India banned wheat exports on Saturday, just days after hitting record shipments this year, as a burning heat wave reduced production and domestic prices hit an all-time high.
The government has said it will allow exports supported by letters of credit already issued and that countries request supplies “to meet their food security needs”.
Buyers worldwide were banking on supplies from the world’s second-largest wheat producer after exports from the Black Sea region declined after Russia’s invasion of Ukraine on February 24. Prior to the embargo, India had set a target of sending a record 10 million tonnes of ships this year.
While it is not one of the world’s top wheat exporters, India’s sanctions could push global price Wv1 to new heights due to the already tight supply, especially to the poorest consumers in Asia and Africa.
“The ban is tragic,” said a Mumbai-based dealer with a global trade body. “We were hoping to stop exports in two to three months, but it seems that the number of inflation has changed the mind of the government.”
Rising food and energy prices pushed India’s annual retail inflation closer to an eight-year high in April, reinforcing expectations that the central bank would raise interest rates more aggressively.
Wheat prices in India have risen to record highs, reaching Rs 25,000 ($ 320) per tonne in some spot markets, above the government’s minimum support price of Rs 20,150.
Rising fuel, labor, transportation and packaging costs are also driving up the price of wheat flour in India.
“It was not wheat alone. The rise in overall prices raised concerns about inflation and that is why the government had to ban wheat exports,” said a senior government official, speaking on condition of anonymity.
“For us, it’s an abundance of caution,” he said.
India has outlined its record export targets for the fiscal year starting April 1 this week, saying it will send trade representatives to countries such as Morocco, Tunisia, Indonesia and the Philippines to explore ways to increase shipments.
The government forecast 111.32 million tonnes of production in February, the sixth record crop, but cut its forecast to 105 million tonnes in May.
Rising temperatures in mid-March could mean about 100 million tonnes or less of crops, New Delhi-based dealers say, with a global trade body.
“Government purchases are down more than 50%. The spot market is getting much less supply than last year. All of these things indicate a lower harvest,” the dealer said.
As Russia financed a rally on global wheat prices after the invasion of Ukraine, India exported a record 7 million tons of wheat to March of the fiscal year, up 250% from the previous year.
“The rise in wheat prices was rather moderate, and Indian prices are still significantly lower than global prices,” said Rajesh Pahariya Jain, a New Delhi-based trader.
“In fact, wheat prices in some parts of the country jumped to current levels last year, so the move to ban exports is nothing but a knee-jerk reaction.”
Despite the decline in production and government procurement by the state-run Food Corporation of India (FCI), India could ship at least 10 million tonnes of wheat this financial year, Jain said.
FCI has so far procured 19 million tonnes of wheat from domestic farmers, a record 43.34 million tonnes last year. The FCI procures grain from local farmers to run food welfare programs for the poor.
As in previous years, farmers have opted to sell wheat to private traders who have offered better prices than the rates fixed by the government.
In April, India exported a record 1.4 million tonnes of wheat and an agreement to export about 1.5 million tonnes was already signed in May.
“Indian sanctions will push up global wheat prices. There are no major suppliers in the market at the moment,” said another dealer.