Wheat’s trading price jumped by the maximum allowed after India’s move to restrict exports, exposing just how tight global supplies are amid the war in Ukraine and threatening to drive up food prices even more.
New Delhi announced on Saturday (May 14) that it will suspend overseas sales, with some exceptions, to manage its food security. This drew criticism from the agriculture ministers of the Group of Seven nations, who said that such measures make the world’s crisis worse.
The benchmark wheat contract on the Chicago Board of Trade rose as much as 5.9 per cent to US$12.47 a bushel on Monday, the highest in two months. Prices have surged about 60 per cent this year, increasing the cost of everything from bread to cakes and noodles.
The surprising thing is that India, despite being the world’s second-largest wheat producer, is not a big exporter on the world stage. The fact that it could have such a major impact underscores the bleak prospect for global wheat supplies. War has crippled exports from Ukraine and Russia – which together account for one-third of the world’s wheat supply – and now droughts, floods and heat waves threaten crops in most major producers.
“If this ban occurred in a normal year, the impact would be minimal, but the loss of Ukraine volumes exacerbates the issues,” said Mr Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets.
India’s decision to halt wheat exports came as a record-breaking heat wave curtailed output, and domestic prices hit a record high. This created a dilemma for India, which has tried to fill the gap as the shortfall in Ukraine’s exports push buyers towards alternative origins.
India prioritised the domestic market, even as the move risks tarnishing its international image as a reliable supplier. Prime Minister Narendra Modi faces frustration on home soil about surging inflation, an issue that brought down the previous government and paved the way for his ascension to power.
India will approve exports to countries that require wheat for food security needs and based on the requests of their governments. It will also allow shipments for which irrevocable letters of credit have been issued. Its supplies usually go to Bangladesh, Sri Lanka, the United Arab Emirates and Indonesia.
“Directing the wheat exports through government channels would not only ensure fulfilling the genuine needs of our neighbours and food-deficit countries, but also control inflationary expectations,” India’s Food Ministry said in a statement. It added that the country has adequate food stocks.
That view may be called into question. The government’s wheat procurement has halved and may not be enough to meet the needs of its subsidised food programmes, according to Citigroup. Farmers could have been more willing to sell to private players who offered a better price. The authorities have also cut the allocation of wheat and increased that of rice under its free food programme.
“Even after making these adjustments, the government might not have enough wheat to meet its annual requirement,” Citi analysts said in a note. Based on India’s production estimate of 105 million tonnes, exports of 10 million or more as targeted by officials would be tough to achieve, according to the bank.
The move by India has added to a growing wave of food protectionism since the Russia-Ukraine war started. Governments around the world are seeking to ensure local food supplies, with agriculture prices surging. Indonesia has halted palm oil exports, while Serbia and Kazakhstan have imposed quotas on grain shipments.
“A lot of exporters and actual users worldwide have commitments of purchase of Indian wheat, which should be honoured,” said Mr Vijay Iyengar, chairman and managing director of Singapore-based Agrocorp International, which trades about 12 million tonnes of grain annually.
The Straits Times