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 Exclusive | Govt may impose export controls on wheat by June

The sudden fall in wheat yields due to the heatwave across North India, and continuing bulk purchases by traders eyeing exports, have led to government procurement slowing down. If the situation persists, restrictions could become inevitable soon, say officials.

May 11, 2022 / 04:43 PM IST
Representative Image. Farmer in Punjab, India harvesting wheat. (Image: AP)

Representative Image. Farmer in Punjab, India harvesting wheat. (Image: AP)

The government may institute export limits on wheat from June, multiple officials told Moneycontrol. The move has been necessitated by the slow response to government procurement in major states as market prices remain way above the government-mandated Minimum Support Price, and unusually hot weather destroys yields.

"Continuously rising global commodity prices for wheat have kept farmers uninterested in taking their crops to the government so far. This has already brought down the estimates of total public procurement in the current season to a low of 19.5 million tonnes. If the current situation persists, the government would be forced to prioritise domestic procurement," a senior official at the Department of Food & Public Distribution said.

Multiple officials across ministries added that the situation is being monitored closely and that a decision would be taken whenever necessary. However, they stressed current estimates give the government time till mid-June, by which point the final procurement figures will become clear. Moneycontrol had been the first to report back in March that despite a newfound focus on exports, the high global prices of wheat would lead to reduced government purchases and ultimately result in export restrictions being put in place.

Should restrictions on wheat be invoked, selling prices will immediately crash, forcing farmers to move towards government procurement. In anticipation of such a move, farmers are trying to sell off their crops even faster than the existing market framework allows.

While this excess supply should normally depress prices, the willingness of exporters to buy up as much wheat as possible quickly before supplies are cut off has elevated prices further.​

Exporters wary

Any move to cut exports would, however, undermine the government's plans to tap buyers of Ukrainian and Russian wheat to generate temporary farm income in the current year and hopefully establish long-term contracts. The government had targeted export of 10 million tonnes of the crop in 2022-23.

While official figures are not available, sources said India has already exported nearly $1.4 billion worth of wheat in the two months since Russia began its invasion of Ukraine on February 24.

Meanwhile, exporters said that fear of sudden restrictions on outbound wheat shipments has led to even faster buying of wheat. Even as they continue to receive a deluge of new orders from overseas, Indian traders remain unsure about what the next few months would hold with regard to prices and supplies.

Not more than 10 days after the Ukraine crisis began, the Centre began discussions with various countries, including Egypt, Turkey, China, Bosnia, Sudan, Nigeria and Iran on commencing wheat exports. Initial shipments have also begun to some of these nations. Egyptian officials approved India as a wheat supplier after completing their tour of India's wheat storage facilities and farms earlier this week.

Slow procurement

Last week, the government revised its wheat production estimate for the 2021-22 crop year (July 2021-June 2022) downwards by 5.7 percent. National production is now estimated to be 105 million tonnes, down from 111.5 million tonnes.

As a result of heatwave conditions in March, both the quality and weight of output suffered in Punjab, Haryana, Madhya Pradesh and Uttar Pradesh. These states have reported a fall in yield by up to 15 percent as sudden changes in temperature and climatic conditions have led to the grains shrivelling.

For the ongoing 2021-22 crop year, the government had last year hiked the minimum support price (MSP) for wheat by Rs 40 to Rs 2,015 per quintal. The MSP, however, is way lower than the going rate of Rs 2,400-2,500 per quintal as of February 11 at most major wholesale markets across the country.

Currently, farmers are not willing to sell to the government since the procurement prices at private mandis are much higher, multiple traders in the wheat exporting hub of Ahmedabad said.

As a result of this and the flurry of exports, the procurement target for the 2022-23 wheat marketing year (April-March) has also fallen to 19.5 million tonnes, down from the earlier target of 44 million tonnes. As of May 8, procurement by the Food Corporation of India (FCI) and other government agencies stood at 17.5 million tonnes.

Food Corporation of India (FCI) data show that the combined stockpile of wheat had risen to a record 603 lakh tonnes in July 2021. The level currently stands at 303 lakh tonnes, data shows.

Rising prices
In April, domestic wholesale wheat prices rose to a decadal high. Prices have risen by 5-7 percent in March and April. However, they are yet to catch up with the export prices, which remain at record highs.

Inclement weather in many wheat-growing parts of the world, high shipping rates and renegotiated contracts had already made wheat a valuable commodity in 2021. Wheat exports from Ukraine, known as the bread basket of Europe, stopped days after Russia invaded that country on 24 February. This led to the stockpiling of the foodgrain in a large number of countries in Europe, North Africa and the Middle East, which were dependent on Ukrainian wheat.

On 8 April, Russian wheat supplies to the global market were cut off after the country announced stockpiling. According to the United Nations Food and Agricultural Organisation, in 2019, after China (133.6 million tonnes) and India (103.6 million tonnes), Russia was the third-largest wheat producer globally (74.5 million tonnes), while Ukraine ranked seventh (28.4 million tonnes). However, large domestic demand in India and China ensures the majority of the crop is used to feed the local populace.

Subhayan Chakraborty
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.