🌾Why is India Banning Wheat Exports?
India had announced impressive wheat export plans just a few days back. But it has been forced to abandon them now. Here’s why.
“Man plans and God laughs.”
Nobody can relate more to this statement right now than the Indian government.
It had planned an impressive wheat export target of 10 million tonnes.
But just days after it announced this target, it had to eat back its words and issue a ban.
Despite being the world’s second-largest producer, India is facing a shortage of wheat.
How did this happen?
💸 India’s Wheat Ambitions
It all started with the Russia-Ukraine war (yes, it is the war’s fault again).
Both Russia and Ukraine were major suppliers of wheat to the world.
But because of the war, their exports dropped causing a 30% supply gap in the market.
That’s a huge number when it comes to a staple and versatile food item like wheat.
The whole world was panicking now about their roti, pizza, and pasta supplies, but not us.
As the second-largest food producer, we were rolling in wheat.
In February we were set to produce 111.32 million tonnes of wheat, a sixth straight record-setting crop.
So, we decided to make the most of this opportunity and began exporting large amounts of wheat.
Wait, why weren’t we doing that already?
That’s complicated.
🚧 Hurdles to Our Wheat Exports
India is a developing economy with a lot of poor farmers.
So, to ensure that these farmers get enough money for their crops and continue in this profession, the government had introduced the Minimum Support Price: the minimum guaranteed amount that a farmer can get for a particular crop.
Not just that, we also give our farmers other subsidies and stockpile large amounts of grains for public welfare schemes like the Pradhan Mantri Garib Kalyan Anna Yojana.
All of these practices are considered “trade-distorting” by the World Trade Organisation, which is why it has limited the scope of our exports.
Why trade-distorting?
Because giving subsidies and stockpiling grain puts us in a better position trade-wise (we always have enough stock) than other countries that can’t do so, creating a possible monopoly.
Plus, our grain quality also wasn’t up to international standards.
So, our exports were only limited to around 1% of the global supply.
But with the world facing shortages, we could increase these by a little bit without much opposition from the WTO.
We struck export deals with countries like Egypt that were heavily dependent on Russian and Ukrainian wheat.
That’s when climate change came to bite us in the back.
🌳 As You Sow, So Shall You Reap
The excruciating heatwaves that have been bothering all Indians (except a few lucky Bangalore peeps) have also impacted wheat production.
Though wheat requires a warmer climate during harvesting, due to the early onset of summers and average temperature rising to 33.1 degrees celsius (highest in the past 122 years), the yield of wheat fell drastically. This escalated the gap due to which wheat prices were up by almost 24.5% in March 2022 as compared to the previous year.
From 111.32 million tonnes in Feb, our expected wheat forecast went down to 105 million tonnes in May.
Now we know that this doesn’t seem like a huge difference, but as India’s domestic requirement of wheat is around 99 million tonnes, this meant we could no longer achieve our 10 million tonne export target.
So, couldn’t we just lower the target?
Well, yes. But the problem was that farmers no longer wanted to supply to the government or local traders.
Because they were getting roughly Rs. 27,000/tonne to export wheat (more premium if the distance between the port and Mandi is less) as compared to the MSP of ₹20,150/tonne. Even after cutting various costs like bagging and transportation, farmers were able to realise a gain of around ₹4,500/tonne.
Thus, farmers turned to international markets, and many of them started to hoard wheat in anticipation of a further rise in prices.
This flared up food inflation in India, with prices of atta (a staple in every Indian household) rising to a 12-year high!
Not just that, the government’s own procurement of wheat (which it uses for welfare schemes like Pradhan Mantri Garib Kalyan Anna Yojana) also fell 50% from last year (a 15-year low).
So, it had no choice but to ban exports, otherwise regular citizens would soon not be able to buy or even get wheat. The government would also not have enough stock for its welfare schemes.
But many countries have criticised this move and called it selfish as it could potentially cause food scarcity in several countries.
If not, it will definitely make this staple used almost every day in regular households too expensive for most to afford.
And this could also cause a domino effect that endangers the entire global food supply.
How?
Top suppliers like Indonesia (palm oil) are now banning exports due to domestic shortages.
If more and more countries adopt this strategy, developing countries could be in dire straits.
The only solution?
Fighting climate change and raising crop yields so we have enough for both domestic supplies and exports.
Only time will tell if we can achieve this goal before it is too late.
⚡ In a line: India is banning wheat exports because climate change has ruined our best-laid plans.
💡 Quick question: How do you think this wheat ban will impact farmers who were making extra money because of the rise in prices?
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Amazingly structured. Again want to say I love the extra dose of info that you give of those source articles attached to underlined phrases.😀
Will effete the farmers in the following ways:
1. Farmers could have benefited more in terms of profit given the international market condition.
2. Farmers will be demotivated with this export promotion policy as their income has been affected by this ban.
If government thinks they can manage the inflation by putting a ban on export of wheat, then it is their misconception. Again, in order to protect the urban middle class government has decided to put the farmers income and benefit for a toss.