India's Agronomic Sector in Jeopardy: Ban on Grain Export to Cause Havoc in Global Prices

The eyes of the world are currently on India's agricultural sector as the country has gained a lot of traction due to the export ban on cereals and grains. India, the world's second-largest producer of cereals and grains, especially wheat and rice, maize, millet, sorghum, etc., is currently in a slump that is affecting prices locally and globally. The country's agricultural sector has always been globally dominant, and when something happens in the country, it is immediately felt across the globe. The Indian government has decided to extend the ban on wheat exports in 2023, raising concerns about the republic's ability to meet the demand of neighboring economies such as Bangladesh, Saudi Arabia, Iran, and Iraq for rice, and Bangladesh, the UAE, Sri Lanka, Nepal, and Indonesia for wheat. 

In May 2022, India imposed its first-ever ban on wheat exports. In a government gazette notification during the same month, the Directorate General of Foreign Trade (DGFT) cited rising global wheat prices as the reason for the ban, which had put food security at risk not only in India but also in vulnerable countries such as Nepal and Bhutan. Following the announcement by the DGTF to lift the embargo on wheat exports in India in early 2023, the Union Minister said in April that the ban would remain in place considering the availability of food grains in India and keep inflation under control.

According to the Ministry of Commerce and Industry, the volume of wheat exported by India in 2022 was 7.21 MT, up from 2.15 MT in 2021, representing an increase of 235.67 percent, and according to the Food Corporation of India, the average wheat imported in FY2022 was 330.12 lakh MT. However, Russia's invasion of Ukraine stoked worries about supply interruptions from the Black Sea area, which produces 30% of the world's wheat exports. As a result, India, the second-largest wheat exporter at that time, saw a change in the demand for the commodity on the global market. Wheat exports have become even more appealing to Indian sellers because of the uptick in world prices and a record decline in the Indian rupee's value versus the US dollar. After five straight record harvests of wheat, mostly in India, warehouses were overflowing with the Grain, largely a result of favorable weather, the introduction of high-yielding seed varieties, and state-set support prices for growers, which has sent global wheat prices to a 14-year high.

Wheat exports declined by about 35.73 percent from 7.21 MT to 4.64 MT in 2023. Moreover, according to the Food Corporation of India, the Indian government had an average wheat reserve of 171.7 lakh MT in FY2023. Controlling rising domestic prices, exacerbated by the Russia-Ukraine conflict, and an extreme heat wave in India, which significantly reduced yields, were the main reasons for this decline. Furthermore, as of now, in July 2023, the Indian government's wheat stocks stand at 301.45 lakh MT, up from 285.10 lakh MT in July 2022, an increase of around 5 percent. However, the amount of wheat still in the Indian government's stock is down by 47.98% compared to the previous year.

In a similar vein, the Indian government has recently announced an embargo on the export of non-basmati rice on 20 July 2023, considering that it is the largest exporter of rice in the world and is pertinent to only certain varieties of non-basmati rice, including white, and broken rice. The total exports of non-basmati white rice from India were around 4.2 million in 2022-23, up from around 2.62 million last year. According to the Ministry of Commerce and Industry reports, the volume of a variety of rice exported by India in 2022 for broken rice was 3.9 MT from 2.1 MT in 2021, an increase of 89 percent, while in 2023, the export was 3.05 MT, a decrease of 22 percent. The government clarified that parboiled rice, which was 7.4 million tonnes, an increase of 20.3 percent in exports in 2022, and 7.85 million tonnes, an increase of 5.5 percent in exports in FY2023, was not part of the ban. Similarly, basmati rice exports fell by 15 percent from 4.6 million tonnes to 3.9 million tonnes in 2022 but rose by 14.8 percent to 4.56 million tonnes in 2023.

The ban was imposed in response to rising domestic prices due to the late arrival of the monsoon, which resulted in a large rain deficit until mid-June. While heavy rains during the last week of June have made up for the scarcity as they have caused significant damage to crops due to the erratic distribution of monsoon rainfall. This embargo on Grain was announced to ensure an adequate supply of non-basmati white rice in the domestic market and to cool down the price rise in the region. "Indian authorities have switched the export policy of this variety from 'free with the export duty of 20%' to 'banned' with immediate effect," said the Ministry of Consumer Affairs, Food, and Public Distribution. Considering the stock levels for rice possessed by the Food Corporation of India, it was around 257.46 lakh MT in FY2022 and 125.35 lakh MT in FY2023, which declined by 51.31 percent.

In FY23, India sold non-basmati white rice to more than 140 nations. The effect of the prohibition will be most noticeable in the adjacent nations of Nepal and Bangladesh, as well as in Madagascar, Benin, Kenya, and the Ivory Coast in Africa, Malaysia and Vietnam in Asia, and the United Arab Emirates, all of which are the greatest absolute consumers of this variety of rice. Following India's decision to ban non-basmati white rice exports in mid-July, buyers from Africa and Asia are likely to compete for rice shipments as supplies become scarcer in the coming months. The ban will reduce the availability of the staple on global markets, according to traders and analysts, and may prompt importers to look for more government-to-government deals to address shortages. According to current statistics, before India restricted broken rice exports last September to lower local prices, the nation authorized sales of almost one million metric tonnes of broken rice to Indonesia, Senegal, Gambia, Mali, and Ethiopia, according to the data. On the other hand, the present restriction does not apply to sales made between governments and is still up to them. Based on the requirements of importing nations and the local market's supply condition, a choice will be made. If the El Nino weather pattern affects its domestic rice supplies, Indonesia and the Indian government have inked a contract that might allow for the purchase of one million metric tonnes of rice. Indonesia's National Food Agency (NFA) said that deals the country has made since the end of last year are sufficient for now, while the National Food Authority in the Philippines can import rice after the consent of the president in an emergency. Nevertheless, researchers noted that Vietnam is about to begin harvesting its primary crop while India now has sufficient supplies to satisfy such demands. 

India's rice embargo is bound to affect global prices, according to ChemAnalyst analysis. This comes on the heels of the non-renewal of the Black Sea Initiative. At a time when wheat is in a state of shock, India's ban on rice exports is wreaking havoc in the global food chain. Industry experts also say that India is unlikely to ease restrictions any time soon as it battles food inflation. The rise in food prices comes at a sensitive time for the government as it prepares for a series of crucial state and national elections later this year. Rice and wheat prices are particularly sensitive in a country where low-income people rely heavily on cereals for their daily sustenance.