New Delhi, India – On the night of Could 13, India introduced a sudden ban on exports of wheat, catching practically all consumers and sellers of the grain unprepared.
One notable exception was billionaire Mukesh Ambani’s Reliance Industries, which has since entered the enterprise of buying and selling grain and shortly turned the nation’s second-largest wheat exporter within the interval after the ban.
That Friday in Could, India’s commerce ministry dominated that solely these exporters who had a financial institution assure – an irrevocable letter of credit score (LC) – issued on or earlier than that date, could be allowed to export wheat.
The bizarre situation caught the business off guard as most Indian exporters sometimes don’t use an LC, a number of merchants Al Jazeera spoke to mentioned.
One of many solely corporations that use LCs as a part of regular enterprise observe is India’s largest wheat exporter, ITC Ltd. However even ITC was caught on the again foot as a result of it had but to get LCs for future shipments, an individual aware of the event who is just not authorised to talk to the media advised Al Jazeera.
On Could 13, nonetheless, there was one other firm that had an LC prepared – Reliance Retail, which had not less than one LC for $85m issued on Could 12 for it to purchase about 250,000 metric tonnes of wheat. Al Jazeera has seen a mushy copy of the LC.
With that financial institution assure in hand, Reliance entered the grain buying and selling enterprise for the primary time.
Coverage flip-flops
The transfer to staunch wheat exports got here on the again of hovering international costs which put “in danger” India’s “meals safety”, the federal government mentioned in its notification. However the coverage flip-flop got here barely a month after Prime Minister Narendra Modi supplied to make use of Indian shares to feed the world because the Ukraine disaster shook meals provides.
The choice left each farmers and small merchants saddled with large losses. Small merchants had been buying wheat at large premiums, hoping to promote it at a revenue within the worldwide markets, and farmers had been holding on to a few of their crop, considering costs would rise additional.
However with one stroke, these plans had been shattered as virtually all the big exporters, together with ITC and Reliance, triggered the “pressure majeure” clause of their contracts and refused to take wheat at beforehand agreed-upon costs, a number of merchants advised Al Jazeera.
Sandeep Bansal, a miller in Mathura, Uttar Pradesh, is likely one of the many impacted. On the Monday after the Friday ban, he acquired an electronic mail from his purchaser ITC telling him to cease all deliveries to the corporate “with fast impact”. Quickly after, it cancelled the orders, citing “pressure majeure”. Al Jazeera has seen the emails.
“Merchants needed to settle for this,” he mentioned, including, “Wheat is a money crop – for farmer and for the dealer. You promote it and get the cost. Merchants should not able to carry for lengthy, particularly at adverse sentiment.”
Some merchants had filed for LCs on Could 13, and so they pleaded with the federal government to incorporate them in these allowed to export, however the authorities rejected the pleas, insisting that solely current LCs counted.
A handful of these affected exporters had had agreements to promote wheat to the United Arab Emirates and utilized to Emirati banks for his or her LCs on Could 13. However that was the day the UAE’s long-ailing ruler Sheikh Khalifa bin Zayed Al Nahyan died and the nation introduced a three-day suspension of labor, together with within the non-public sector.
In consequence, the LC requests solely got here by the next week and had been rejected by the Indian authorities.
“The federal government of UAE wrote to the Indian authorities saying this occurred, nevertheless it had no bearing,” one dealer, who declined to be named as a result of he didn’t need to put himself into the crosshairs of presidency scrutiny, advised Al Jazeera.
India restarted its exports round Could 22, permitting solely corporations with LCs dated Could 13 or earlier to ship wheat.
Of the two.1 million tonnes of wheat that has sailed or is within the technique of being shipped since, about 334,000 metric tonnes belongs to Reliance, second after ITC’s 727,733 metric tonnes, in keeping with port knowledge as of August 16.
Reliance and ITC didn’t reply to requests for remark.
Reliance’s rising affect
Reliance seems to have been getting ready for agricultural exports since final 12 months. The primary trace was a inventory change submitting final October the place it mentioned it had newly integrated wholly-owned subsidiary Reliance Worldwide Restricted in Abu Dhabi to undertake actions regarding, amongst others, buying and selling crude oil and agricultural commodities.
The newly integrated unit is predicted to produce each the corporate’s exports and its home enterprise, business watchers say.
The wheat export restrictions have given Reliance a chance to affect the home market as nicely, the place it buys huge portions of grain for its private-label merchandise bought throughout its chain of greater than 15,000 Reliance Retail retailers.
Final week, Reliance Retail turned out to be the best bidder to buy wheat shares from the states of Haryana and Madhya Pradesh. As per that tender, the governments had been seeking to promote 100,000 tonnes of wheat, with a minimal bid of 5,000 tonnes. Prior to now, Reliance has purchased smaller portions, business gamers say. (The Madhya Pradesh tender has since been reissued as the unique bids had been discovered to be too low.)
The entry of a giant agency like Reliance might affect the commerce in different methods, consultants say. At present, India’s wheat provide chain is disorganised and consists of many small merchants who collectively play a major function. These gamers, by the character of their dimension, often have restricted storage capability, that means they purchase small a number of the harvest and infrequently provide prime greenback.
“A brand new large participant might seize this portion as it might be capable to entice farmers with higher costs and likewise spend money on logistics, together with higher storage services,” inflicting a disruption in how the market capabilities, says Sampad Nandy, international agriculture editor at S&P International Commodity Insights.
Whereas that day remains to be a great distance away, there was a extra fast affect of the export ban, apart from permitting Reliance to take its first steps within the grain market.
Due to the farmers, merchants and stockists who held on to their wheat earlier than the export ban, anticipating to promote at excessive costs internationally, home costs have risen on the again of a scarcity out there. In August, they had been up practically 25 % month-on-month and are virtually again to the identical ranges as earlier than the ban, which induced a brief drop in value, says Nandy.
