Protective measures in the food supply and global inflation

Indian wheat export ban… Since the Russia-Ukraine war started, concerns about food supply security have come to the fore, and countries have announced protective measures. Most recently, India has announced that it has stopped exporting wheat. The reason for the decision is cited as the scorching heat wave cutting production and domestic prices reaching a record high. While India is normally one of the leading countries in wheat production, it has a very small share in global exports. However, after the war in Ukraine, the country was expected to increase its market share and export more due to the negative positions and projections of Russia and Ukraine regarding grain production.

Global buyers relied on supplies from the world’s second-largest wheat producer after exports from the Black Sea region fell after Russia’s invasion of Ukraine on February 24. Before the ban, India was aiming to ship a record 10 million tons this year. Therefore, the said decision was priced sharply in wheat in the food commodity prices group. In terms of global prices, this will not be a positive development.

The state of global supply… Although India is the world’s second largest wheat producer and holds around 9% of global stocks, it has not traditionally been a major wheat exporter. Benefiting from the rise in global wheat prices after Russia’s invasion of Ukraine, India exported a record 7 million tons of wheat in the fiscal year until March, up more than 250% year-on-year. In April, India broke a record of 1.4 million tons of wheat export and in May, agreements were signed for about 1.5 million tons of export. The government said it would allow exports to countries with already issued letters of credit and to countries requesting supplies “to meet food safety needs”.

Unlike in previous years, farmers preferred to sell their wheat to private traders who offered better prices than the government’s fixed price. In February, the government estimated production of 111.32 million tons, the sixth consecutive record crop, but in May this estimate was reduced to 105 million tons.

World wheat exports… Source: FAO

Risks of export ban… According to the US Department of Agriculture, the Black Sea region accounts for approximately 26% of global wheat trade. India has recently emerged as a major wheat supplier to countries such as Egypt, Iran, Bangladesh, and Indonesia, which are heavily dependent on Ukrainian wheat for their consumption. Since the beginning of the Russian occupation, supply from the Black Sea region has stagnated, and key wheat importers are seeking cheap import sources to meet their domestic demand. India has the advantage of lower export prices compared to other major exporters such as Australia, Canada, EU and US. Bangladesh, Nepal, UAE, Sri Lanka, Yemen, Afghanistan, Qatar, Indonesia, Oman and Malaysia are the main importing countries and some of these countries are experiencing food supply shortages.

India’s wheat exports reached an all-time high of 7.85 million mt in MY 2021-22, up from 2.1 million mt a year earlier. Market participants had expected India’s wheat exports to reach around 11 million-12 million metric tons in FY2022-23.

World wheat production… Source: FAO

Conclusion? While not one of the world’s largest exporters of wheat, India’s ban could push global prices to new highs due to already tight supply and particularly strain poor consumers in Asia and Africa. The war with Russia pushed many countries to take new strategic and protectionist measures. Global food exports are an important issue, as is oil exports, which the US constantly uses strategically. Indian prices are still significantly lower than global prices. The export ban will cause the unit prices of wheat to go up, as it will reduce the suppliers’ hope of finding cheap sources. The increase in general prices will also increase concerns about inflation.

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