Wheat prices spike following Indian export ban

In yesterday’s post, I reviewed India’s decision to restrict exports of wheat last Friday. May 15, 2022:  India bans exports of wheat, complicating efforts to address global food security problems posed by Russia’s war in Ukraine, https://currentthoughtsontrade.com/2022/05/15/india-bans-exports-of-wheat-complicating-efforts-to-address-global-food-security-problems-posed-by-russias-war-in-ukraine/. Despite India’s efforts to walk back the extent of the export ban on Saturday, world market prices for wheat shot up on May 16. See, e.g., Financial Times, Wheat prices rise almost 6% as India export ban shakes markets, May 16, 2022, https://www.ft.com/content/226f3f09-33ff-40c8-b439-08a36c515aba (“Wheat prices rose by the maximum amount allowed on Monday after India imposed a ban on exports, stoking pressure on food costs as tight global supplies roiled international markets. Futures traded in Chicago rose as much as 5.9 per cent to $12.47 a bushel, their highest level in two months.”); Bloomberg, Wheat Soars in Risk to Food Inflation as India Restricts Exports, May 15, 2022 updated May 16, 2022, https://www.bloomberg.com/news/articles/2022-05-15/world-s-food-problems-piling-up-as-india-restricts-wheat-exports (“Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are during the war in Ukraine and threatening to drive up food prices even more.”); Market Watch,  Wheat prices surge to highest in more than 2 months following India’s ban on exports, May 16, 2022, https://www.marketwatch.com/story/wheat-prices-surge-to-highest-in-more-than-two-months-following-indias-ban-on-exports-11652683058 (“India’s Commerce Secretary B.V.R. Subrahmanyam told reporters on Sunday that the country’s wheat production has dropped by 3 million tons from 106 million tons last year. Prices have surged 20% to 40% in India. However, India also said Sunday that it would continue to export to needy nations — the country mainly provides wheat to Bangladesh, Nepal and Sri Lanka. India consumes most of what it produces, exporting 7 million tons of wheat last year out of 109 million tons produced, said Subrahmanyam.”); Quartz India, India’s wheat export ban is another reality check for its lofty soft power goals, May 16, 2022, https://qz.com/india/2165965/indias-wheat-export-ban-sends-global-prices-soaring/ (“A few weeks ago, it [India] claimed it could feed the world should the World Trade Organization allow it. Later, on May 4, prime minister Narendra Modi reiterated his desire to “save the world from hunger.” After all, in the wake of the Russia-Ukraine war, India had got the perfect window to become a major wheat exporter. On May 14, however, India banned the export of wheat, largely owing to a record high domestic food inflation. Lower yield due to intense heat waves piled on the country’s agony.”).

Based on the price spike today being capped by daily exchange rate increase limits, India’s action will likely result in even higher prices in the coming days.

The U.S., EU and others are looking at ways to reduce the food insecurity flowing from the Russian war in Ukraine including looking to help Ukraine export its agricultural products through western Europe. U.S. Secretary of State Anton Blinken was in Berlin this past weekend and at a press conference noted efforts that will take place in New York this week. See U.S. Department of State, Secretary Antony J. Blinken at a Press Availability, Berlin, May 15, 2022, https://www.state.gov/secretary-antony-j-blinken-at-a-press-availability-18/ (excerpts copied below).

“We’ve marshaled a robust transatlantic response to the humanitarian crisis caused by the war – more than 6 million Ukrainians have fled their homeland.  They’ve been welcomed in countries across Europe and across the Atlantic.  The United States has provided millions of dollars in assistance to countries taking in Ukrainian citizens to help provide essential support and services.  Our countries are also coming together to address some of the broader consequences that are flowing from Russia’s aggression, like the global food shortages and rising food prices that we’re seeing.  Ukraine supplies a great deal of the world’s corn, its wheat, its oil seeds for cooking oil.

“Russia is blocking Ukraine’s ports; it’s destroying its farmland, warehouses, roads, equipment.  That’s not only striking a major blow to Ukraine’s economy, but it’s also designed to inflict pain on the rest of the world to weaken support to the Ukrainian people.  Later this week in New York, we will be convening an emergency session of the UN Security Council and also the foreign ministers to focus on the steps that we can take together to address the immediate challenges for food and to address food insecurity, as well as to look at some of the medium-term and longer-term answers to food insecurity.”

While the WTO Director-General and a significant number of WTO Members are looking for action at the WTO’s 12 Ministerial Conference starting on June 12th not only on a WTO response to the COVID-19 pandemic but also on addressing the problem of rising food insecurity, a number of major countries are having trouble not restricting agricultural exports and hence are exacerbating the challenges of food insecurity which have been worsened by the Russian war in Ukraine. Actions like that taken by India will complicate the global response to food insecurity and cause even higher world prices for core agricultural commodities.

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