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Burning Issues

[Burning Issue] Wheat Exports Ban

Context

  • India has banned exports of wheat effective immediately, citing a risk to food security.
  • This is partly due to the war in Ukraine and as a scorching heatwave curtailed output and domestic prices hit a record high.
  • The price which was already high in the wake of Russia’s invasion of major wheat exporter Ukraine — jumped to 435 euros ($453) per tonne as the European market opened.

Do you know?

India is the second-largest producer of wheat in the world, with China being the top producer and Russia the third-largest — Ukraine is the world’s eighth-largest producer of wheat.

India’s Wheat Exports

  • Modi’s goal of India becoming a major wheat exporter hinged on the opportunity presented by the war.
  • While India has been the world’s second-largest producer of the commodity, most of it was used domestically.
  • Its share in the global wheat exports has been only around 1%.
  • It hoped to considerably plug the deficit created by Russia, which accounts for 30% of the global wheat exports.
  • To some extent, Indian wheat exports did rise. Countries like Egypt and Turkey, besides others in Asia, tapped India following the onset of the war.

Top wheat exporters globally (in million metric tons):

Top wheat exporters globally (in million metric tons):

Why did India ban the export of wheat?

  • Harvest reduction due to heatwaves: Heatwaves in the latter part of March, especially in northwest India, impacted production of foodgrains.
  • High inflation: Record retail inflation has punctured India’s export hopes.
  • Food security: While wheat prices are up nearly 20%, prices of essential food items such as flour have risen nearly 15% last year.  

China’s factor in the export ban

There is also China factor behind the sudden decision to ban the export of wheat.

  • China is using this opportunity to hoard wheat. It is importing wheat on a large scale to store it to disrupt the global market soon.
  • China can store the wheat for a short time and divert it to its allies in the coming days or sell it at a higher price.
  • By hoarding it, China can effectively control the market prices of wheat globally.
  • With its huge foreign exchange reserves, China can purchase the wheat stocks at a higher price, only to control the wheat market in the coming days.
  • This will hinder smaller and vulnerable developing countries from buying the necessary wheat.

Inherent challenges to India’s wheat exports

  • Logistics challenges: Logistical challenges such as congestion at ports and unavailability of train rakes are major infrastructural bottlenecks for wheat exports from India.
  • Cost efficiency: Unless seamless infrastructural facilities and timely and cheaper modes of transport are available in the coming days, India may find it difficult to make significant inroads into the wheat export market.
  • MSP factor: India’s export competitiveness is influenced by the Centre’s MSP.  Due to high MSP, India has remained a rather small player in the export market, even when thousands of tonnes of grains rot in the FCI warehouses.
  • High procurement costs: The inefficiency associated with open-ended procurement of wheat in quantities far in excess of our normal requirement is well known. The policymakers justify it on the ground that it ensures farmers get remunerative prices.
  • Government interventions: Wheat, being an essential commodity, is prone to frequent government interventions in terms of export bans and imposition of higher import duty. This creates market distortions.
  • Climate change: Many challenges confront Indian wheat export, not the least of which is global warming and climate change. Whether deliberate or out of ignorance, many experts overlook the well-recognised fact that Indian wheat is at the limit of heat tolerance.
  • Low acreage under wheat crop: At about 33 million hectares, the area under wheat cultivation is perhaps reaching a saturation point. There is a case for shifting a part of the wheat area in Punjab and Haryana to other crops such as oilseeds and pulses.

What about government procurement?

  • Dip in procurement: This year the government’s wheat purchase has seen a dip owing to several reasons from lower yield to higher market prices being offered by private traders.
  • Costlier than MSP: A large quantity of wheat was being bought by traders at a higher rate than the minimum support price (MSP).
  • Stock hoarding: Farmers and traders are holding on to some quantity of wheat, expecting higher prices for their produce in the near future.

Is India staring at a food shortage?

  • No. India’s grain stocks are well above the buffer levels and the decision to regulate wheat exports was taken largely to check prices and curb hoarding.
  • The public distribution system PDS would be run smoothly in the country.
  • However, the government has replaced wheat with rice in the Pradhan Mantri Garib Kalyan Yojana scheme for 2022-23.
  • The effort clearly is a response to the reduced availability of wheat.

What has been the global reaction to the ban?

  • Global wheat prices rose nearly 50% since the start of this year as supplies from Russia, the number one wheat exporter, and Ukraine, number six, were hit.
  • Agriculture ministers from G7 condemned India’s decision to withhold wheat exports amid a global grain shortage.
  • India was expected to fill the gap created because of the Ukraine war.

How will the ban affect India’s neighbors?

  • This ban has widely deemed a failure for India’s soft-power, geopolitical standpoint.
  • Even with the ban, there is a window open for neighbouring countries.
  • The export will be allowed to other countries “based on the request of their governments”.
  • This window is crucial for Sri Lanka because the country is facing an economic crisis.
  • Wheat exports will be allowed in cases where an irrevocable letter of credit has already been issued.
  • Also, Bangladesh and Nepal have traditionally relied on Indian wheat.

What is the impact on farmers and traders?

  • Missed opportunity: The ban has deprived Indian wheat traders the opportunity to gain from the global grain shortage.
  • No profitmaking: It may have an unfavourable impact on wheat farmers too.

Issues with the ban

  • This ban has impacted the credibility of India as a reliable supplier of anything in global markets.
  • It conveys that we don’t have any credible export policy as it can turn its back at the drop of a hat.
  • More interestingly, it also reflects a deep-rooted consumer bias in India’s trade policies.
  • It is this consumer bias that indirectly becomes anti-farmer. This ban deprives farmers from profit-making.
  • It only shows the hollowness of agri-trade policies and dreams of doubling agri-exports.
  • The export ban also reflects poorly on India’s image in playing its shared global responsibility amid the Russia-Ukraine war.

Way forward

  • Balancing between food security and ensuring better returns to farmers through exports is a delicate act.
  • India’s wheat export ban will not help tame inflation at home.
  • The Government could have announced a bonus of Rs 200-250/quintal on top of MSP to augment its wheat procurement.
  • The govt could have calibrated exports by putting some minimum export price (MEP).

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