India Restricts Exports of Wheat, Sending Prices Soaring
India prohibited wheat exports effective immediately
India's decision to halt wheat exports has been prompted by its government's decision to safeguard domestic supplies amid heat waves that threaten crop yields.
"Directing the wheat exports through government channels would not only ensure fulfilling the genuine needs of our neighbors and food-deficit countries but also control inflationary expectations," India's food ministry said in a statement.
A grains analyst at Melbourne-based Thomas Elder Markets, Andrew Whitelaw, told Bloomberg, "if this ban occurred in a normal year, the impact would be minimal, but the loss of Ukraine volumes exacerbates the issues."
The jump in wheat futures underlines just how tight global supplies are following top-producer Ukraine being knocked offline because of the war.
Higher wheat prices will continue to drive food inflation.
As Zerohedge noted:
India prohibited wheat exports effective immediately, saying the nation's food security was under threat, partly due to heatwaves that damaged yields in the country and disruptions to global grain markets in the Black Sea breadbasket region.
The notice was published in the government gazette by the Directorate of Foreign Trade on Friday.
It read, "there is a sudden spike in the global food prices of wheat arising out of many factors, as a result of which the food security of India, neighboring and other vulnerable countries is at risk."
India said it was still committed to exporting wheat to "neighboring and other vulnerable developing countries which are adversely affected by the sudden changes in the global market for wheat and are unable to access adequate wheat supplies."
The move by the world's second-largest wheat producer comes as food protectionism runs rampant worldwide as countries limit or restrict exports of food staples to rein in domestic prices.
Wheat futures are expected to jump Sunday evening and add to record-high food inflation, crushing emerging market economies the hardest.
High food prices have already resulted in inflation riots in several countries, one being the ongoing social instability unfolding in Sir Lanka.
Before the export ban, India was expected to be one of the top-10 wheat exporters for the 2022-23 crop season. Removing all (or part of) India's expected wheat exports creates a massive hole in the global supply and demand. Wheat prices will rise further, and quickly #OATT pic.twitter.com/XG7OKuyMxX— Javier Blas (@JavierBlas) May 14, 2022
The ban comes as no surprise considering India has been mulling trade restrictions this month as heatwaves have damaged wheat yields.
Wheat production this year in the South Asian nation is expected to decline after rising for a half-decade.
Other top-producing wheat countries will experience production drops by the end of the growing season and may exacerbate the fall in global wheat production.
"We now have an environment with another supplier removed from contention in global trade flows," Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets, told Bloomberg.
"The world is starting to get very short of wheat," he added.
"We should carefully map the requirement of India's domestic food security": Economist Vijay Sardana on India's wheat export ban pic.twitter.com/rnFplorzZE— NDTV (@ndtv) May 14, 2022
A Mumbai-based commodity dealer with a global trading firm told Reuters the ban is "shocking."
The trader added:
"We were expecting curbs on exports after 2-3 months, but seems inflation numbers changed the government's mind."
Add protectionism to the list of what could spark even more chaos for global food markets.
If countries continue to place export restrictions on food, the crisis could deepen.