Rajendra Jadhav, Mayank Bhhardwaj, and Nigam Panthy

MUMBAI (Reuters). India banned exports of wheat from Saturday, days after claiming that it had set record shipments for this year. The ban was imposed because India’s scorching heat wave had reduced output and made domestic prices record-high.

According to the government, exports that are backed up by letters of credit will still be allowed. This includes countries who request supply “to satisfy their food security requirements”.

Senior government officials said that the ban on overseas shipping was not permanent and could be rescinded at a press conference.

After the February 24th invasion of Ukraine by Russia, global buyers were banking upon supplies from India’s second largest wheat producer. India had previously sworn to shipping a record number of tonnes this year, before the ban.

They stated that although there wasn’t a dramatic drop in wheat production this year due to unregulated exports, local prices rose.

Commerce secretary BVR Subrahmanyam stated to reporters in New Delhi that he did not want unregulated wheat trading or hoarding to occur.

India, although not one of the largest wheat exporters in the world, could see global prices rise given its already limited supply. The ban will also impact poor customers in Asia and Africa.

A Mumbai-based dealer representing a major global trading company said that the ban was shocking. We expected curbs on exports within two-three months. But it appears like inflation numbers have changed government’s mind.”

In April, India saw its annual retail inflation rise to an 8-year high. This boosted expectations of a more aggressive central bank raising interest rates.

India’s wheat prices have reached record levels, with some spot markets reaching 25,000 Rupees ($320/tonne) in certain spots. This is well beyond the minimum support price set by government at 20,150 rupees.

India is also seeing rising fuel, labor, transportation, and packaging prices that are driving up the cost of wheat flour.

“It was not wheat alone. The rise in overall prices raised concerns about inflation and that’s why the government had to ban wheat exports,” said another senior government official who asked not to be named as discussions about export curbs were private. “For us, it’s abundance of caution.”

Smaller Crop

India has announced its record export targets for the fiscal year beginning April 1st. It stated that it would be sending trade delegations abroad to Morocco, Indonesia, Tunisia, and Indonesia in order to find ways to improve shipments.

The government had forecast a February production of 111.32 millions tonnes. This was the sixth consecutive record crop. However, it lowered the estimate to 105million tonnes for May.

According to a New Delhi dealer who works for a global trading company, a spike in temperature in March could mean that the crop will be 100 million tonnes higher or lower.

“The government has had its procurement fall by more than half. Spot markets have much lower supply than they did last year. These are all indicators of a lower crop,” said the dealer.

India exported an unprecedented 7 million tonnes of global wheat during the financial year ending March. That’s more than 25% increase on the previous fiscal year.

Rajesh Paharia Jain (a New Delhi-based trader) stated that the rise in wheat prices was moderate and Indian prices were still significantly lower than global.

“Wheat prices have increased in parts of the nation to levels that were not even reached last year. Therefore, the decision to ban exports is only a reflexive move.”

Jain stated that India could have exported at least 10,000,000 tonnes of wheat in fiscal 2011, despite a decline in production and purchases made by government agencies such as the Food Corporation of India (FCI).

The FCI has so far bought a little over 19 million tonnes of wheat from domestic farmers, against last year’s total purchases of a record 43.34 million tonnes. The FCI buys wheat from farmers in order to support a food assistance program for the poor.

Contrary to previous years, wheat farmers prefer to sell it to private traders who offer better rates than the fixed government rate.

India exported an unprecedented 1.4 million tonnes wheat last April. In May, deals had already been signed to export 1.5 million tonnes.

The Indian ban on wheat imports will boost global wheat prices. Another dealer stated that there was no major supplier on the market right now.

($1 = 77.4700 Indian Rs.