With heatwaves in northern and central India drying up wheat crops, government bans on wheat exports could ease price pressures, which could keep food inflation soaring, Barclays said in a report. The export embargo, Barclays believes, was triggered by a tightening of demand-supply dynamics in domestic wheat, which could push up domestic wheat prices and further increase food inflation. According to CPI data, retail food inflation peaked at 8.38% in April.
Last week, the government imposed a ban on wheat exports due to food security concerns, as the war in the Black Sea region has increased the supply of cereals and increased its prices. According to RBI (Reserve Bank of India), in early May, wheat harvests fell by almost half compared to last year after ‘terminal heat stress’ caused crop damage, especially in states like Punjab, Haryana and Uttar Pradesh.
The government last week announced a ban on wheat exports, which has led to a decline in the production of cereals, a relatively low level of stocks held by the Food Corporation of India and a high market price of cereals. “Although the government has started the financial year with a buffer stock of 19 million tonnes of wheat, the expected limited additional domestic supply suggests that it will be difficult for the government to achieve the target of 10 million tonnes of wheat exports. This is putting pressure on domestic prices, “Barclays said in a report.
“Because of the export embargo, we believe that the possibility of rising domestic and retail wheat prices may be limited, at least temporarily,” Barclays added. According to Barclays estimates, a 10 per cent increase in domestic wheat prices would typically add an estimated 27 basis points to India’s headline CPI. In addition to its direct impact, higher wheat prices also increase feed costs for cattle and have marginal side effects in other sectors, it added.
On Tuesday, the Ministry of Commerce and Industry announced some easing of the wheat export ban for traders and said that handing over and exporting registered consignments would be allowed on or before May 13. The government announced a ban on wheat on May 13. Earlier this week, The Indian Express reported that more than 4,000 trucks loaded with wheat were stuck in a row outside the Kandla port in Gujarat. Four ships, half loaded with wheat and not ordered to sail, were also stranded at the port.