—by Charu Latha
Wheat is one of the most important cereal crop in India. The total area under the crop at present (2021) is 31.6 million hectares. The productivity of wheat during 2004–05 was 2602 kilograms (kg) per hectare, while during 2011–12 it was 3140 kg per hectare, and in 2020 it was around 3440 kg per hectare. Wheat production in India was 76369 metric tonnes (MT) in 2000; it was 80804 MT in 2010; and it increased to around 107860 MT in 2020. Being the second largest wheat producer, India aimed to ship a record 10 million tonnes this year. The Russia-Ukraine war has drastically reduced the amount of wheat exported from the Black Sea region. Therefore, global buyers were banking on India’s ability to export wheat in this condition. But, India had banned wheat exports until early May 2022. The major reason for imposing the ban on export of wheat was due to low domestic output and high domestic prices as a result of adverse climatic conditions such as heatwave. Though the output did not fall by a drastic amount this year, it was the unregulated exports that led to a rise in domestic prices.
The spike in temperatures due to severe heatwaves and uncertain external factors had an impact on the supply of wheat output. The government’s procurement has fallen more than 50 per cent. The markets got far lower supplies than the previous year, indicating that there is a lower crop. Food exports were expected to be reduced after a few months, but due to high inflation rates (of about 8 per cent in April), the government has imposed an immediate ban on wheat exports. The government allows exports backed by an already issued letter of credit and to countries that request supplies. All new shipments will be banned.
The Advantages of the Export Ban
In February, the forecast for wheat production in the country was around 111 million tonnes, but it was reduced to 105 million tonnes in May due to a spike in temperatures. The government’s procurement has also fallen by more than 50 per cent. Wheat prices have risen to a record high level, reaching Rs.25,000 per tonne in some regions, which is much above the minimum support price set by the government at Rs.20,150. It’s not only the decrease in wheat output but also the rise in fuel prices, labour costs, package and transportation costs that are boosting wheat flour prices in India.
Rising energy and food prices pushed India’s inflation upward and encouraged the Reserve Bank of India to raise interest rates. It was not just rise in wheat prices alone but the overall rise in food prices in the country that concerned the government. This concern about rising inflation in the country prompted the government to ban wheat exports. The ban not only aims at increasing the domestic availability of wheat, but also check the rising food prices in the country.
Disadvantages of the Ban
It has been estimated that, along with other factors, global wheat stocks are down to their lowest level since the 2008 financial crisis. The largest producer, China, also faced a heavy blow. Heavy rainfall in 2021 resulted in a crop loss and a low output of wheat, which was labelled as one of the worst crops in history. Curbing exports will affect India’s ability to cash in on the global wheat rally. India exported 7 million tonnes of wheat (a record high) in the fiscal year 2022 up to March, a 250 percent increase over the previous year.
India’s decision to ban wheat exports could have a significant impact on several developing countries, especially those from Asia and the Middle East. Bangladesh would be the most hit nation as it constitutes about half of India’s total wheat exports (55.9 per cent). Sri Lanka (7.9 per cent), the UAE (6.9 per cent), Yemen (5.3 per cent), and a few other countries are also affected, albeit in much smaller proportions. In Asia, most countries, except India, import wheat for consumption, and due to the import ban, there could be a risk of higher wheat prices globally even if they do not directly import from India. This could lead to overall inflation in Asia as food constitutes a larger part of the consumption basket.
Conclusion
To some extent, the policy was successful in controlling the domestic price. Even in 2007–08, when there was pressure on prices, the Governments of India and Indonesia implemented export restrictions which were largely successful. Export restrictions proved to have a positive impact on pubic opinion as it shows that the government is taking action to prevent inflation in the economy. Export bans also affect the potential short-term incomes of farmers, as they will not be able to take advantage of the high global prices. Although there are advantages, export bans are inefficient in addressing food security concerns as they distort farmers’ incentives to invest in expanding the capacity that is required to increase the supply to bring down the prices.
But, if all the countries started to impose ban on their exports, it could just make the crisis worse. It could not only hurt the importing nation but also the people of the exporting country and the farmers there. Imposing a ban on wheat exports appears to be a convincing solution given the uncertainties related to crop output, procurement, war effects, high fertilizer costs, extreme weather conditions, and inflation. Measures such as quantitative restrictions on exports and a minimum export price would have been much more logical solutions than a sudden ban, which not only affects the exporting country’s reliability but also affects the potential income-generating prospects of its farmers. It also gives an impression of an unstable exporter and makes India an unreliable source of vital imports for dependent countries. Since the government has already confirmed that prior commitments will be met and is willing to support the needs of neighbouring and other vulnerable countries, the real effect of the ban has been modest. But this global rise in prices and the ban on exports is a reminder that the global economy is struggling to provide adequate food supplies at sustainable prices.
© Spectrum Books Pvt Ltd.