DANIEL VAUGHAN: India’s wheat export ban sends world into food crisis

We’re halfway through May, and the stories pointing towards more global food scarcity in the coming months will not diminish. The most concerning part of this developing story is that the baby formula shortage is a precursor to far worse. The growing season is coming to an end, and we need to prepare now.

The latest news on global food scarcity comes from India. As the world’s second-largest wheat producer, many countries needed India to offset wheat exports lost from Russia and Ukraine. But as any rational leader of a country knows, if you can’t feed your people, you can’t try to give what you have to others.

India bans wheat exports.

That basic political calculation is why India is banning all wheat exports to any other country. CNBC talked to a wheat trader who said, “We were expecting curbs on exports after 2-3 months, but seems inflation numbers changed government’s mind.”

Inflation is impacting everyone, everywhere. But the driving problem for India isn’t just inflation; it is lower crop yields. AGWeb reports:

The wheat crop was damaged during India’s hottest March on record, causing yields to potentially slump by as much as 50% in some pockets of the country. The Indian government recently lowered its wheat production estimate by 5.7% to 105 million metric tons for the crop year ending June.

Those droughts, along with supply issues globally, are pushing up prices. AGWeb added, “In an online briefing, RBI governor Shaktikanta Das said inflation pressures are becoming more acute, particularly on food. Retail prices for wheat rise around 7% from a year earlier. And flour made from the grain traded rose 8% from last year, according to government data.”

Higher prices are incoming.

India made that announcement late Friday. The impact on wheat markets was immediate, even over the weekend. “The price of wheat has jumped on international markets after India banned the export of the staple cereal. The benchmark wheat index rose as much as 5.9% in Chicago, the highest it has been in two months.”

Markets reacting to the news out of India raised prices beyond the 60% price increases already on the books.

U.S. Wheat Associates President Vince Peterson said, “The bottom line for wheat-dependent importers in the short term is not necessarily a supply-shortage crisis, but rather an economic-financial crisis caused by having to pay much higher prices in the current market scenario. It is also a logistical challenge for the world to efficiently move the wheat supplies to places where they are most deficit.”

Diesel crisis makes it harder to ship food.

But it’s not just the difficulties of planting and harvesting wheat. Crop yields are the first level of difficulty in the supply chain for food. The second level is transportation.

Everyone knows about skyrocketing gas prices. When it comes to farming and transporting food products, diesel is far more vital. It’s worth noting then that diesel prices are shooting up, and shortages are appearing.

Business Insider reports, “While Americans are reeling from sticker shock at the gas pump, the diesel market is in its worst crisis since the 1970s, analysts say. The commodity fuels much of the economy, including big-rig trucks, farm equipment and industrial machinery. Prices hit a record $5.56 per gallon in the US, up 76.5% from a year ago.”

It’s not just prices, though; there are outright shortages. “Nationwide, inventories for the most commonly used diesel have dropped 43% since 2020 to the lowest since 2014. In the Central Atlantic region, inventories have crashed 78% from 2020 to the lowest in a decade. Other categories of diesel are seeing steeper drops.”

The White House is unprepared.

Between the wheat harvesting issues, diesel shortages, and issues that farmers have with train shipments, the entire food supply chain is messed up from top to bottom. The short answer for what is coming is higher prices in the United States – more inflation. The long-term story is harder to tell, but it could mean starvation for some countries. 

That brings me back to the original point of the baby formula story. The shortage of baby formula has been disrupting parents’ lives for months. But only in the past week has the White House paid attention to it. Lawsuits, supply chain shortages, and more have emptied shelves of critical formulas. 

If the formula shortage is catching the White House by surprise many months after it was already an issue, what are they going to do about a food crisis that’s been brewing for even longer? Inflation is running hot, supply chain issues persist, and new problems like drought and lower crop yields are proliferating.

The time to plan, act, and solve these issues is now. In a few more months, it’ll just be an optics game. The food crisis is now.