NEW DELHI: In a surprise move, the government banned export of wheat, thereby pushing up prices to new record highs.
Prompted by a severe heatwave in most parts of the country that has cut harvest prospects, the announcement marks a policy U-turn by the government.
The ban is also being seen as a measure to control rising domestic prices. Retail inflation hit an eight-year high of 7.79 per cent in April, driven by rising food and fuel prices.
A few days back, the Centre had said that it was still targetting record exports of 10 million tonnes that would help compensate for Ukraine's reduced supply. Recently, a commerce ministry statement had stated that India would send trade delegations to nine countries - Morocco, Tunisia, Indonesia, the Philippines, Thailand, Vietnam, Turkey, Algeria and Lebanon - to explore possibilities of boosting wheat shipments.
The ban on exports comes amid disruption in global wheat supplies due to the ongoing war between Russia and Ukraine which are major exporters of the foodgrain. India's move has further threatened to squeeze global wheat supply.
However, existing export sales covered by letters of credit and government-to-government deals to meet food security needs will be allowed.
As a result of the ban, US and European wheat futures climbed by nearly 6 per cent, with the Chicago market - the global benchmark - earlier reaching its daily trading limit and Paris prices approaching all-time highs.
In other words, India’s heat wave is having ripple effects for the world’s food supply.
Wheat prices have risen more than 60 per cent this year, driven up by disruption from Russia’s invasion of Ukraine. India's announcement drew sharp criticism from the Group of Seven industrialised nations' agriculture ministers meeting in Germany, who said that such measures "would worsen the crisis" of rising commodity prices.
"If everyone starts to impose export restrictions or to close markets, that would worsen the crisis," German agriculture minister Cem Ozdemir said at a press conference in Stuttgart.
Global buyers were banking on supplies from India, which is the world's second-biggest wheat producer after exports from the Black Sea region plunged following Russia's invasion of Ukraine around mid-February.
Before the ban, India had aimed to ship a record 10 million tonnes this year. However, at least 10 to 15 per cent of the wheat crop was destroyed in the north, the country’s most productive region, due to extreme heat conditions which overtaxed the plant and prevented it from forming any grain.
Last month, Prime Minister Narendra Modi told US President Joe Biden that India could step in to ease the global shortfall created by Russia’s invasion of Ukraine. The two countries account for nearly a third of all global wheat exports.
The United Nations Food and Agriculture Organization has warned that the conflict could leave an additional 8 million to 13 million people undernourished by next year.
Heatwave hitting production
India’s wheat exports hit 8.7 million tonnes in the fiscal year ending in March, with the government predicting record production levels — some 122 million tons — in 2022.
In February, the government forecast production of 111.32 million tonnes, the sixth straight record crop, but it cut the forecast to 105 million tonnes in May as a spike in temperatures in mid-March meant the crop could instead be around 100 million tonnes or even lower.
The heat wave is hitting wheat-growing regions particularly hard, with temperatures this week set to hit 44 degrees in Punjab, and 42 degrees in Uttar Pradesh.
What adds to India’s heatwave woes is that it has to now imported coal to keep up with its power and energy requirements which, again thanks to Russia’s war, is driving the coal prices through the roof.
As average global temperatures keep rising, extreme weather events such as flooding and heat waves would become increasingly common and devastating.
In fact one study has found that rising temperatures have reduced some Indian crop yields by 5.3 per cent between 1981 and 2019. The results of climate inaction over the next half century, according to Deloitte, would be economic losses to the tune of $35 trillion in present value terms, which implies 12.5 per cent of India's GDP in 2070 alone.
The report by Deloitte predicted that unchecked climate change would turn India economic growth story into one of decline. It would put India’s position as a modern, global manufacturer and services-based economy at risk.
"Unchecked climate change threatens India’s contemporary economic engine with 80 per cent of GDP at risk. Services, manufacturing, retail and tourism, construction, and transport will incur the greatest climate-related losses over next 50 years and by 2070, would experience an average annual loss in the value added to GDP of more than $1.5 trillion per year," the report sad
" If substantial actions are not taken, climate change, would, on average, reduce India's economic potential by 5.5 per cent a year over the next 50 years.. The losses would increase rapidly as temperatures continue to rise, with net present losses to India's GDP growing by more than five fold between 2050 and 2070," it said in a report titled 'India's turning point.'
Another report by the medical journal The Lancet shows that India's vulnerability to extreme heat increased 15 per cent from 1990 to 2019, and that India is among the top five countries where vulnerable people, like the old and the poor, have the highest exposure to heat. It and Brazil have the the highest heat-related mortality in the world, and farm workers are the most vulnerable.
Weaker agriculture production also leads to a drop in farmers’ income, squeezing margins just as costs of fertilizer and fuel have soared. One alternative is to sow wheat early as the intensity and frequency of hot weather will increase in the coming years.
India recorded an average maximum temperature of 33.1 degrees Celsius (91.6 degrees Fahrenheit) in March, an all-time high. In April, temperatures surged to 46 degrees Celsius in some places. No respite is likely in the coming days.
Challenges for farmer workers
A farmer named Puneet Singh Thind in Punjab told news agency Bloomberg that his output at his 18-acre farm has slumped 40 per cent compared with normal seasons, mainly due to heavy rains previously and the heat wave conditions in March. He’s had to incur extra costs to deal with the erratic weather, such as draining excess water from the field.
The extreme heat has also led to a loss of work hours: India is set to lose over 100 billion work hours every year if such heat waves persist, according to a December 2021 study published in science journal Nature.
Heat exposure of labourers is linked to multiple health impacts, including premature death; workplace injuries; morbidity from heat-related illness; and acute kidney damage.
Indeed, heat exposure is a potential contributing factor to an epidemic of chronic kidney disease of unknown etiology in otherwise healthy, relatively young workers in Central America, Sri Lanka, India, and Egypt, and other parts of the world, according to the paper which also added that heat exposure can raise the absorption of certain chemicals and is associated with adverse pregnancy and mental health conditions.
The country has already lost around 259 billion hours of labour annually between 2001 and 2020 due to the impacts of humid heat, according to a study from researchers at Duke University. The loss of these productive hours cost India $624 billion (Rs 46 lakh crore)–equivalent to almost 7 per cent of its 2017 gross domestic product (GDP).24-Jan-2022.
Impact of ban
According to a report by Reuters, wheat export ban has trapped some 1.8 million tonnes of grain at ports, leaving traders facing heavy losses from the prospect of selling onto a weaker domestic market.
Even though exports backed by LCs, or payment guarantees, issued before May 13 can proceed, but of the around 2.2 million tonnes of wheat currently at ports or in transit, traders have LCs for only 400,000 tonnes, a Mumbai-based dealer with a global trading firm said.
“The impact of the wheat export ban on India’s domestic food inflation is likely to be muted. This export ban is a pre-emptive step and may prevent local wheat prices from rising substantially; however, with domestic wheat production likely limited by the heatwave, local wheat prices may not moderate materially. If India’s wheat ban leads to higher price of substitutes like rice, then there could be upward pressure on other food prices,” said Nomura in a note.
Trade experts also believe the ban will cool the market prices of wheat that had soared past the minimum support price (MSP) in the recent months. Wheat was being purchased by private players at rates above the MSP that led to an increase in market prices of wheat as farmers preferred to sell their wheat in the open market. Private traders will now be forced to free up stockpiles that were held in anticipation of a further rise in prices.
(With inputs from Bloomberg and Reuters)