India has banned the export of wheat as heatwaves cause supplies in the country to diminish—sending the price of the commodity soaring in international markets.
Since the start of the year, Chicago wheat futures have gone up by 60%, sending the cost of everything from bread to cakes to noodles higher.
Now, the world’s second-largest producer of wheat said the global price rise was threatening food security within its own country.
India’s Directorate General of Foreign Trade did say that exports would still be allowed for countries that require wheat for food security, but all other new shipments would be banned with immediate effect.
After the ban was announced, the benchmark wheat index climbed as much as 5.9% in Chicago to $12.475 a bushel — the highest it can rise.
But while international prices rose, domestic wheat prices in India softened.
Indian traders claimed the price of wheat dropped by Rs100 to Rs150 across several states, according to Roller Flour Millers’ Federation of India.
The move to ban wheat exports has irked agricultural leaders of the G7 countries (Canada, France, Germany, Italy, Japan, the U.K. and the United States) who claim it will exacerbate the global wheat crisis fueled by the war in Ukraine and sets a dangerous precedent of food protectionism.
“If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,” German Agriculture Minister Cem Ozdemir said at a press conference in Stuttgart.
“It also hurts India itself and the farmers there because of course it means a roller-coaster ride for prices.”
What has led to the wheat crisis?
The war on Ukraine has caused a seismic shift in the global wheat market.
Before the war, Ukraine and Russia together accounted for a third of global wheat and barley exports.
Ukraine alone exported 4.5 million tons of agricultural produce a month, producing 12% of the world’s wheat, 15% of its corn, and half of its sunflower oil.
But since Russia first invaded Ukraine, ports have been blocked by Russian warships and grain silos have been destroyed, upending trade flows out of the Black Sea breadbasket region.
Ukraine’s agriculture minister has been meeting with senior leaders of G7 in Germany to figure out a way to get the wheat out.
Nearly 25 million tons of grain are currently stuck in Ukraine and unable to leave the country due to obstructed seaports and infrastructural issues, said Josef Schmidhuber, an economist with the Food and Agriculture Organization.
Now as India bans wheat exports — coupled with other wheat producers like the U.S. and France also reporting low output — the supply of wheat is getting dangerously low.
“We now have an environment with another supplier removed from contention in global trade flows,” said Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets said to Bloomberg, adding skepticism about the high volumes expected from India.
“The world is starting to get very short of wheat,” Whitelaw said.
Modi’s U-turn
The decision to ban the export of wheat goes against Modi’s original decision to “feed the world if [the] WTO allows it”—a promise he made to U.S. President Joe Biden on Apr. 14 at an event in Gujarat.
India targeted to export a record 10 million tons in 2022-23 after importing nations looked to the country to fill in the gap following Russia’s war on Ukraine.
But as record-shattering heatwaves sent temperatures above 50°C (122°F), damaging wheat yields across the country, the government was forced to reconsider its position.
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