Wheat Confusion : On India’s Export Restriction : Daily Current Affairs

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment.

Key Phrases: Wheat confusion, India’s export restriction, Wheat export ban, MSP, Wholesale inflation, Retail inflation, Wheat procurement, Minimum export price (MEP)

Why in News?

The Indian government has banned wheat exports to address lower-than-expected production and soaring inflation mainly arising out of the Russia-Ukraine war.

Why did India ban the export of wheat?

Rising levels of wholesale and retail inflation
Russia Ukraine war: Considering that Russia and Ukraine together account for about 29 percent of the global wheat exports, their inability to export wheat has led to the doubling of wheat prices in the global market.
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.
- A large quantity of wheat was being bought by traders at a higher rate than the minimum support price (MSP).
- Farmers and traders are holding on to some quantity of wheat, expecting higher prices for their produce in the near future.
Reduced Estimate: After several parts of wheat-producing States in the north experienced unusually warm weather in March-April, the Government lowered marginally, early this month, the estimated wheat production, from 111.32 million tonnes to 105 million tonnes.
Turbulent market conditions: As for international food prices, the Food and Agriculture Organization of the United Nations said that even before the war, prices had reached an all-time high due to market conditions and the high prices of energy, fertilizers, and other agricultural services.

Why there is confusion?

Earlier the Centre clarified that there was no move to curb wheat export. This was the opportune moment for exporters to sell in the international market as wheat from Argentina and Australia would begin arriving next month.
The higher prices in the domestic market compared to the minimum support price offered by the Government were projected as favourable for farmers.
Also, just days before the Government’s decision, an official announcement was made that trade delegations would be sent to countries such as Morocco, Tunisia, and Indonesia to explore possibilities for wheat export.
Turkey had given its approval for the import of Indian wheat, and an announcement had been made that the current year’s target for wheat export had been fixed at 10 million tonnes, three million tonnes higher than last year.
A delegation from Egypt visited India in April to facilitate more wheat exports to the North African nation.

What are the implications of the wheat exports ban?

India’s decision has faced criticism from the G-7’s Agriculture Ministers.
It surely hits adversely not only 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.
It also reflects a deep-rooted consumer bias in India’s trade policies. It is this consumer bias that indirectly becomes an anti-farmer. Farmers are getting just 10 percent higher price than the Minimum Support Price (MSP) of wheat, this implies that the Government not letting them take benefit of improved market conditions.
- When 800 million-plus people have been given almost free food (rice and wheat) under NFSA and PMGKAY until September end. This shows the government is trying to protect the urban middle class at the cost of farmers. It is this urban-consumer bias that has kept our peasantry poor.
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.

How important is India to world markets?

India is the world's second-largest wheat producer behind China, but rarely exports much grain due to high government-subsidized domestic prices and massive domestic food needs.
However, improved seed selection and farm management over the past decade had put the country on course for a new record crop this year, opening the door to an export boom just as global crop markets needed extra supplies.
Indian wheat exporters had eyed sales of up to 12 million tonnes in the 2022/23 season, which would have placed India as the eighth largest exporter, not far behind Canada with a projected 15.5 million tonnes.
Top destinations for Indian exports included Bangladesh, Indonesia, Nepal, and Turkey, and top global buyer Egypt recently agreed to make the first-ever purchase of Indian wheat as Cairo tried to replace lost shipments from the Black Sea.

What happens now to India’s wheat?

The sudden ban on exports means a majority of the new crop will now stay within India.
Trading firms that have already secured letters of credit to export grain will be allowed to proceed with those sales.
The remaining segments of the crop that had been expected to be exported will now need to be sold or stored domestically.
Local wheat markets have already started to react to the ban, with prices falling up to 2% over the weekend in various spot markets.

What could have been done even when wheat production and procurement are down?

First, the Government could have announced a bonus of Rs 200-250/quintal on top of MSP to augment its wheat procurement. This will encourage farmers to sell wheat to the government rather than hoarding or selling it to the private players.
Secondly, one wonders why the Government announced free food until September-end under PMGKAY. If it wanted to provide extra help on top of PDS supplies, it could have offered cash so that they could buy any food, from eggs to milk to pulses, where inflation is much lower and they are more nutritious. Substitution of rice for wheat in PMGKAY is a step in the right direction.
Third, if the Government feels that the situation on the wheat front is so dire, it could have calibrated exports by putting some minimum export price (MEP).

Way forward:

A blanket ban is like breaking the knees of farmers and traders, from which they will find it difficult to recover - leave alone helping India’s emergence as a reliable global supplier.
Lessons must be gleaned from the experience 15 years ago when India took about two years to lift its ban on the export of non-basmati rice, by which time Thailand and Vietnam had moved in to take full advantage.
India should lift the ban as early as possible to boost its Grain Diplomacy in times of crisis and give the world a simple message that nobody should starve while we are here.

Source: The Hindu, Indian Express, Economic Times

Mains Question:

Q. “The sudden decision to ban wheat exports denies farmers better price realization while offering little to consumers by way of price comfort as current inflation is more a global phenomenon.” Discuss.