By Abhay Dandwate, Chief Risk Officer – National Bulk Handling Corporation Pvt. Ltd.
India, one of the biggest producers of wheat and wheat flour, prohibited wheat exports last year due to a rapid and unexpected decline in output caused by a sharp increase in temperatures during the Rabi season. This move occurred despite a surge in export demand for Indian wheat, driven by already tight global supplies resulting from the Russia-Ukraine conflict.
This was not the isolated incidence of India imposing export restrictions as an effort to tame galloping domestic prices. In the middle of May last year, India imposed a ban on wheat exports. Subsequently, in July, restrictions on wheat flour exports were introduced, mandating traders to obtain permission before shipping wheat flour.
Spoilsport El Niño
As of July this year, in the wake of rising food prices, high inflation and fear of rice shortage due to El Niño disruptions as the country heads into a festive season Indian government decided to ban the export of non-basmati white rice too in order to ensure adequate domestic availability at reasonable prices. Also, Indian parboiled rice exports were levied with a 20 per cent tariff, and the minimum export price (MEP) for Basmati rice was mandated at $1,200 per tonnes, aimed at preventing non-basmati rice from being exported under the classification of basmati rice. This action was in addition to the ban imposed on the export of broken rice, declared in September last year, which remains effective even to date.
Nevertheless, in response to the protest expressed by the exporter’s lobby, pointing out that over 50 per cent of basmati rice is exported for less than $1,000 per tonnes, basmati rice exports may get a deep dent, the government has provided substantial relief by assuring to recommend a lower minimum export price (MEP) of $850 per metric tonnes.
One of the main reasons for this action was the expectation of below normal monsoon rains this year.
Global Impact
Owing to the preempted ill effects of the monsoon India, the world’s largest rice exporter, limited rice shipments, imposed a high minimum export price (MEP) on Basmati rice, imposed a 40 percent duty on onion exports, permitted duty-free imports of pulses, and may potentially ban sugar exports going forward. The government might continue with ongoing curbs on exports of rice varieties and wheat for a prolonged period.
Although India’s decision to ban rice exports was based purely on domestic fundamentals, not surprisingly it had a detrimental impact on countries heavily reliant on imports. Prima facie, there seems to be no problem with this approach as every country has its domestic compulsion to ensure supply for its own fellow country persons at an affordable price to contain the food inflation first.
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