as against a record 43.3 million tonnes procured last year. With lower procurement and opening stocks of 19 million tonnes as of April 1, official stocks can just about cover the 26 million tonne requirements of the public distribution system under the National Food Security Act (NFSA) plus another 11 million tonnes under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a scheme that distributed grains for free to 810 million people during the Covid-19 pandemic and has now been extended till September without maintaining the buffer norm of 7.46 million tonnes. The government has accordingly reduced allocations of wheat to 12 states for the implementation of NFSA during June 2022 till March 2023.

India’s unexpected prohibition of fresh wheat shipments, however, is bound to hit its credibility as a reliable supplier in the global market and impact food security of the developing world with the prospect of 50 million people in Africa and West Asia, for instance, facing hunger in the coming months.  
 

As global wheat prices have risen to record levels, last seen during the global food crisis of 2007-08, it bears mention that the latter triggered food riots in Egypt and threatened social unrest in Indonesia and the Philippines. Africa’s Cameroon, Burkina Faso and Senegal also experienced it among 40-odd countries impacted by high food inflation. High food prices in 2009-10 are in fact regarded as a contributory cause of the Arab Spring. The current wheat shortfalls due to the Ukraine war can have similar outcomes in many poor nations.

Uncertainties 
 

Domestically and in the neighbourhood too, India’s ban only creates fresh uncertainties despite the government’s assurance that government-to-government contracts will be honoured. At home, the ban has resulted in 1.8 million tonnes of grain being stuck at Indian ports, with traders facing heavy losses if they choose to sell in the domestic market.

Bangladesh is considering imports of wheat from five alternative sources although it received almost half of the 7.22 million tonnes of India’s exports last fiscal according to India's Commerce Secretary B.V.R. Subrahmanyam. Not so long ago, it was similarly at the receiving end of a ban on onion exports. Sri Lanka, too, is experiencing serious shortages of food and fuel. For such reasons, India must re-think the ban on wheat exports to address food security concerns of poorer nations.   

Like it tried to do with exports of Covid-19 vaccines, India’s wheat exports, too, can be a public good to alleviate hunger that stalks many developing countries due to the sharp rise in global wheat prices.

(The writer is an economics and business commentator based in New Delhi. Views are personal. He may be reached at nchandramohan@rediffmail.com)

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