Wholesale wheat prices rose 10.7 per cent in April from a year ago, after gaining more than 14% in the previous month. In fact, the wholesale prices of wheat have been increasing in double digits since November last year. With wheat (flour)/flour prices rising by 9.6% in the open market in April, retail inflation had begun to show its impact.
why did this happen? The simplest answer lies in the fact that India exported 7.23 million tonnes more wheat in FY2012 as compared to cumulative wheat exports of 6.78 million tonnes in seven years in FY2015-FY2011.
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Interestingly, two-thirds of last fiscal’s exports happened in the second half, reaching close to one million tonnes in January. What is the Explanation? By the second half of FY22, the chances of Russia attacking Ukraine increased dramatically. Russia is the world’s largest exporter of wheat. Ukraine comes in fifth place.
Wheat traders bet on the possibility of war and started buying it. This led to a rise in the wholesale prices of wheat.
Of course, it took a while for the central government to figure out what was going on. Wheat prices were rising at an unusually fast rate, perhaps realized only when the Food Corporation of India’s (FCI) wheat procurement this year was very low.
As of May 16, the total wheat procurement in the central pool for the fiscal 2013 rabi marketing season was around 18.1 million tonnes. This was less than half of the 37.3 million tonnes procured till May 17 in the rabi marketing season of FY12.
This is mainly because the farmers were getting better price from the traders as compared to the government. Also, due to severe heatwave in North India, wheat production may fall below the government’s estimate of 111.32 million tonnes.
Due to the ban on export, the market prices of wheat have started falling. Besides, traders who had bought wheat for export will now have to sell it in the open market. This will further bring down the prices. In the process, more farmers will sell their wheat to FCI, as they are likely to get a better price than in the open market. Considering this possibility, the government has extended the last date for wheat procurement. The date for procurement of wheat has been extended till May 31 in the four largest states of Punjab and Haryana and till June 15 in Uttar Pradesh and Madhya Pradesh.
Therefore, domestic wheat inflation will come down. This will have some impact on the reduction in overall food inflation. Also the government will have enough wheat in its godowns to run various food security programmes.
On the other hand, the move has not gone down well internationally, especially after the government suggested that Indian farmers would step up to feed the world and thereby address the global wheat shortage. While exports have been banned, the government has said it will look into specific requests for wheat from neighboring, food-deficit countries.
The Indian ban has pushed global wheat prices to record highs, making it difficult for wheat importing countries. Egypt, China and Turkey are the world’s top wheat importers.
While higher wheat prices globally will impact all importers, India’s export ban will impact Bangladesh and Sri Lanka. In FY22, Bangladesh imported 4.1 million tonnes of wheat or about 56% of Indian exports from India. Sri Lanka imported 583,123 tonnes.
All that said, one thing is not clear. If wholesale wheat inflation was in double digits since November, why couldn’t the government deal with it better? After all, by January, things were as clear as they could have been.