Ban on Wheat Exports – Explained, pointwise

Introduction

The Government of India recently banned the export of wheat and imposed quantitative restrictions on the export of sugar. The ban on wheat export came within days of a push to enhance India’s wheat supplies to the rest of the world after Russia’s invasion of Ukraine. The decision has come at a time of persistently high inflation, spurred by rising prices of food and fuel. There are concerns about a lower yield this year due to intensive heat waves. The move has attracted mixed responses and there has been a strong demand by experts to reconsider the decision. The agriculture policy of the Government is also under criticism.

About the Ban on Export of Wheat by the Government

The Government banned the export of wheat on May 13, two days after the decision to send delegates to nine countries to explore the option of enhancing exports was taken.

However, there are certain conditions, under which exports have been allowed:

First, where an irrevocable letter of credit has already been issued.

Second, export will be allowed to other countries “based on the request of their governments”. It will be helpful in ensuring supplies to Sri Lanka, Bangladesh, and Nepal.

What are the reasons behind the ban on wheat exports?

High Inflation: The retail inflation touched 7.8% in April 2022. The food inflation was 8.4% while wheat inflation touched 9.6%. This forced the Government to place a ban on wheat export. The prices of wheat have been rising since November 2021 and gained pace after the Russia-Ukraine war. Further, The Food and Agriculture Organization food index has been at its highest since the series began in 1990. The rise has been driven by inflation in edible oil and cereals. 

Domestic Food Security: Heatwaves at the end of March, have impacted the production of food grains, especially in northwest India. The Government has revised the wheat production estimates. The Government had estimated a record production of 111 million tonnes. However, the actual production may be limited to 100 million tonnes. The Government has already lowered the estimate by 6 million tonnes. Hence a restriction has been placed on exports to meet domestic wheat demand.

Source: The Times of India

Lower Procurement:  Food Corporation of India (FCI), also slashed its procurement target to less than half of the last year’s target of 43 million tonnes. This was based on the premise that farmers were selling more to private traders than selling at MSP. Open market prices were higher at INR 2,400 a quintal compared to the MSP [Minimum Support Price] of around INR 2,100.

The above trend shows the cyclicity of wheat stocks with the FCI (Opening stock of each month). The stocks are generally lowest in the month of April, and recover once procurement begins after the harvest in April-May. The opening stocks are highest in the month of June, after the completion of procurement. As evident from the chart, the June stocks are lowest since 2016. In 2017, the stocks had plummeted to 80 lakh tonnes in April, but recovered to 334 lakh tonnes by June 2017. This year, the April stocks stood at 189 lakh tonnes, yet June stocks have recovered only to 311 lakh tonnes (much below last year’s level of 603 lakh tonnes), showing considerably lower procurement in the Central Pool by FCI.  

What is the criticism of Government’s decision?

Policy Uncertainty: In May 2022, the Government had announced the decision to send trade delegations to nine countries (like Morocco, Tunisia, Indonesia and Thailand etc.) to explore opportunities for export of wheat. However, as soon as the inflation data were available, the decision was reversed and the Government announced a ban on wheat export.

Critics argue that this is a knee-jerk reaction, that reflects a lack of understanding of the domestic food and agricultural economy. Such sudden turns may also result in loss of faith in public policy.

Loss of Income: Indian wheat traders have lost the opportunity to gain from the global grain shortage. Building export markets and establishing supportive infrastructure, like warehousing, takes time. It will be a loss for farmers as well because the market price of wheat had become higher than MSP. Many farmers were preferring to sell in the market. It led to the highest purchase of wheat by private traders in Punjab in the last 8 years.

Less Availability of Wheat for schemes: There’s been a cut-back in the NFSA allocation of wheat in several states, many of them mainly wheat-consuming states. A reduced government procurement is witnessed as private traders and speculators mop up supplies from the market. These were mostly bought for exports, but are now trapped by the ban.

High inflation has reduced the real purchasing power of the people, especially in rural areas. At this time, the withdrawal of NFSA and PMGKAY wheat allocations will worsen lives.

Global Response:  India is the world’s second-largest wheat producer and many countries were expecting India to fill the gap created due to the Ukraine-Russia war. Agriculture ministers from the G7 condemned India’s decision to withhold wheat exports amid a global grain shortage. Similarly, at a high-level ministerial meeting in New York on ‘Global Food Security: Call to Action’, India was reminded of its global responsibilities, especially in the context of its upcoming role as chair of the G-20.

What can be the approach of Government going ahead?

Agriculture experts and economists suggest:

First, a bonus over the minimum support price could be given. This would allow the Government to meet its procurement target on time and also provided better prices to farmers.

Second, under PMGKAY and NFSA allocations, the Government can give the option of cash to beneficiaries. It will give beneficiaries an option to buy more nutritious food, be it pulses, milk, eggs, meat or fish.

Third, the Government can impose stock limits to force traders to release their hoards. Further it could also offload more rice than wheat into the subsidized public distribution system. This could free up about 10 million tonnes of wheat for Government-to-Government supply deals such as with Egypt, as most of the Indians use both rice and wheat.

Fourth, according to the IPCC report, every 1^oC rise in temperature will reduce the yield of wheat by 5 million tonnes. This calls for massive investments in agri-R&D to find heat-resistant varieties of wheat and also create models for ‘climate-smart’ agriculture.

Fifth, there is a need to focus on diversification of staple crops. The Government should enhance the procurement of millets which are cheaper and nutritious than wheat. This would reduce dependence on wheat and avoid panic export bans on the crop in future. Thereby ensuring long term credibility of export policy.

Conclusion

Ban on wheat exports is a temporary solution that can only provide a short term relief. In long term, focus should be on making wheat production more climate resilient and diversifying the consumption patterns in the country.

Source: The Hindu, Indian Express, The Times of India, Mint.