Home Business Why the India Wheat Export Ban Matters to the World

Why the India Wheat Export Ban Matters to the World

Why the India Wheat Export Ban Matters to the World
Source: BBC

Following concerns that its decision to limit wheat exports might aggravate the global food supply situation in the aftermath of the Ukraine war, India has defended its stance.

After the embargo was imposed in May, German Food and Agriculture Minister Cem Ozdemir warned, “If everyone begins imposing export limits… that would deepen the issue.”

However, India’s Commerce Minister, Piyush Goyal, claims that the export restriction would have little impact on world markets because the country is not a large wheat exporter.

So, what effect has India’s decision had?

The embargo was issued on May 13th, after exceptionally warm weather wreaked havoc on the wheat harvest, driving up local prices.

Despite the fact that India is not a large wheat exporter, the action caused global markets to get uneasy, with the Chicago benchmark wheat index surging over 6%.

Prices for some of the most common types of wheat increased for several days, peaking on the 17th and 18th of May.

Wheat prices, as well as the cost of other products, have soared during March and April as a result of Russia’s invasion of Ukraine.

Millions of tonnes of wheat have been unable to leave Ukraine, which is one of the world’s largest exporters, due to the war’s disruption.

According to Kelly Goughary of the agriculture data research firm Gro Intelligence, India’s ban resulted in a price increase because “global buyers were reliant on supplies from India after exports from the Black Sea region plummeted.”

India is the world’s second-largest wheat production, yet its share in global wheat commerce is less than 1%. It maintains a large portion of it to subsidize food for the poor.

However, India was planning to enhance exports by shipping a record 10 million tonnes of wheat this year, compared to barely two million last year, shortly before the embargo was announced.

It was supplying new markets in Asia and Africa, and even after the prohibition, numerous nations indicated they were in contact with India to continue exports.

India claims that some wheat shipments will continue, and that it would “continue to aid neighbors in their hour of need.”

Bangladesh, Nepal, and Sri Lanka, as well as the United Arab Emirates, are its primary export markets (UAE).

In 2019-20, Sri Lanka and UAE purchased more than 50 percent of their wheat from India, according to the Observatory of Economic Complexity (OEC), and Nepal imported more than 90 percent .

It’s unclear if these nations will continue to obtain Indian wheat under existing contracts or under new 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 prohibition, claiming that it may assist relieve the present wheat supply problem for those nations most impacted by Ukraine’s conflict.

Weather has had an influence on certain key wheat-exporting countries, aside from the conflict in Ukraine.

“Drought, floods, and heat waves are threatening crops in some other key producers [the United States, Canada, and France],” adds Gro Intelligence’s Kelly Goughary.

According to a US government assessment, worldwide wheat output will be at its lowest level in four years in 2022-23, and global wheat inventories will be at their lowest level in six years.

According to Gro Intelligence, worldwide fertiliser costs have quadrupled in the last year, putting crop yields at danger of “severe” cutbacks this year.

It predicts that, along with other variables, global wheat supplies have reached their lowest point since the financial crisis of 2008.

Because of excessive rains in 2021, China, the world’s top producer of wheat for its massive population, announced in March that its winter harvest might be the “worst in history.”

The real status of the harvest and whether or not it will be severely harmed are yet unknown.

However, if this is the case, China may choose to purchase on global markets in order to replenish its stockpiles, further constraining global supplies and driving up costs.