There are winners and losers in wars. And collateral beneficiaries too: The ongoing Russian invasion of Ukraine is happening when Indian farmers seem set to harvest a bumper rabi (winter-spring) crop. That includes not only wheat, but also mustard, maize (corn) and barley. Their prices have all firmed up, thanks to the war-induced disruption of grain trade via the Black Sea and Russian banks being blocked from the international payments system.
India has already exported over 6 million tonnes (mt) of wheat during April-January 2021-22. Amit Takkar, managing director of Conifer Commodities Pvt. Ltd, a Gurgaon-based agricultural trade consultancy, expects total shipments for the fiscal to top 7.5 mt, an all-time-high.
The same goes for rice, where non-basmati exports have touched 14 mt in April-January and surpassed the 13.1 mt record for the whole of 2020-21. “We should end up doing close to 17 mt of non-basmati and another 4 mt of basmati,” says Nitin Gupta, vice president of Olam Agro India Ltd, a leading exporter of the cereal. Even corn shipments are on course to reach 3.5-4 mt, levels last seen in 2013-14 (see table).
The Ukraine factor
The surge in Indian rice exports since 2020-21 has been driven primarily by drought in Thailand – plus diversion of free/ultra-subsidised grain whose allocations, ostensibly for the public distribution system, were substantially increased post the Covid-19 pandemic.
But the escalating Russo-Ukrainian conflict’s impact is wider and probably far more beneficial for Indian farmers. According to the US Department of Agriculture, Russia and Ukraine together account for 28.3% of the world’s wheat exports, with the corresponding shares at 19.5%, 30.8% and 78.3% for corn, barley and sunflower oil, respectively. These are projections for 2021-22 made in early-February, before the war broke out.
The war has led to port closures in the Black Sea and Russian cargo movement being largely restricted through the Caspian Sea. As supplies from these two key agri powerhouses have dried up, it has created opportunities for India to fill the gap, even if partially. Further, it has driven up global prices and realisations for Indian farmers – just when they are about to bring their harvested rabi crop to the mandis!
Mustard is selling now in Rajasthan’s major wholesale markets at Rs 6,500-6,700 per quintal, as against Rs 5,000-5,200 a year ago and the government’s minimum support price (MSP) of Rs 5,050. That’s good for growers of this oilseed also in Uttar Pradesh, Madhya Pradesh and Haryana.
Barley prices, too, are ruling at Rs 2,100-2,200 per quintal, higher than last year at this time (Rs 1,300-1,400) and its official MSP (Rs 1,635). This feed grain, which is also malted for use by breweries, is cultivated mainly in Rajasthan, UP, MP and Haryana. Maize is similarly trading at Rs 1,900-2,000 per quintal in most mandis, compared to Rs 1,200-1,300 a year back and the MSP of Rs 1,870.
The biggest beneficiary of higher maize prices would be Bihar. The state has a nearly 25% share in the country’s production of the feed grain, while even more, at roughly three-fourths, for the rabi crop marketed from late-April to May. There has been a huge jump in Indian maize exports to Vietnam and Malaysia, in addition to nearby markets such as Bangladesh, Nepal and Sri Lanka. These could further pick up with the Bihar crop’s arrival. New supplies from Brazil and Argentina won’t ready for dispatch before late-June/July, besides requiring longer voyage time to South-East Asian ports than from Visakhapatnam or Kakinada in Andhra Pradesh.
Simply put, soaring international prices have opened up export possibilities for Indian wheat, so much so that the government might not have to undertake significant MSP procurement this time. Farmers in Gujarat, Maharashtra, Karnataka or even MP and Rajasthan are likely to realise MSP-plus prices on the back of rising export demand. This will help whittle down public wheat stocks, which, at 23.4 mt on March 1, already stood below the 29.5 mt and 27.5 mt for the same date of 2021 and 2020, respectively. With lower procurement and the Pradhan Mantri Garib Kalyan Anna Yojana (free grain scheme) ending this month, there could be a corresponding reduction in the Centre’s food subsidy outgo as well.
The overall improved price sentiment may, moreover, induce farmers to plant more area under maize, cotton, soyabean, sesamum and sunflower in the upcoming kharif cropping season. That should go some way in promoting crop diversification – especially, weaning farmers away from paddy and sugarcane.
On the downside, there is also the possibility of exporters competing among themselves to ship out the maximum quantity of grain. This is evident in Indian wheat being heavily discounted and offered at $340-350 per tonne, compared to $400-450 for grain from Argentina, Australia and European Union. The rush of cargoes is also resulting in congestion at ports and vessel wait periods (time spent after arrival and berthing) going up from 1-2 days to 5-7 days. “Logistical bottlenecks are going to be a real problem in the weeks ahead,” warns Takkar.
A second, perhaps greater, risk relates to availability of fertilisers. While the Food and Agriculture Organisation’s global food price index has hit an all-time-high in February, it has also been accompanied by skyrocketing prices of fertilisers and their raw materials/intermediates. Ensuring adequate availability of urea, di-ammonium phosphate (DAP), muriate of potash (MOP) and complex fertilisers, well before the start of kharif plantings from June, would have to receive priority.
“With question mark over the supply of MOP from Russia and Belarus, the government has to talk to other countries such as Canada, Israel and Jordan. Similar expeditious effort is needed to secure supply of DAP, phosphoric acid and rock phosphate from Saudi Arabia, Morocco, Jordan, Senegal, Tunisia and Togo,” a fertiliser industry source points out.