India’s move to restrict wheat exports is set to reverberate through global agricultural markets, exposing just how tight global supplies are after the war in Ukraine and threatening to drive up food prices even more.
The government said in a notification dated May 13 it will suspend overseas sales to manage its food security. This drew criticism from the agriculture ministers of the Group of Seven nations, who said that such measures make the world’s crisis worse.
The surprising thing is that India isn’t even a prominent exporter on the world stage. The fact that it could have such a major impact underscores the bleak prospect for global wheat supplies. War has crippled Ukraine’s exports, and now droughts, floods and heat waves threaten crops in most major producers.
“If this ban occurred in a normal year the impact would be minimal, but the loss of Ukraine volumes exacerbate the issues,” said Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets.
India’s decision to halt wheat exports came as a record-breaking heat wave parched the crop during a crucial period, spurring estimates of slumping yields. The output risk created a dilemma for India, which has tried to fill the gap as the shortfall in Ukraine’s exports push buyers toward alternative origins.
India prioritized the domestic market, even as the move risks tarnishing its international image as a reliable supplier. Prime Minister Narendra Modi faces frustration on home soil about surging inflation, an issue that brought down the previous government and paved the way for his ascension to power.
India will approve exports to countries that require wheat for food security needs and based on the requests of their governments. It will also allow shipments for which irrevocable letters of credit have already been issued. Indian wheat usually goes to Bangladesh, Sri Lanka, the United Arab Emirates and Indonesia.
“Directing the wheat exports through government channels would not only ensure fulfilling the genuine needs of our neighbors and food-deficit countries, but also control inflationary expectations,” India’s food ministry said in a statement. It added that the country has adequate food stocks.
Traders are frustrated by the policy. A day before the export halt was announced, the government said it was sending trade delegations to countries in Africa, Asia and the Middle East to explore the possibility of boosting wheat exports. The food ministry had also said it saw no need to control exports as Bloomberg News reported that authorities were considering the move.
“A lot of exporters and actual users worldwide have commitments of purchase of Indian wheat, which should be honored,” said Vijay Iyengar, chairman and managing director of Singapore-based Agrocorp International, which trades about 12 million tons of grain annually.
The ban could spark frenzied trading when agricultural markets reopen on Monday. Benchmark wheat prices in Chicago jumped 6.2% in the latest week while Paris wheat futures surged to an all-time high on concern that extreme weather is pressuring the global harvest. India’s ban will add to supply risks.