The government has said it will still allow exports based on already issued letters of credit and to countries that require supplies “to meet their food security needs.”
The move to ban overseas shipments was not forever and could be revised, senior government officials told a news conference.
Officials added that there has been no dramatic decline in wheat production this year, but unregulated exports have led to rising local prices.
“We do not want the wheat trade to take place in an unregulated way or to accumulate,” BVR Minister of Trade Subrahmanyam told reporters in Delhi.
Although India is not one of the world’s largest exporters of wheat, its ban could push global prices to new highs due to the already limited supply, which would hit poor consumers in Asia and Africa particularly hard.
“The ban is shocking,” said a businessman with a global business based in Mumbai. “We expected export restrictions after two to three months, but inflation figures seem to have changed the government’s view.”
Wheat prices in India have risen to record highs, reaching 25,000 rupees ($ 320) per tonne in some spot markets, well above the government’s minimum support price of Rs20,150.
Rising fuel, labor, transportation and packaging costs are also increasing the price of wheat flour in India.
“It was not wheat itself. The rise in overall prices raised concerns about inflation, so the government had to ban wheat exports,” said another senior government official, who did not want to be named because discussions about export restrictions were private. “It’s a great caution for us.”
India this week outlined its record export target for the fiscal year, which began on April 1, and said it would send trade delegations to countries such as Morocco, Tunisia, Indonesia and the Philippines to explore ways to increase supplies.
In February, the government forecast production of 111.32 million tons, the sixth record harvest in a row, but in May the forecast was reduced to 105 million tons.
The rise in temperatures in mid-March means that the harvest could instead be around 100 million tonnes or even lower, said a New Delhi-based global trading firm.
“Government purchases have fallen by more than 50%. Spot markets are receiving much lower deliveries than last year. All of these things indicate lower yields,” the dealer said.
India made money on rising global wheat prices after Russia invaded Ukraine, exporting a record 7 million tonnes of wheat in the fiscal year to March, more than 250% more than the previous year.
“The rise in wheat prices has been rather modest and Indian prices are still significantly lower than world prices,” said Rajesh Paharia Jain, a New Delhi-based trader.
“Wheat prices in some parts of the country jumped to current levels last year, so a move to ban exports is nothing more than a violent reaction.”
Despite declining production and government purchases by the State Food Corporation of India (FCI), India has been able to deliver at least 10 million tons of wheat this fiscal year, Jain said.
The FCI has so far bought just over 19 million tonnes of wheat from domestic farmers, compared to a total of 43.34 million tonnes last year. He buys grain from local farmers to run a food prosperity program for the poor.
Unlike in previous years, farmers preferred to sell wheat to private traders, who offered better prices than the government’s fixed rate.
India exported a record 1.4 million tonnes of wheat in April, and export agreements of around 1.5 million tonnes were signed in May.
“The Indian ban will raise global wheat prices. There is no big supplier on the market right now,” another seller said.