Wheat exporters keep a wary eye on possible export restrictions

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With global wheat prices at historic highs in the wake of the Russian invasion of Ukraine, Indian traders are optimistic about capturing a share of the global market but are keeping a wary eye on possible export restrictions due to a spurt in domestic food grain prices.

The elevated prices have started boosting export earnings. However, exporters are being cautious about the government's domestic procurement, set to begin in April.

The unprecedented fall in shipments from Ukraine and Russia, which cumulatively make up a quarter of global exports, have led to a major demand for alternative sources of wheat.

Even as Indian traders receive a deluge of new orders from overseas, they are unsure about what the next few months would hold with regard to prices and supplies.

“Due to the war in Ukraine, the domestic price of wheat has also shot up. While exports from India are definitely set to get a significant boost, this will lead to challenges as well. The high prices would rein in export earnings, and, may, in fact, lead to export restrictions. Also, continuing difficulty in shipping remains," Hiren Kotak, Partner at Rajkot-based Prabhudas Jamanadas & Co, a major wheat exporter, said.

This was echoed by others. “Based on current estimates, we expect a 20-25 percent increase in export realisations in the coming season. However, the possibility of export restrictions remains, going forward. Let's see what happens, once public procurement begins," Sarfraz Ahmad, Managing Director of Ranchi-based Sason International, said.

The company mostly exports to the Middle East and Africa. If the current situation persists, and global supply remains low, Indian exporters would get the opportunity to expand to new markets for the first time, Ahmed said. Establishing new business linkages in new markets would not be difficult, he added.

After remaining stagnant for three years, India’s wheat exports have risen fast since FY21, buoyed by bumper harvests and active export promotion. However, most of the rise occurred even before the Ukraine crisis began on February 24.

In April-January FY22, exports crossed $1.7 billion, up from $566 million in FY21. In volume terms, India has exported 6.2 million tonnes (MT) of wheat in the same period, up from about 2 MT in 2020-21.

Domestic procurement

Given the global demand as well as increasing domestic demand, the upcoming wheat procurement season is expected to augur well for India's farmers, say traders. Procurement is set to kick off in Punjab, Haryana, Madhya Pradesh and Rajasthan in just a few weeks.

Kotak says government stocks have been rapidly utilised over the past two years as massive public distribution of food grains has been undertaken for the poor. This trend is expected to continue, he says.

In light of the economic hardships due to the pandemic, the government had extended the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till March 31, 2022, to ensure free ration to the needy.

The scheme is aimed at providing nearly 80 crore people with 5 kg free wheat or rice per person per month, along with 1 kg free whole chana per family per month. This is over and above the regular monthly entitlements under the National Food Security Act, 2013.

Food Corporation of India (FCI) data shows that the combined stockpile of wheat had risen to a record 603 lakh tonnes in July 2021. This has come down to 234.7 lakh tonnes, as of March 2022, data shows.

Meanwhile, the domestic wheat price has also shot up due to the Russia-Ukraine war and the increasing tendency of farmers to sell to traders rather than to the government.

For the current crop season (July 2021-June 2022), the government had last year hiked the minimum support price (MSP) for wheat by Rs 40 to Rs 2,015 per quintal. This is in stark contrast to the Rs 2,400-2,500 per quintal since February 8, at most major wholesale markets across the country.

"Currently, farmers are not willing to sell to the government since the procurement prices, at the mandi itself, are much higher, at about Rs 2,500," Kotak said, referring to the prices in Gujarat.

While it remains to be seen whether the government extends special provisioning of free food grains beyond the March 31 deadline, the rolling impact of the pandemic on food security for below poverty line (BPL) families has remained.

"As a result, the Centre will be looking to prioritise domestic procurement at a time when farmers are not keen on taking their crops to the government. This leaves the possibility of export restrictions being placed on wheat, after which the prices will fall and farmers would move towards the government," Kotak said.

Trade flows

Meanwhile, India may not be in a position to exploit the opportunity to export more grains to Ukraine and Russia's biggest market, the European Union, due to a plethora of issues. Apart from certain regulatory challenges, the cost of logistics and the availability of Russian wheat pose major hurdles.

"Traders say that while Ukrainian wheat may have gone off the market, Russian wheat remains present. Europe and countries in the Americas are expected to continue buying this," Mohan Jagadeshwara, Director of Chennai-based Lakshmi Grains, said.

Interestingly, the long list of sanctions by the US and its Western allies have, for the moment, left out agricultural trade, he pointed out.

Instead, traders continue to rely on traditional export destinations in India's immediate neighbourhood, such as Bangladesh and Sri Lanka, as well as South East Asian nations, like Malaysia, and the Middle East, for orders.

In the first 10 months of the current financial year, Bangladesh has bought 60 percent of India’s wheat allowed for exports, followed by Sri Lanka (8.1 percent), and the United Arab Emirates (7.3 percent).

A largely rice-producing nation, demand for imported wheat in Bangladesh has skyrocketed in recent years, making it the fifth-largest wheat importer in the world now. As of 2020-21, data from Bangladesh Bank shows India remained the largest source of wheat for Bangladesh, making up almost a quarter of total wheat imports by Dhaka.

According to the United Nations Food and Agricultural Organisation, in 2019, after China (133.6 MT) and India (103.6 MT), Russia was the third-largest wheat producer globally (74.5 million tonnes) while Ukraine ranked seventh (28.4 MT). However, large domestic demand ensured that the majority of the crop in India and China is used to feed the local populace.