‘Panic,’ ‘Chaos’ Feared As India Bans Wheat Exports

The global macro outlook took another turn for the apocalyptic on Saturday, as the world pondered India’s decision to ban wheat exports.

“There is a sudden spike in the global price of wheat arising [from] many factors,” a bulletin dated Friday (shown below) read.

The Ministry of Commerce warned that India’s food security “is at risk,” and said a prohibition on most exports is necessary in order to “manage” the domestic situation and “support the needs of neighboring and other vulnerable countries.”

As you can see, the decree allows for exceptions on a case-by-case basis, but governments seeking to secure supply will have to request an exemption. There’s a thin line between politicization and weaponization.

India is a friendly nation, depending on who you are, how you define “friendly” and notwithstanding Narendra Modi’s noxious nationalism and checkered past. But the moratorium came as a shock considering recent official rhetoric. “[Modi] told President Biden in April that the country was ready to supply the world from its reserves,” The New York Times noted. Modi also prodded domestic producers to take advantage of an “opportunity,” and exhorted banks to bolster exporters. Wheat shipments hit a record in the year through March.

“There is no move to curb wheat exports,” Food Secretary Sudhanshu Pandey told Reuters a mere 10 days ago, in response to a Bloomberg report which tipped the forthcoming ban. “The country has sufficient stocks of wheat,” Pandey insisted.

Apparently not. Or at least not “sufficient” enough to feed the world at a time when disruptions in the Black Sea have created a dearth of supply and a worsening heat wave threatens to crimp domestic production.

That juxtaposition — between war in Europe’s breadbasket and deadly temperatures in one of the world’s most populous countries — conjures doomsday screenplays.

Writing for The Atlantic, Robinson Meyer described India’s heat wave as “mind-boggling.” “More than 1 billion people in India and Pakistan have endured daytime highs of 40 degrees Celsius, or 104 degrees Fahrenheit,” he wrote, earlier this month, noting that Delhi has seen multiple 110-degree days while Nawabshah, Pakistan, “came within half a degree of 50 degrees Celsius (122 degrees Fahrenheit), the temperature at which the human body starts to cook.”

Meyer cited an economist at the FAO, who said between 10% and 15% of Indian wheat crops may have died. The FAO’s gauge of global food prices soared to new records this year. The cereals subindex retreated slightly in April from an all-time high reached in March, but wheat prices kept rising.

“Continued blockage of ports in Ukraine and concerns over 2022 crop conditions in the United States kept prices elevated, but the price increases were moderated by larger shipments from India,” the FAO said, noting that there’s some evidence of “dampened global demand as a result of high prices.”

As I’m always keen to point out, when the subject is staple food items, “demand destruction” is a polite euphemism for food insecurity. Eamon Akil Farhat this month wrote that soaring wheat prices have forced some African nations to begin “mixing cheaper alternatives into their breads, pastries and pastas.” All of this is exacerbated by rapidly rising fertilizer costs (figure below), another side effect of the war.

Monika Tothova, the FAO economist who spoke to The Atlantic for the linked article (above), said the problem isn’t a global wheat shortage, but rather “a global wheat-in-the-wrong-places problem.”

I’ve addressed that in these pages previously. In late March, for example, I examined it through the lens of Egypt. Tothova noted that Middle Eastern and African countries were dependent on wheat from Russia and Ukraine in part because of low shipping costs. Now, those shipping costs are higher, assuming you can secure any shipments at all out of the war zone. She cited “special war-zone-insurance fees,” and warned that the burden will fall most heavily on locales already experiencing acute humanitarian disasters. She mentioned Afghanistan and, of course, Yemen, home to a singularly horrific crisis in a world replete with them.

As for India’s capacity to fill the void left by the war, the problem as of two weeks ago was one of logistics — how to get India’s surplus to the rest of the world affordably and expeditiously. Now, it sounds as though India is only prepared to ship its excess to countries where the situation is life or death.

The read-through for prices is clear enough. “Traders predicted chao[s] on the international wheat markets when they open at the start of next week as the ban would be a blow to buyers looking for wheat supplies,” the FT wrote.

One grain trader called India’s decision “an absolute bombshell” and predicted “panic” in wheat futures. Prices are, of course, sharply higher (figure above).

Inflation in India was above the upper-end of the central bank’s target band for a fourth consecutive month in April. As documented here on Thursday, the RBI is intervening in FX markets to defend the rupee, which plunged to a record low against the dollar.

The figure (below) gives you some context for what, precisely, Indian policymakers are coping with. April’s 7.79% CPI print was the highest since 2014.

The central bank will raise its inflation forecast next month. Shortages of coal and edible oils threaten to keep inflation above 6% going forward. As Bloomberg noted, that would eventually compel the RBI to “write a letter to the government… explaining why it failed to keep costs [in] check [and] lay out remedial measures.”

If all of this sounds like an unfolding disaster to you, you’re not wrong. And I’m not employing hyperbole for the sake of it. India’s wheat export ban felt like a “sum of all fears” moment. Not necessarily in the sense that, in and of itself, it could trigger a market event outside of commodities. Rather, in the sense that it encapsulated every existential threat currently bedeviling our species and the interplay between those threats. Climate change, food scarcity, the knock-on effects from war and protectionism in the name of national security, are all in play.

The ban may also prove unpopular among restive farmers, who will now lose a chance to capitalize fully on elevated prices and demand. India is home to around 10% of Earth’s grain reserves, and is the world’s second-largest wheat producer.

Earlier this month, in remarks to the Indian diaspora in Germany, Modi spoke to food security concerns in “big nations.” “At this time, India’s farmers are coming forward to feed the world,” he said.