NEW DELHI: In an unexpected move, the government banned the export of wheat, pushing the price to a new record.
Following a severe heat wave in most parts of the country that has reduced harvest potential, the announcement marks the government’s U-turn policy.
The ban is also seen as a measure to curb rising domestic prices. Retail inflation peaked in eight years, at 7.79 percent in April, driven by rising food and fuel prices.
A few days ago, the center said it was still targeting a record 10 million tonnes of exports, which would help offset Ukraine’s declining supply. Recently, the Ministry of Commerce announced that India would send trade missions to nine countries – Morocco, Tunisia, Indonesia, the Philippines, Thailand, Vietnam, Turkey, Algeria and Lebanon – to explore the possibility of increasing wheat shipments.
The export ban follows a disruption of global wheat stocks due to the ongoing war between Russia and Ukraine, which are the main exporters of the grain. India’s purpose has further threatened to squeeze wheat supply worldwide.
However, current export sales covered by government bonds and agreements to meet food security needs will be allowed.
As a result of the ban, futures futures in the United States and Europe rose by almost 6 percent, as the Chicago market – an international benchmark – reached its daily trading level earlier and Paris prices near a historic high.
In other words, the heat wave in India is having a detrimental effect on the world food supply.
Wheat prices have risen by more than 60 percent this year, driven by disruption from Russia’s invasion of Ukraine. India’s announcement drew harsh criticism from a group of seven industrialized agriculture ministers at a meeting in Germany, who said such measures “would exacerbate the crisis” due to rising commodity prices.
“If everyone were to impose export restrictions or close markets, it would make the crisis worse,” Cem Ozdemir, Germany’s agriculture minister, told a news conference in Stuttgart.
International buyers were tapping supplies from India, the world’s second-largest wheat producer, after exports from the Black Sea region shrank following Russia’s invasion of Ukraine in mid-February.
Prior to the ban, India had aimed to export a record 10 million tonnes this year. However, at least 10 to 15 percent of the wheat crop in the north, the most productive part of the country, was destroyed by high temperatures that put too much pressure on the plant and prevented it from forming grain.
Last month, US President Narendra Modi told US President Joe Biden that India could take action to reduce the global shortage created by Russia’s invasion of Ukraine. The two countries account for almost a third of all wheat exports worldwide.
The Food and Agriculture Organization of the United Nations has warned that the conflict could cause an additional 8 million to 13 million people to become malnourished next year.
Heat waves strike production
India’s wheat exports amounted to 8.7 million tonnes in the fiscal year ending in March, with the government forecasting a record production level – around 122 million tonnes – in 2022.
In February, the government forecast a production of 111.32 million tonnes, the sixth record harvest in a row, but it lowered the forecast to 105 million tonnes in May, as a rise in temperature in mid-March meant that the crop could instead be around 100 million tonnes or even lower. .
The heat wave is particularly severe in wheat-growing areas, but this week the temperature will rise to 44 degrees in Punjab and 42 degrees in Uttar Pradesh.
Adding to India’s heat wave problem is the need to import coal to keep up with energy and energy needs, which, again thanks to the war in Russia, are driving coal prices through the roof.
As global average temperatures continue to rise, extreme weather events such as floods and heat waves would become more and more common and devastating.
Indeed, one study has shown that rising temperatures have reduced the Indian crop by 5.3 percent between 1981 and 2019. According to Deloitte, the consequences of climate inaction over the next half century would be $ 35 trillion in economic terms. , which means 12.5 percent of India’s GDP in 2070 alone.
Deloitte’s report predicted that unrestrained climate change would turn India’s economic growth into a history of decline. It would jeopardize India’s position as a modern, global producer and service – oriented economy.
“Unrestricted climate change threatens India’s modern economic engine with 80% of GDP at risk. Services, manufacturing, retail and tourism, construction and transport will suffer the most climate-related damage in the next 50 years and by 2070, would average annual losses in value. with a GDP of more than $ 1.5 trillion a year, “the report said
“If no significant action is taken, climate change would reduce India’s economic potential by an average of 5.5 percent a year for the next 50 years. GDP will increase more than fivefold between 2050 and 2070, “said a report entitled” India’s Landmark “.
Another report by the medical journal The Lancet shows that India’s sensitivity to high temperatures increased by 15 percent from 1990 to 2019 and that India is among the top five countries where vulnerable people, both old and poor, are exposed to the most heat. It and Brazil have the highest heat-related deaths in the world and farmers are the most vulnerable.
Weaker agricultural production also leads to a reduction in farmers’ incomes, which narrows margins just as the cost of fertilizers and fuel has risen sharply. One option is to sow wheat early as the strength and frequency of hot weather will increase in the coming years.
The average temperature in India was 33.1 degrees Celsius (91.6 degrees Fahrenheit) in March, which is an all-time high. In April, the temperature in some places rose to 46 degrees Celsius. There is not likely to be a deadline in the next few days.
Challenges for farm workers
A farmer named Puneet Singh Thind in Punjab told Bloomberg News that his production on his 18-hectare farm had shrunk by 40 percent compared to the normal season, mainly due to heavy rains before and the heatwave conditions in March. He has had to incur additional costs to deal with unstable weather, such as draining excess water from the pitch.
The high heat has also led to a loss of working hours: India will lose over 100 billion working hours each year if such heat waves continue, according to a study in December 2021 published in the scientific journal Nature.
Workers’ heat exposure is associated with a variety of health effects, including premature death; workplace injuries; illness of fever-related illness; and acute kidney damage.
Indeed, thermal exposure is a potential factor in the epidemic of chronic kidney disease of unknown cause in otherwise healthy, relatively young workers in Central America, Sri Lanka, India and Egypt and other parts of the world, according to the paper, which also added pregnancy and mental health conditions.
The country has already lost about 259 billion man-hours annually between 2001 and 2020 due to the effects of humid heat, according to a study by scientists at Duke University. The loss of these production hours cost India 624 billion dollars (46 lakh crore Rs) – equivalent to almost 7 percent of GDP 2017 (GDP) .24-Jan-2022.
Effect of the ban
According to a Reuters report, a ban on the export of wheat has been imposed on 1.8 million tonnes of grain in ports, causing traders to face heavy losses due to the possibility of selling in a weaker domestic market.
Even if LC-backed exports, or a guarantee of payment, issued before May 13, can continue, but of the 2.2 million tonnes of wheat currently in port or in transit, LCs traders are for only 400,000 tons, a dealer in Mumbai with an international dealer. said a trading company.
“The impact of the wheat export ban on India’s domestic food inflation is likely to be silenced. This export ban is a preventive step and can prevent local wheat prices from rising sharply; However, as domestic wheat production is likely to be limited by the heat wave, local wheat prices could not be significantly targeted. “If India’s wheat ban leads to higher prices for substitute products such as rice, then there could be pressure on other food prices,” Nomura said in a comment.
Business analysts also believe that the ban will lower the market price of wheat, which had risen above the minimum support price (MSP) in recent months. Wheat was bought by private parties at an exchange rate over MSP which led to an increase in the market price of wheat as farmers chose to sell their wheat on the public market. Private buyers will now be forced to release stocks stored in the run-up to further price increases.
(With input from Bloomberg and Reuters)
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