Monday, April 18, 2011

Will Wheat Export Bans persist?


When Russia announced that it was banning wheat exports on 1st July last year after drought decimated up to a third of the crop, it sent wheat markets into the stratosphere. Along with sharply higher global prices, Australia wheat exports rose sharply, as buyers turned to alternate origins in the face of poor supplies from drought stricken Russia (the previous year thirds largest exporter).

International buyers rushed to cover positions, when concerns began to surface that the drought had severely hurt yields in Russia. Australian and other major exporting countries wheat volumes surged. Australia's exports from August 2010 – January 2011 were 8.3mmt (2.1mmt higher then the same time last year). Whilst US wheat shipments from June 2010 - February 2011 stood at 23.6 mmt, up by 6.5 mmt compared to the previous year.

Now with India (current wheat harvest estimated at 84mmt), Russia (90mmt) and Pakistan (25mmt) forecast to have bumber crops this year, will an export ban be continued? Will these countries now be aggressively targeting Southeast Asian millers, that Australian wheat has previously been finding a home over the last nine months? These governments faced with huge grain stockpiles, strengthening global prices and prospects of record output would be tempted to jump into export markets. However these countries will be thinking twice before opening the floodgates for exports of wheat.

With inflation a major issues not only in the sub continent but also across the globe, these countries will tread cautiously and probably only allow a trickle of grain out. In order to bring down domestic prices, these countries should put a ban on export of wheat and the ban should remain until the food prices for basic food items are brought at a level where the average family can afford. As soon as the ban comes into place, an immediate reduction in the prices of all consumer-based products will become apparent.

While off course it will result in a temporary loss of export profits and foreign revenues, it will immediately befit the most needy of the population. Imposing a ban will immediately release the pressure on the average family. Meanwhile, the government can concentrate on creating a long-term price mechanism apparatus and devise ways of enforcing this to ensure that long term prices do not spiral out of control in the future.

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