Burden of wheat export ban

Subir Roy

Senior economic analyst

India banning wheat exports within days of looking forward to a robust export effort has attracted international criticism. German Agriculture Minister Cem Ozdemir has said if everyone starts to impose export restrictions or close markets, it will worsen the crisis. Without mincing words, he added, ‘we call on India to assume its responsibility as a G20 member’.

Minding the backyard means not letting inflation get out of hand. Minding the scene abroad means not letting down trade and security partners.

Just days before announcing the ban, the government had said it would send delegations to several countries to explore the possibility of boosting wheat exports. It planned meetings in major wheat-growing Indian states to sensitise those who are part of value chain to issues like the quality norms of importing countries so that India emerges as a reliable supplier of wheat globally.

Commerce Minister Piyush Goyal had indicated that India could export as much as 10-15 million tonnes of wheat in the current year compared to just over 7 million tonnes last year. He said Egypt had approved India as a wheat supplier and would import wheat from India after a delegation visited Indian farms. The issue had been stuck for 10 years.

There are very good reasons why India has decided to reverse its stand on wheat export in an emerging scenario. But nothing totally unforeseen can have happened so that a well-considered official policy publicly announced needed to be reversed in just a few days. Without going into the merits of the decision what needs to be asserted is that the whole matter reflects poorly on the country’s decision-making process.

The government has, of course, clarified that it is not a total ban. Country to country deals are still on. What it has tried to do is put a stop just now to unregulated exports. Regulation means more of ‘government’ under a dispensation which sought to move towards minimal action to deliver better ‘governance’.

The move has upset not just the trade but farmers too who were looking forward to continuing high prices from which they have already benefited. Farmers have been moving away from offering their produce for procurement to selling it independently. Procurement for the current rabi marketing season has so far been lower than it was in the last season. As a result, to meet current procurement targets the government has extended the procurement window. It is hopeful that this will enable it to mop up some more grain so that stocks can be built up.

As much as the policy flip-flop is unfortunate, there is good reason why the mindset changed from what prevailed ‘then’ to what it is ‘now’. The key reason why the government sought to up its export target was that there was a global shortage as a result of the Ukraine war, global prices were running high and India had ample official stocks from which additional exports could be made without affecting domestic availability. This was like the chances of a windfall gain looking India in the face.

The reason why the ban was imposed was the rapidly changing domestic price scenario. Data indicates that consumer price inflation has just hit an eight-year high. What is more, food inflation is ruling even higher than the level of the overall index. Worse, even as prices are rising, procurement is doing poorly, plunging to a 15-year low! According to a media report, till mid-month, only 18 million tonnes had been bought, compared to a record 43 million tonnes last year.

The government’s priority in the rapidly evolving situation is adequate food availability in the country. Next comes the need to help our neighbouring and vulnerable developing countries. Almost half of last year’s record exports went to Bangladesh.

One reason why food prices have shot up is the unforeseen heatwave which has hit the country, particularly the wheat-growing areas and that too at the worst possible time when the crop was maturing. Ideally, for a good crop, the temperatures should be around 30°C in March. But they crossed 35°C and 40°C by the month-end, leading to premature ripening and shrivelling of grain. Ground reports suggest that as a result, farmers will have to take a 15-20 per cent hit in the grain that they are able to bring home.

What is perhaps most serious is the way the export ban will hit farmers. Leading agriculture economist Ashok Gulati has been quoted in the media as calling the ban ‘anti-farmer’, an ‘implicit tax’ on them. Instead of a ‘knee-jerk ban’, it could have gone in for gradualism, like first setting a minimum export price or raising tariffs. In order to soften the blow for farmers who may now see the price offered by the trade fall because of the ban, a bonus could have been announced to top up the MSP.

What officialdom needs to do is to strike a balance between the needs at home and the imperatives prevailing abroad. Minding the backyard means foremost not letting inflation get out of hand. Minding the scene abroad means not letting down trade and security partners. In order to combat China, India has been moving closer towards the western orbit. India’s emerging relationship with the US, Europe and regional powers like Japan and Australia needs to be nurtured.

The western alliance seeks to maintain global stability even as it takes on Russia in Ukraine. At such a juncture, when a severe global food shortage has emerged because Ukraine is prevented from fulfilling its role as a major grain exporter, the alliance will look for ways to get over the food crisis. It is here that India’s official food stocks and ability to export are like a godsend.

The way things stand, India has to strike a balance between domestic imperatives and security imperatives involving global partners. The emerging stance needs to be explained to global partners beforehand.

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