India has banned wheat exports because the heatwave damages crops, raising domestic prices

The government has said it will allow exports, backed by a letter of credit already issued, and that countries request supplies “to meet their food security needs”.

The move to ban foreign shipments was not permanent and could be amended, senior government officials told a news conference.

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.

Officials added that there has been no dramatic decline in wheat production this year, but uncontrolled exports have led to a rise in local prices.

“We do not want the wheat trade to be uncontrolled or stockpiled,” Commerce Secretary BVR Subramaniam told reporters in New Delhi.

Although not one of the world’s top wheat exporters, India’s sanctions could push global prices to new heights, which could hit poorer consumers in Asia and Africa particularly hard due to already tight supplies.

“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.

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Rising fuel, labor, transportation and packaging costs are also driving up the price of wheat flour in India.

“It was not wheat alone. The overall rise in prices had raised concerns about inflation and that is why the government had to ban wheat exports,” said another senior government official, speaking on condition of anonymity. “For us, it’s an abundance of caution.”

Small crop

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.

In February, the government forecast 111.32 million tons of production, the sixth record crop, but it cut its forecast to 105 million tons 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 have fallen by 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.

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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.

“Wheat prices in some parts of the country jumped to current levels last year, so the move to ban exports is nothing more than 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. It buys 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.

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