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Amid the frenzy created by large-scale wheat exports from India, following the outbreak of hostilities between Russia and Ukraine that sent global wheat prices spiraling upward, comes some conflicting news.
One, concerned about rising prices of this fine cereal and anticipated sharp fall in procurement this season, the government may ban wheat exports. On the other hand, the government is keen to send trade delegations to several countries that are potential buyers of wheat in order to explore trade opportunities.
Some aspects of the current situation are crystal clear. Wheat production is down from the initial estimate made in February. The question is whether it is down from 111 million tonnes (mt) to 105 mt as claimed or even lower towards 100 mt
Procurement and prices
Procurement by official agencies is sure to suffer and the final procurement figure is sure to fall far short of the initial target. This is sure to tighten wheat availability after August with potential for prices to rise further.
Roller flour mills are hit by rising raw material rates and are jacking up wheat flour prices, hurting consumer interest and adding to already elevated levels of food inflation.
Before the situation spirals out of control, it is necessary for the government to take a clear stand about production, procurement, prices and export. There seems to be little coordinated effort to address the looming wheat crisis.
The policymakers have no clue about exports including the contracted quantities of export, shipment period, destination and importantly, price. Without formal data, any reaction from the government will only be knee-jerk and based on anecdotal information. This calls for regulation of wheat export.
It is critical the government knows in advance the quantities that may be shipped out. This calls for a system of contract registration with a designated authority. Such a procedure will in no way be seen as restriction on export, but will provide New Delhi adequate information to take an informed decision in the event any intervention becomes necessary.
Even under extreme provocation, it would be unwise to ban wheat exports. Export ban would inevitably send out wrong signals to all stakeholders. Instead, export duty may be imposed. A fiscal levy is sure to generate revenue for the exchequer without tinkering with the trade policy.
Wheat is being stored — hoarded, if you may — in large quantities by organised syndicates of traders who may have neither processing interest nor export interest. They are here to merely create a price frenzy and profit from it. To reduce if not prevent the frenzy, appropriate stock limits may also be considered. Actual users like flour mills and exporters with valid contracts should be treated differently.
Indian exporters are able to obtain $350-360 a tonne as export price (free-on-board). Port delivered cost of wheat is in the range of ₹24,000-25,000 a tonne.
It is estimated that in April about 1.3 mt was shipped out and about 1.5 mt may go out in May, too. India has a small window of time to export. At the same time, inadequate port infrastructure and shipping challenges have to be surmounted too.
The author is a policy commentator and agribusiness specialist. Views are personal.
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