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No ‘silver bullets’ for impending wheat crisis after India’s export ban

It is “hard to find any silver bullets” that could bring the wheat market’s skewed supply-and-demand back into balance after the latest blow due to India’s wheat export ban, RabobankResearch grains executive Stephen P. Nicholson told Ingredients Network.

His comments follow India’s sweeping ban of wheat exports on shipments not already-backed by issued letters of credit, excluding countries which have to meet “security needs”.

The fundamental picture for the wheat market in 2022 was already “bullish,” with Russia’s invasion of the Ukraine – the world’s ‘breadbasket,’ exporting 4.5 million tonnes of agricultural produce per month before the war – and “less than favourable weather” in many wheat-growing regions, Nicholson said.

Together, this led to a multi-year decline in stocks, and expectations of tighter stocks in the new crop year, added Nicholson, the executive vice president of global sector strategist-grains and oilseeds at Rabobank’s RabobankResearch Food and Agriculture division.

FAO: India is the second biggest wheat producer after China

The latest blockade from India – a turnaround from last month, when the country’s prime minister, Narenda Modi, promised to help supply food stocks globally – is further compounding the issues.

India is the second biggest producer of wheat behind China, according to Food and Agriculture Organization of the United Nations (FAO) statistics.

The news is a particular shock for those depending on the wheat sector, who had been hopeful for at least some level of stability despite the ongoing war. The monthly FAO food index in April showed a wheat price rise of just 0.2% from March; a fact the organisation attributed partly to India’s increased support at the time.

India’s export ban is a fundamental & psychological blow

Yet now, “India’s wheat export ban was as much a fundamental blow to the market as [a] psychological blow,” Nicholson lamented.

Analysts and media alike have speculated on the reasons behind India’s U-turn, including a heatwave which sent its domestic crop prices soaring to record levels, and clashes with the World Trade Organization (WTO).

The good news, said Nicholson, is that there are still some avenues for India to export wheat, but this will likely not be in the shortfall-easing volumes the market was expecting.

“Our understanding is [that] India is still going to allow wheat export shipments for already issued letters of credit, and for countries that request wheat ‘to meet their food security needs’,” Nicholson said, but he added: “I have not seen what the criterium are to meet ‘food security needs’.” 

Meanwhile, India’s government has indicated that the decision to ban wheat exports could still be revised.

Volatile and unbalanced wheat market

Nicholson went on to warn that “when wheat prices get this high, there is increased volatility” whereby any change in market conditions – “bullish or bearish” – can create “big swings”.

Although Nicholson painted a bleak picture for bringing wheat supply and demand issues back into check, he urged the market “through price” to help bring itself back into balance.

“High prices ration supply and demand to achieve that balance.”

FAO calls to ‘refrain’ from export restrictions

Ingredients Network contacted the FAO, though a spokesperson said the agency “does not comment on the national policies of its members”.

Still, the spokesperson highlighted the FAO’s appeal to the international community in the conclusion of a presentation by its Director General, Qu Dongyu, at the Meeting of G7 Ministers of Agriculture in Stuttgart, Germany on 13 May.

It is “paramount that together we […] refrain from imposing export restrictions, which can exacerbate food price increases and undermine trust in global markets,” Dongyu urged during his presentation, among other appeals.

Beside supporting Ukraine and those directly affected by the conflict, this included calling upon the international community to ensure that “any measures taken to address the crisis do not exacerbate food insecurity, and on the contrary increase resilience”.

He asked the market to recommit to provide the Agricultural Market Information System (AMIS) – an inter-agency platform to enhance food market transparency and policy response for food security – “with the full support it needs”.

Dongyu also called for the active identification of ways to make up for potential future gaps in global markets, “working together to foster sustainable productivity increases where possible”.