For decades, the Global-Merchant model in India was built on the elegance of arbitrage. Whether it was the Spatial Arbitrage of moving wheat from the surplus North to the deficit South or the temporal arbitrage of stocking corn during harvest for lean-season sales, the math worked.

However, of late, policy volatility has decoupled Indian prices from global fundamentals, making the already unfavourable Risk-Reward equation further untenable for multinational corporations operating in India.

While India remains an agricultural powerhouse, the shift in market mechanics driven by national food security priorities has led to the global merchant model reaching a strategic crossroad.

The supremacy of domestic food security

In a nation of 1.4 billion people, the government’s primary mandate is price stability and availability. Ideally, high-integrity crop production data would aid stable policymaking, but when such data is imperfect, the government reacts through policy levers like sudden export-import calibrations or duty adjustments. When these shifts are not predictable or transparent, they create unfavorable conditions for the market players who have historically provided liquidity and infrastructure.

The predictability gap & the shifting exportable surplus

Traditional trading relies on price discovery driven by supply and demand. In India, price discovery is increasingly driven by Gazette Notifications. These sudden shifts aimed at stabilization remove the price volatility that trading desks rely on to find arbitrage. Furthermore, when domestic availability is the priority, the exportable surplus becomes a moving target, making it difficult for MNCs to rely on their in-house supply and demand balance sheets.

The overnight execution & reputational risk

The sudden imposition of export bans, as seen with wheat in 2022 and rice in 2023, creates a trapped capital scenario. For an MNC, having 100,000 tons of grain at a port that suddenly cannot be shipped is more than a loss of profit; it is a massive execution and reputational risk. It leads to expensive cross-border litigations and negatively impacts the careers of the professionals involved.

The asymmetry of information

Local players often navigate the policy rumor mill more nimbly than MNCs. By the time a global headquarters validates local information and approves risk limits for a large position, the window has often slammed shut or margins have been reduced by impending changes, such as a shift in Minimum Export Price (MEP) or a duty hike.

The strategic decoupling from global benchmarks

Arbitrage requires a predictable correlation between domestic and international prices. Over the last few years, the Indian government has successfully insulated domestic consumers from global inflationary shocks, rendering the long-term dependence of Indian grain prices on international benchmarks statistically insignificant.

MSP as a price floor, OMSS as a ceiling

The government acts as a market maker, using robust procurement as a floor and the Open Market Sale Scheme (OMSS) as a ceiling to offload subsidized stocks. This effectively caps the market in a narrow band. When the state procures nearly 30 per cent of production and releases it at non-market prices, the private trader is squeezed. It is impossible to trade arbitrage when the competitor—the State—has zero-cost-of-capital and infinite storage.

The compliance & stock limit trap

For MNCs, compliance is non-negotiable. However, the invocation of the Essential Commodities Act (ECA) to impose stock limits creates structural barriers, forcing liquidations in falling markets even if stocks were built to service legitimate contracts. Additionally, the audit burden and potential legal harassment associated with hoarding allegations (even when holding legitimate stocks, within notified limits) outweigh the typical 2-3% margins of grain trading.

High basis risk vs global parity

Multinationals typically hedge their delta on global exchanges like the CBOT. However, because Indian prices are now insulated from the world, the Basis—the difference between local cash prices and the global hedge—has become unmanageable. If global wheat prices spike while the Indian government dumps stocks to keep domestic prices low, an MNC’s global hedge loses money while its local physical stock fails to gain value. This broken hedge is a deal-breaker for global risk departments.

The rise of state-led export channels

The creation of state-backed agencies like the National Cooperative Exports Limited (NCEL) has further diminished the space for private arbitrage. These entities often receive preferential access for government-to-government (G2G) exports of restricted commodities, reducing the open market pool. Consequently, traditional price discovery is superseded by institutional pricing, making it impossible for private traders to predict export parity.

A transition that cannot be ignored

India has clearly transitioned into a food-security-first fortress where there is no room for the arbitrageur, only the state and local processors. For MNCs to remain relevant, they must shift from seeking arbitrage to participating in the value chain, though the upsides may be limited. Ultimately, the future of trade in India is about managing complexity for a limited upside and unlimited downside—a play that global trading companies simply do not prefer.

(The author is COO-Terviva He is former CEO-India, Louis Dreyfus Compnay and COFOC International)

Published on May 9, 2026