Indian wheat exports have been large relative to world supply this year. Photo: FAO

AFTER five consecutive years of record harvests, India’s unusually early and record-breaking heat wave has reduced wheat yields, raising questions about how the country will balance its domestic needs with ambitions to increase exports and to take advantage of supply shortages resulting from Russia’s invasion of Ukraine.

Temperatures of epic magnitude and intensity gripped many parts of India last week, pushing thermometers above 45 degrees Celsius in many parts. Last Tuesday, Rajgarh, a city in central India of more than 1.5 million people, was the hottest in the country, with the maximum temperature peaking at 46.5 degrees Celsius. Temperatures that day crossed the 45 degree mark in nine other major cities.

Dozens of people have died across the country from dehydration and heatstroke. The country’s power grid is struggling to keep up with the surge in demand, leading to blackouts lasting up to eight hours in some areas. Supplies of coal, the main raw material for the country’s electricity generation network, are dwindling. However, it is the economic cost that could reverberate far beyond the subcontinent, with wheat production set to fall dramatically and export restrictions rumored as a result.

March Heat Cut Yields

Wheat production problems actually began with a sudden rise in temperatures in mid-March, just as the crop in the major northern producing states was blooming or entering the critical grain-filling phase. India recorded its hottest March in 122 years of records, with the average maximum daily temperature across the country reaching
33.1 degrees Celsius, nearly 1.86 degrees above normal. The onset of the heat wave was so quick and intense that crops shrivelled, with low yields and severely pinched grain expected to be the result when fields are harvested.

India is the second largest producer and consumer of wheat in the world. Its largest annual wheat crop is the rabi, or winter crop, planted from October to December and harvested in the spring. In the southern and central growing regions of India, the rabi harvest has already been completed or is about to be completed. But significant concerns remain about the health of crops in northern states, the country’s most productive region, where the crop remains largely unharvested.

In mid-February, government production estimates put India on track for another record harvest of 111.32 million tonnes (Mt), up from 109.59 Mt last year. But India’s Ministry of Agriculture revised its production forecast down last week by almost 5.7%, or 6.32 Mt to 105 Mt, with further downward revisions possible once the harvest will accelerate in the north and the full impact on yields will be revealed. Many traders and market analysts are already expecting production to fall below 100 Mt, with sub-95 Mt also hinted.

Exports continue at a steady pace

And while the harvest has been fried, India has increased its wheat exports, cashing in on large stocks thanks to a series of record harvests and strong demand following the war in Ukraine. India exported a record 7.85 Mt in the year to end March, up 275% from a year earlier. As recently as mid-April, India’s food and trade minister said that wheat shipments in India’s 2022-23 marketing year (April-March) could reach a record high of 15 Mt, more than double the previous year. Traders are reported to have already sold 4Mt for shipment in 2022-23. Vessel data suggests that the first month of the new marketing year saw up to 1.8 Mt of wheat shipped from Indian ports, compared to less than 230,000 t in April 2021.

At the same time, public purchases of this harvest remain well below those of recent years, with around 17 Mt of wheat purchased at the end of April. This compares to around 28 Mt at the same time in last year’s harvest. It appears that exporters are willing to pay farmers a higher price than the government’s Minimum Support Price (MSP) scheme, which has led to slower sales and deliveries to government agents and stores. This is the very scenario that could trigger a restriction on Indian wheat exports. If exporters can buy and ship wheat with a margin, they will continue to do so until market dynamics change or the government introduces a quota or a progressive export tax to slow the pace. If production downgrades intensify, a general ban is possible.

Rumors of export restraints were rife last week, but India’s food secretary was quick to suppress the chatter, saying there was no need to curb exports as the country currently has enough supply to meet domestic demand. But what will be the impact of the higher price regime on domestic demand? The greater the rationing, the greater the potential availability for export in the new marketing year, assuming final production exceeds domestic requirements.

Such a move would add to the global wave of agricultural protectionism as governments seek to protect their own food supply amid soaring prices and growing fears of global shortages. It has the ability to exacerbate global food inflation, which is already at record highs and rising rapidly. The Indian authorities are clearly worried about such a scenario, the central bank having created a surprise last Wednesday by raising its key rate.

Neighbor Watch Policy

Fewer exports from India mean tighter global supplies; such is the strange and unique business environment we find ourselves in today. Any restrictions on Indian wheat exports would likely hurt neighboring countries such as Bangladesh and Sri Lanka the most, while several markets in the Middle East and Asia would also be affected.

Importing countries are increasingly turning to India for low-cost supplies in a tightening global market. Major wheat importers Egypt and Turkey recently approved the South Asian nation as an origin. An Indian government official said the country is committed to developing its export potential by improving port facilities, inland logistics, phytosanitary practices and grain quality controls.

But India could easily go from hero to villain very quickly. Until the reality of this season’s heatwave hit the media, India was hailed as the savior of global supply, one of the few export origins with excess inventory and the capacity to channel to market, albeit very roughly. However, with rapidly declining production, India could very quickly overstep the bounds and find itself forced to import wheat in a very unfavorable price environment.

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