Wheat markets still on the edge a fortnight after govt's export ban

Ram Lal Meena, a prominent wheat farmer in Madhya Pradesh’s Ujjain district, is saddled with almost 500 quintals of good quality grain, a fortnight after the government suddenly banned wheat exports.

He was waiting to sell the wheat at a premium of around Rs 250 per quintal above the state-mandated minimum support price of Rs 2,150 per quintal this year before the ban put paid to his hopes.

The spike in prices seen since March-end prompted Meena to ignore repeated reminders to sell to government-run procurement centres, a decision he now regrets. Since the ban, the open market price of wheat has come down from Rs 2,400 per quintal to Rs 2,100 per quintal.

On May 13, the government announced a ban on wheat exports, effective immediately, citing a sudden surge in global wheat prices and the resulting food security risks to India.

“I’m waiting for a few days for prices to move up or else I will have no option but to sell at a loss to local buyers,” Meena said over the phone from Ujjain.

Miles away, a prominent global grain merchant has been waiting for days to get a shipping vessel to berth in a western Indian port.

“This vessel arrived in the morning hours of May 14 and since then has been waiting as the authorities aren’t giving it loading permission because the deadline has passed,” the merchant said.

While some ships have been able to move in recent days, not all of them have got full clearance.

Furthermore, reports said that the grain and local merchants who had entered into export contracts are now threatening to go to courts for breach of contract as several of them have reportedly declined to honour the contracts for want of sale avenues.

Companies which were waiting to export in bulk are invoking force majeure clauses to ward off arbitration proceedings from buyers abroad. 

Across the entire value chain, India’s wheat trade has been plunged into uncertainty by the abrupt ban on exports, announced soon after the government had said it was planning to do the exact opposite, namely, boost exports.

The ban made an exception for exports where Irrevocable Letters of Credit (LCs) had been issued on or before the May 13 notification, subject to LCs being provided as evidence. Once LCs were verified, registration certificates were to be issued.

But the government is reported to have received LCs in excess of the total quantity of wheat exports contracted. This has aroused suspicion that unscrupulous players were issuing backdated LCs to be able to ship wheat out.

Sources said LCs of over 5.5 million tonnes of wheat were submitted for verification as against the estimated contracted quantity of 4.5 million tonnes.

The investigation into the excess has found that LCs of around 1 million tonnes of wheat for land transport were in order; the rest are still being looked into.

 Amid the chaos, the price of wheat over the past fortnight has not come down much in the open market and nor has official procurement jumped sharply and these were the two unstated objectives of the export ban.

After their initial downturn, wheat prices in the open markets have settled above the MSP of Rs 2,015 for slightly average quality. Farmers and traders are hopeful that buoyancy will return once normal demand and supply dynamics come into play.

Data shows that before exports were banned on May 13, India procured around 17.98 million tonnes of wheat. By May 26, this has gone up to 18.32 million tonnes as against the government target of 19.5 million tonnes. This means that since the time exports were banned, the government has managed to procure only around 3.38 lakh tonnes of additional grain for the Central pool.

If farmers are still unwilling to sell to the government, the reason, according to Rahul Chauhan, commodity analyst at iGrain India, could be that while prices have softened, they will not drop much below the MSP: wheat stocks are not that high and production too is not expected to be much above 100 million tonnes.

The United States Department of Agriculture (USDA) in its latest report said production in the 2022-23 marketing year, which started in April, was expected to be 99 million tonnes.

“In the absence of open market sales by the Food Corporation of India (which stops during the procurement months), flour mill owners will have to depend on the open market to meet their demand,” said Chauhan.

The unprecedented heatwave has been responsible for reducing the wheat output and for prompting the government, among other reasons, to ban exports.  

Agricultural economist Ashok Gulati believes the export ban could have been handled much better by the government. “The way it has been done is anti-farmer, anti-trader and ill-implemented,” said Gulati, Infosys chair professor, agriculture at ICRIER.

Gulati said that instead of an outright overnight ban, the government could have tried imposing an export tax or fixing a quota. “Something they are now doing with sugar could have been done with wheat as well to avoid this chaos and confusion,” he said.  

It is not the first time that India has suddenly banned exports of some agricultural items. Bans and export curbs have been a feature of most governments. For example, in 2006, wheat exports were banned as the actual output was much less than the government's estimate.

“It seems little has been learnt since then. Even after so many years we haven’t developed a robust system of estimating crop production in real time and don’t have any mechanism to find out the extent of privately held stocks despite new technology, drones, and artificial intelligence,” said S Mahendra Dev, director and vice chancellor of the Indira Gandhi Institute of Development Research in Mumbai.

Dev said an accurate system to estimate crop production would have helped the government’s planning and prevented ad hoc decisions which hurt people like Meena who had hoped to make a little windfall to compensate for the usual droughts, floods, and uncertain income that mark a farmer’s life.