Wheat Export Ban: India's Extreme Heat Wave is having Ripple effects on World's Food Supply

· Wheat futures traded in Chicago rose as 6 per cent to $12.47 a bushel, their highest level in two months.

· 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

India’s heat wave is having ripple effects for the world’s food supply as the country over the weekend banned wheat exports just days after saying it was targeting record shipments this year. The scorching heat wave has curtailed output and domestic prices hit a record high.

India will now approve exports to countries that require wheat for food security needs and based on the requests of their governments. It will also allow shipments for which irrevocable letters of credit have already been issued.

Wheat prices have risen more than 60 per cent this year, driven up by disruption from Russia’s invasion of Ukraine, and after India's ban, wheat futures traded in Chicago rose as 6 per cent to $12.47 a bushel, their highest level in two months. 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.

The move to ban the export of wheat was prompted by rising inflation. Retail inflation hit an eight-year high of 7.79 per cent in April, driven by rising food and fuel prices.

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 in mid-February. Before the ban, India had aimed to ship a record 10 million tonnes this year. But at least 10 to 15 percent of the wheat crop has died for farmers in northern India, the country’s most productive region due to extreme heat, which overtaxes the plant and prevents 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, and 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.

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. Last week, India outlined its record export target, saying it would send trade delegations to countries such as Morocco, Tunisia, Indonesia and the Philippines to explore ways to boost shipments. 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.

Impact of the ban:

“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.