India Bans Wheat Exports as Heat Wave Damages Crops and Domestic Prices Surge

By Rajendra Jadhav, Mayank Bhardwaj, and Nigam Prusty

MUMBAI – India implemented a ban on wheat exports on Saturday, just days after announcing an ambitious target for record shipments this year. The decision came as a severe heat wave affected crop yields and domestic prices soared to unprecedented levels.

The government indicated that exports backed by previously issued letters of credit and supplies requested by countries to address food security needs would still be permitted.

Officials clarified that the ban is not permanent and could be subject to revision. Global buyers were relying on Indian wheat, the second-largest producer in the world, especially after a significant drop in exports from the Black Sea region following Russia’s invasion of Ukraine on February 24. Prior to the ban, India had set an export goal of 10 million tonnes for the year.

Despite officials stating that there hasn’t been a drastic decline in wheat production, the unregulated nature of exports had contributed to increasing local prices. Commerce Secretary BVR Subrahmanyam emphasized the importance of managing wheat trade to prevent unregulated practices and hoarding.

While India is not among the top wheat exporters, the ban could lead to further increases in global prices, impacting low-income consumers in Asia and Africa particularly hard. A dealer in Mumbai expressed surprise at the immediate ban, suggesting that expectations had been for restrictions to come after a couple of months due to inflation concerns prompting the government’s swift action.

Rising costs of food and energy caused India’s annual retail inflation to approach an eight-year high in April, heightening speculation about aggressive interest rate hikes from the central bank. Wheat prices in India surged to record highs, with some markets reporting prices of 25,000 rupees per tonne, substantially above the government’s minimum support price of 20,150 rupees.

A government official, who wished to remain unnamed, explained that the overall rise in prices raised inflation concerns, prompting the government to take cautionary measures.

SMALLER CROP

Earlier this week, India had outlined its ambitious export target for the new fiscal year beginning April 1, stating plans to send trade delegations to countries such as Morocco, Tunisia, Indonesia, and the Philippines to enhance shipments. The government initially forecasted wheat production at 111.32 million tonnes in February but revised this to 105 million tonnes in May, with mid-March temperature spikes indicating that final production could be around 100 million tonnes or even less.

According to a dealer in New Delhi, government procurement has fallen by more than 50%, signaling lower supplies in spot markets compared to last year and suggesting an impending crop decline.

As global wheat prices surged following Russia’s invasion of Ukraine, India managed to export a record 7 million tonnes in the fiscal year ending in March, marking a significant increase from the previous year.

One trader in New Delhi noted that while wheat prices had risen, they were still lower than global rates. He characterized the ban as a hasty reaction, pointing out that wheat prices in some areas had risen to similar levels the previous year.

Despite decreased production and a drop in government purchases by the Food Corporation of India (FCI), it was suggested that India could still have exported at least 10 million tonnes this fiscal year. The FCI has procured approximately 19 million tonnes of wheat from local farmers, significantly lower than the record 43.34 million tonnes purchased the previous year, as farmers chose to sell to private traders offering better prices.

In April alone, India exported a record 1.4 million tonnes of wheat, with agreements already in place for around 1.5 million tonnes in May.

According to another dealer, the Indian export ban will likely drive up global wheat prices, given the lack of other major suppliers in the market.