Sunday May 15, 2022

The government has banned export of all varieties of wheat in view of the rising domestic prices of the cereal, a sharp drop in rabi season output and the possibility of its stocks becoming inadequate to ensure subsidised supplies under the National Food Security Act.

Official sources said about 4 million tonne of the cereal that has already been contracted for shipments with letters of credit (LoC) will be allowed to be exported, while no new new orders will be entertained. Traders, however, are critical of the government decision, as they feel it could disrupt scores of transactions that have already been finalised or are being negotiated and adversely affect India’s reputation as credible supplier of cereals to world markets.

They added that domestic wheat prices may drop by 15% as the market reopens on Monday. The export ban took effect on Friday and the markets are closed on Saturday and Sunday. Commerce secretary BVR Subrahmanyam said on Saturday that, “all valid export orders with a letter of credit will be honoured.” He added that the prohibition on fresh exports is just a contingency measure and it doesn’t reflect any inward-looking policy or possibility of a ban in perpetuity.

India exported a record 7 million tonne (MT) of wheat worth $2 billion in FY22, against just 2.1 MT worth $0.55 billion in FY21.
The export ban has come at a time when traders have received orders for 5 MT already and were looking at more deals in the short term, in keeping with an export target of 10 MT set by the government. The global wheat market is very volatile at present and prices remain elevated, owing to the shortage caused by the Russia-Ukraine war.

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Of course, the ban won’t be applicable to two kinds of shipments – exports committed by the Indian government under bilateral understanding with a few countries to meet their food security needs, and shipments under transitional arrangements, where irrevocable letters of credit have been issued prior to the ban.

The government’s wheat procurement fell to a 15-year-low of 18 MT in the just concluded rabi season, as against a record 43.3 MT in 2021-22. Retail inflation in wheat stood at 9.59% in April.

“The export ban is a judicious step to balance interests of all stakeholders”, a spokesperson of ITC, a major wheat exporter, said. However, Kunal Shah, partner at Kunal Corporation, a Mumbai-based grain exporter, said India’s reputation in the international wheat market will take a hit due to the export ban.

Many independent experts also feel that rather than sudden export ban which could hit farmers, the government should have resorted to calibration of exports via a minimum export price or an export duty. However, several other wheat exporting countries such as Argentina, Kazakhstan and Turkey also have imposed restrictions on wheat or flour exports.

The government’s notification banning wheat exports defended the step citing “a sudden spike in the global prices of wheat arising out of many factors, as a result of which the food security of India, neighbouring and other vulnerable countries is at risk”.

Meanwhile, the first consignment of wheat to Egypt this season was shipped on Saturday from Kandla port. Interestingly, India was exploring possibilities of wheat exports this fiscal to a clutch of countries. While it is in talks with Egypt and Turkey on the quantum of shipments and the quality standards, Nicaragua and Syria have shown interest in sourcing grain through a government-to-government (G2G) arrangement.

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Prime Minister Narendra Modi last week asked the officials concerned to ensure quality norms for exports of food grain and other agricultural products from the country. “In the light of increasing demand for agricultural products of India, the Prime Minister directed that all steps be taken to ensure quality norms and standards so that India evolves into an assured source of food grain and other agricultural products,” an official statement had stated.

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