En banning wheat exports, the Indian government intends to ensure the “food security” of its population of 1.4 billion inhabitants while limiting consumer price inflation, in the face of a drop in its production due to exceptional heat. The controversial decision is deciphered by CSC Sekhar, an expert in agricultural economics and professor at the Institute of Economic Growth at the University of Delhi.
Point : Why such a decision, at a time when India promised to support world markets in the face of the grain supply crisis caused by the war in Ukraine?
CSC Sekhar: The first reason is related to the decline in wheat production in India. Temperatures rose abnormally in March and disrupted the formation of grains ready for harvest. The country had never experienced such heat at this time and production suffered. Instead of the expected 110 million tonnes, a drop of 5 to 6 million tonnes should be considered, and perhaps more according to certain estimates. Production being less, the government immediately had more difficulty building up its wheat stocks.
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Where exactly is this process?
The process of government procurement by the Food Corporation of India (FCI) currently only reaches 17.9 million tonnes of wheat, while last year at around the same time (May 13) it was at 35.4 million, more than double. Shopping is not going as planned. The main reason is that many private actors have bought wheat on the markets, offering farmers more attractive prices than the fixed price of public operators (Minimum Support Price, MSP).
So what is India seeking by banning exports?
Curbing private buyer speculation, India’s immediate priority is to step up wheat purchases to build up this year’s stocks, and to control food price inflation.
This decision raised strong criticism abroad, particularly from the G7, and prices soared on the European market. Yet India is not a major wheat exporter…
India is a marginal player and its decision should not have caused such panic. But, recently, India had greatly increased its exports. As of March 31, India exported 7.2 million tonnes of wheat in one year, and then another 1.1 million in April, which is an increase of 250% in one year. This development had given rise to some optimism that India could make up for the shortfall caused by the war in Ukraine and an overall deficit in world production estimated at 5 to 6 million tonnes of wheat.
India’s about-face evokes a similar situation during the pandemic, in 2020, when the country had interrupted its deliveries of vaccines abroad…
The scenario is identical. India exported its vaccines and suddenly, faced with a domestic crisis, it curbed its exports.
Regarding wheat, do you think the drastic ban is appropriate?
India could have had a more gradual response with, for example, an export tax on wheat to discourage private exports. The announcement of a fixed price bonus (MSP) could also have encouraged farmers to sell their crops to the government so that India could build up its stocks.
Will small farmers be affected by this decision?
It shouldn’t be. The harvests started in April and most of them have already sold their crops, as they need immediate cash. It is the big buyers who are the most affected, but the contracts signed before the announcement of May 14 will nevertheless be honored.
What is the impact on consumer prices?
In the immediate future, wheat food prices have fallen by 3 to 8% depending on the market. As long as the ban is in place, these prices should remain low.
Should we be worried about India’s wheat reserves and its food security?
India’s stocks are not in a precarious position. For its public food distribution system, and for additional allocations related to the Covid-19 pandemic, India needs 31 million tonnes of wheat. We are approaching 19 million, to which are added 18 million secured from 1er april. The account should be fine.
If the situation is nevertheless under control, why come to this?
It is likely that India anticipates an increase in wheat prices on the world market due to the disruptions linked to the Ukrainian crisis. If the government wants to intervene to control domestic prices, it will need solid stocks. But I think India should lift the ban in the next few months as soon as its stocks are secure. The big Indian traders, who are currently under restrictions, will then be able to resell the wheat, perhaps at prices Iinteresting. An evil could hide a good.
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