With the heat wave withering the wheat crop in northern and central India, government ban on export of wheat could marginally ease price pressures, keeping food inflation from jumping higher, Barclays said in a report. The export ban, Barclays believes, was triggered by a tightening in domestic wheat demand-supply dynamics, which could have pushed up domestic wheat prices and aggravated food inflation further. Retail food inflation hit as high as 8.38% in April, according to the CPI data.
Last week, the government imposed a ban on wheat exports due to food security concerns, as the war in the Black Sea Region has exacerbated the cereal’s supply and increased its prices. As of early May, procurement of wheat fell by nearly half in comparison to last year after the ‘terminal heat stress’ led to loss of crop especially in states like Punjab, Haryana, and Uttar Pradesh, according to the RBI (Reserve Bank of India).
The government announced a ban on wheat exports last week necessitated by a drop in the rabi production of the cereal, relatively low level of stocks with the Food Corporation of India and high market prices of the cereal. “While the government has opened the financial year with a buffer stock of 19 million tonnes of wheat, the expected limited excess domestic supply suggests that it will be difficult for the government to achieve its stated target of reaching 10 million tonnes of wheat exports, without putting pressure on domestic prices,” Barclays said in a report.
“Because of the export ban, we think the upside potential for retail and wholesale wheat prices at the domestic level may be capped, at least temporarily,” Barclays added. A 10 per cent rise in domestic wheat prices would normally add an estimated 27 basis points to India’s headline CPI, according to Barclays estimates. In addition to its direct impact, higher wheat prices also push up the feed costs for livestock, and have marginal secondary effects on other segments, it added.
The Ministry of Commerce and Industry on Tuesday announced some relaxations on wheat export ban for traders and said that the consignments handed over and registered on or prior to May 13 will be allowed to be exported. The government announced the wheat ban on May 13. Earlier this week, The Indian Express reported that over 4,000 wheat-laden trucks were stuck in a queue outside Gujarat’s Kandla port. Four ships, half loaded with wheat and no order to sail, were also stranded at the port.